UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
(Mark one)
 ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 20212022
 ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ______________.
 
Commission file number: 001-38241

 optn-20220630_g1.jpg

OPTINOSE, INC.
(Exact name of registrant as specified in its charter)
Delaware42-1771610
(State of other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
 
1020 Stony Hill Road, Suite 300
Yardley, Pennsylvania 19067
(Address of principal executive offices, including zip code)
 
(267) 364-3500
(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, par value $0.001 per shareOPTNNasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No  ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒  No ☐
 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer
 ☐
Non-accelerated filer ☒ Smaller reporting company
 ☒
Emerging growth company☒

    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes ☐   No ☒

The number of shares of the registrant's common stock outstanding at July 30, 2021August 11, 2022 was 53,309,01283,277,504 shares.


Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS
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PART I — FINANCIAL INFORMATION
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2019
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PART II — OTHER INFORMATION
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3639
_________________________

Unless the context otherwise requires, all references in this Form 10-Q to "Optinose," "Company," "we," "us," and "our" refer to OptiNose, Inc. and its subsidiaries.
_________________________
Trademark Notice
OPTINOSE® and, XHANCE®, EDS® and EXHALATION DELIVERY SYSTEMTM are trademarks of ours in the United States. All other trademarks, trade names and service marks appearing in this Form 10-Q are the property of their respective owners. We do not intend our use or display of other companies' trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements relating to:
▪the impact of, our plans regarding and the uncertainties caused by, the COVID-19 pandemic;
▪the potential uses for and advantages of XHANCE®, our product candidatesXHANCE® and the Exhalation Delivery System (EDS) devices and related technologies;
▪our planned product development activities studies and clinical trials in pursuit of a follow-on indication for XHANCE for the treatment of chronic sinusitis;
▪our plan to submit a supplemental new drug application for XHANCE to the U.S. Food and Drug Administration (FDA) by the end of 2022;
▪the potential for XHANCE to be the first drug therapyproduct approved by the U.S. Food and Drug Administration (FDA)FDA for the treatment of chronic sinusitis;
▪the potential for XHANCE to be the standard of care for the treatment of chronic rhinosinusitis with and without nasal polyps;
▪the potential for continued XHANCE prescription and net revenue growth and potential drivers of such growth;
▪the potential for direct-to-consumer (DTC) advertising to be a future driver of XHANCE prescription growth;
▪the potential benefits of our patient affordability programs and their potential effect on XHANCE demand and financial results;
▪the potentialour ability to maintain sufficient inventory of XHANCE and for our manufacturers to timely supply XHANCE;
▪our expectation for XHANCE prescriptions to be affectedimpacted by the seasonality impact observed in the intranasal steroid (INS) market;market and the seasonal variation in patient visits with their doctor resulting in reduced XHANCE prescription demand in the third quarter;
▪the potentialour expectation for XHANCE prescriptions and average net revenue per prescription to be adversely impacted by the annual resetting of patient healthcare insurance plan deductibles and changes in individual patients' healthcare insurance coverage, both of which often occur in January;
▪our expectation that XHANCE net product revenues for the full yearresearch and development costs associated with the conduct of 2021our chronic sinusitis program will be at least $80.0 million;
▪our expectation that average net product revenues per prescription for the full year of 2021 will exceed $200 and the factors supporting such growth;significantly decrease;
▪our expectation that our total GAAP operating expenses in 20212022 will be between $137.0$129.0 million and $142.0$134.0 million and that our non-cash stock-based compensation expense will be approximately $10.0$9.0 million;
▪our expectation that top-line resultsXHANCE net product revenues for the full year of 2022 will be available frombetween $85.0 million and $92.0 million;
▪our expectation that the first of our two ongoing Phase 3b chronic sinusitis clinical trials inaverage net product revenue per prescription for XHANCE for the first quarterfull year of 2022 and that we expect to complete subject enrollment in the second clinical trial in the fourth quarter of 2021 with top-line results available in second quarter of 2022;will exceed $220;
▪our belief that based on the results of blinded interim analyses and our assumptions and estimates relating to the trial, the initial targeted statistical power will be achieved with the approximately 330 patients currently enrolled in our first chronic sinusitis trial;
▪our belief that existing cash and cash equivalents will be sufficient to maintain the minimum cash balance required under our debt facilitythe Note Purchase Agreement that we entered into with funds managed by Pharmakon Advisors,LP, the investment manager of the BioPharma Credit Funds (the Note Purchase Agreement) and to fund our operations for at least the next twelve months from the filing date of this Form 10-Q;
▪our expectation that the research and development costs associated with the conduct of our current chronic sinusitis clinical trials will significantly decrease;
▪our ability to maintain sufficient inventorycompliance with the financial covenant to achieve certain minimum trailing twelve-month consolidated XHANCE net product sales and royalties and other provisions under the Note Purchase Agreement and the consequences of XHANCE and for our manufacturersfailing to timely supply XHANCE;do so;

▪our development, timing of dataexpectations and funding plans for OPN-019 and the potential benefits of OPN-019; and
▪the accuracy of our estimates regarding our future expenses, future revenue, capital requirements, potential sources of capital and need forconsequences of failing to obtain additional financing;capital;

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as well as other statements relating to our future operations, financial performance and financial condition, prospects, strategies, objectives or other future events. Forward-looking statements appear primarily in the sections of this Form 10-Q entitled “Item 1. Financial Statements,” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by words such as “may,” “will,” “could,” “would,” “should,” “expect,” “confident,” “intend,” “plan,” “anticipate,” "target," “believe,” ���estimate,“estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” “scheduled” and similar expressions, although not all forward-looking statements contain these identifying words.
Forward-looking statements are based upon our current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other factors that could cause actual results to differ materially and adversely from those expressed or implied by such statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-Q and in our annual report on Form 10-K for the year ended December 31, 2020,2021, filed with the Securities and Exchange Commission (SEC), and in particular, the risks and uncertainties discussed therein under the caption “Risk Factors”. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. As a result, you should not place undue reliance on forward-looking statements.
Additionally, the forward-looking statements contained in this Form 10-Q represent our views only as of the date of this Form 10-Q (or any earlier date indicated in such statement). While we may update certain forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if new information becomes available in the future. However, you are advised to consult any further disclosures we make on related subjects in the reports that we file with the SEC.
The foregoing cautionary statements are intended to qualify all forward-looking statements wherever they may appear in this Form 10-Q. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
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MARKET, INDUSTRY AND OTHER DATA
This Form 10-Q contains estimates, projections, market research and other data generated by independent third parties, by third parties on our behalf and by us concerning markets for XHANCE, XHANCE market access, the INS market and prescription data. Information that is based on estimates, projections, market research or similar methodologies is inherently subject to uncertainties and actual results, events or circumstances may differ materially from results, events and circumstances reflected in this information. As a result, you are cautioned not to give undue weight to such information.


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PART I

ITEM 1. FINANCIAL STATEMENTS
OptiNose, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
 June 30, 2021December 31, 2020
 (unaudited)
Assets  
Current assets:  
Cash and cash equivalents$93,916 $144,156 
Accounts receivable, net20,715 23,394 
Inventory13,303 9,042 
Prepaid expenses and other current assets4,660 4,060 
Total current assets132,594 180,652 
Property and equipment, net1,685 2,028 
Other assets5,236 6,133 
Total assets$139,515 $188,813 
Liabilities and stockholders' equity (deficit)  
Current liabilities:  
Accounts payable$3,471 $5,489 
Accrued expenses and other current liabilities43,327 46,683 
Total current liabilities46,798 52,172 
Long-term debt, net126,043 125,202 
Other liabilities3,747 4,651 
Total liabilities176,588 182,025 
Stockholders' equity (deficit):  
Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2021 and December 31, 2020; 53,285,133 and 52,945,865 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively53 53 
Additional paid-in capital540,277 534,585 
Accumulated deficit(577,320)(527,765)
Accumulated other comprehensive loss(83)(85)
Total stockholders' equity (deficit)(37,073)6,788 
Total liabilities and stockholders' equity (deficit)$139,515 $188,813 
 June 30, 2022December 31, 2021
 (unaudited)
Assets  
Current assets:  
Cash and cash equivalents$78,264 $110,502 
Accounts receivable, net25,766 35,449 
Inventory10,973 11,847 
Prepaid expenses and other current assets3,054 2,581 
Total current assets118,057 160,379 
Property and equipment, net1,063 1,347 
Other assets3,712 4,345 
Total assets$122,832 $166,071 
Liabilities and stockholders' deficit  
Current liabilities:  
Accounts payable$9,829 $8,013 
Accrued expenses and other current liabilities45,209 51,222 
Total current liabilities55,038 59,235 
Long-term debt, net127,483 126,418 
Other liabilities1,094 2,190 
Total liabilities183,615 187,843 
Stockholders' deficit:  
Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2022 and December 31, 2021; 83,044,366 and 82,238,900 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively83 82 
Additional paid-in capital594,009 588,288 
Accumulated deficit(654,791)(610,061)
Accumulated other comprehensive loss(84)(81)
Total stockholders' deficit(60,783)(21,772)
Total liabilities and stockholders' deficit$122,832 $166,071 
See accompanying notes to unaudited interim consolidated financial statements
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OptiNose, Inc.
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 20212022 and 20202021
(in thousands, except share and per share data)
(Unaudited)
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Revenues:
Net product revenues$18,357 $10,272 $29,317 $17,334 
Licensing revenues0 0 1,000 0 
��     Total revenues18,357 10,272 30,317 17,334 
Costs and expenses:
  Cost of product sales2,425 1,700 4,165 3,056 
Research and development8,179 5,474 13,404 10,406 
Selling, general and administrative27,308 25,697 54,493 52,757 
Total operating expenses37,912 32,871 72,062 66,219 
Loss from operations(19,555)(22,599)(41,745)(48,885)
Other (income) expense:
Interest income(12)(33)(33)(365)
Interest expense4,012 3,293 7,888 6,156 
Foreign currency (gains) losses14 (7)22 32 
Gain on sale of equipment$(67)$0 $(67)$0 
Net loss$(23,502)$(25,852)$(49,555)$(54,708)
Net loss per share of common stock, basic and diluted$(0.44)$(0.56)$(0.93)$(1.19)
Weighted average common shares outstanding, basic and diluted53,120,574 45,908,104 53,059,492 45,907,133 
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
Revenues:
Net product revenues$20,582 $18,357 $35,342 $29,317 
Licensing revenues— — — 1,000 
      Total revenues20,582 18,357 35,342 30,317 
Costs and expenses:
  Cost of product sales2,143 2,425 4,157 4,165 
Research and development4,270 8,179 9,072 13,404 
Selling, general and administrative29,514 27,308 58,853 54,493 
Total operating expenses35,927 37,912 72,082 72,062 
Loss from operations(15,345)(19,555)(36,740)(41,745)
Other (income) expense:
Interest income(36)(12)(170)(33)
Interest expense4,086 4,012 8,159 7,888 
Foreign currency (gains) losses2 14 1 22 
Gain on sale of equipment— (67)— (67)
Net loss$(19,397)$(23,502)$(44,730)$(49,555)
Net loss per share of common stock, basic and diluted$(0.23)$(0.44)$(0.54)$(0.93)
Weighted average common shares outstanding, basic and diluted82,740,096 53,120,574 82,594,786 53,059,492 
See accompanying notes to unaudited interim consolidated financial statements

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OptiNose, Inc.
Consolidated Statements of Comprehensive Loss
For the Three and Six Months Ended June 30, 20212022 and 20202021
(in thousands)
(Unaudited) 
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Net loss$(23,502)$(25,852)$(49,555)$(54,708)
Other comprehensive loss:
Foreign currency translation adjustment0 (5)2 (30)
Comprehensive loss$(23,502)$(25,857)$(49,553)$(54,738)
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
Net loss$(19,397)$(23,502)$(44,730)$(49,555)
Other comprehensive loss:
Foreign currency translation adjustment(2)— (3)2 
Comprehensive loss$(19,399)$(23,502)$(44,733)$(49,553)
See accompanying notes to unaudited interim consolidated financial statements
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OptiNose, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)Deficit
(in thousands, except share data)

Six Months Ended June 30, 2021
Six Months Ended June 30, 2022Six Months Ended June 30, 2022
Stockholders' Equity (Deficit)Stockholders' Equity (Deficit)
Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Stockholders'
Equity (Deficit)		Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Stockholders'
Equity (Deficit)
SharesAmountSharesAmount
Balance at December 31, 202052,945,865 $53 $534,585 $(527,765)$(85)$6,788 
Stock compensation expense— — 2,596 — — 2,596 
Vesting of restricted stock units166,709 — — — — — 
Foreign currency translation adjustment— — — — 2 2 
Net loss— — — (26,053)— (26,053)
Balance at March 31, 202153,112,574 $53 $537,181 $(553,818)$(83)$(16,667)
Balance at December 31, 2021Balance at December 31, 202182,238,900 $82 $588,288 $(610,061)$(81)$(21,772)
Stock compensation expenseStock compensation expense— — 2,729 — — 2,729 Stock compensation expense— — 1,998 — — 1,998 
Vesting of restricted stock unitsVesting of restricted stock units37,034 — — — — — Vesting of restricted stock units262,942 — — — — — 
Issuance of common stock under employee stock purchase planIssuance of common stock under employee stock purchase plan135,525 — 367 — — 367 Issuance of common stock under employee stock purchase plan179,206 1 249 — — 250 
Foreign currency translation adjustmentForeign currency translation adjustment— — — — 0 0 Foreign currency translation adjustment— — — — (1)(1)
Net lossNet loss— — — (23,502)— (23,502)Net loss— — — (25,333)— (25,333)
Balance at June 30, 202153,285,133 $53 $540,277 $(577,320)$(83)$(37,073)
Balance at March 31, 2022Balance at March 31, 202282,681,048 $83 $590,535 $(635,394)$(82)$(44,858)
Stock compensation expenseStock compensation expense— — 3,474 — — 3,474 
Vesting of restricted stock units and exercise of optionsVesting of restricted stock units and exercise of options363,318 — — — — — 
Foreign currency translation adjustmentForeign currency translation adjustment— — — — (2)(2)
Net lossNet loss— — — (19,397)— (19,397)
Balance at June 30, 2022Balance at June 30, 202283,044,366 $83 $594,009 $(654,791)$(84)$(60,783)


Six Months Ended June 30, 2020
Six Months Ended June 30, 2021Six Months Ended June 30, 2021
Stockholders' Equity (Deficit)Stockholders' Equity (Deficit)
Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Stockholders'
Equity (Deficit)		Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Stockholders'
Equity (Deficit)
SharesAmountSharesAmount
Balance at December 31, 201945,906,162 45906162$46 $489,565 $(427,980)$(48)$61,583 
Balance at December 31, 2020Balance at December 31, 202052,945,865 $53 $534,585 $(527,765)$(85)$6,788 
Stock compensation expenseStock compensation expense— — 2,429 — — 2,429 Stock compensation expense— — 2,596 — — 2,596 
Vesting of restricted stock unitsVesting of restricted stock units166,709 — — — — — 
Foreign currency translation adjustmentForeign currency translation adjustment— — — — (25)(25)Foreign currency translation adjustment— — — — 2 2 
Net lossNet loss— — — (28,856)— (28,856)Net loss— — — (26,053)— (26,053)
Balance at March 31, 202045,906,162 $46 $491,994 $(456,836)$(73)$35,131 
Balance at March 31, 2021Balance at March 31, 202153,112,574 $53 $537,181 $(553,818)$(83)$(16,667)
Stock compensation expenseStock compensation expense— — 2,748 — — 2,748 Stock compensation expense— — 2,729 — — 2,729 
Exercise of common stock options15,806 — 71 — — 71 
Vesting of restricted stock unitsVesting of restricted stock units37,034 — — — — — 
Issuance of common stock under employee stock purchase planIssuance of common stock under employee stock purchase plan70,305 — 516 — — 516 Issuance of common stock under employee stock purchase plan135,525 — 367 — — 367 
Foreign currency translation adjustmentForeign currency translation adjustment— — — — (5)(5)Foreign currency translation adjustment— — — — — — 
Net lossNet loss— — — (25,852)— (25,852)Net loss— — — (23,502)— (23,502)
Balance at June 30, 202045,992,273 $46 $495,329 $(482,688)$(78)$12,609 
Balance at June 30, 2021Balance at June 30, 202153,285,133 $53 $540,277 $(577,320)$(83)$(37,073)

See accompanying notes to unaudited interim consolidated financial statements

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OptiNose, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 20212022 and 20202021
(in thousands)
(Unaudited) 
 Six Months Ended
June 30,
 20212020
Operating activities: 
Net loss$(49,555)$(54,708)
Adjustments to reconcile net loss to cash used in operating activities: 
Depreciation and amortization324 563 
Stock-based compensation5,343 5,232 
Amortization of debt discount and issuance costs861 570 
Gain on sale of property and equipment(67)0 
Changes in operating assets and liabilities:  
Accounts receivable2,679 (453)
Grants and other receivables0 0 
Prepaid expenses and other assets451 1,244 
Inventory(4,218)(2,620)
Accounts payable(1,900)253 
Accrued expenses and other liabilities(4,436)(1,599)
Cash used in operating activities(50,518)(51,518)
Investing activities:  
Purchases of property and equipment(115)(309)
Proceeds from sale of property and equipment105 0 
Cash used in investing activities(10)(309)
Financing activities:  
Proceeds from long-term debt0 34,447 
Repayment of long-term debt0 (4,447)
Cash paid for financing costs(91)(637)
Proceeds from issuance of common stock under employee stock purchase plan367 516 
Proceeds from the exercise of stock options0 71 
Cash provided by financing activities276 29,950 
Effects of exchange rate changes on cash and cash equivalents0 (9)
Net decrease in cash, cash equivalents and restricted cash(50,252)(21,886)
Cash, cash equivalents and restricted cash at beginning of period144,179 147,165 
Cash, cash equivalents and restricted cash at end of period$93,927 $125,279 
Supplemental disclosure of noncash activities:  
Fixed asset purchases within accounts payable and accrued expenses$23 $82 
Recognition of right-of-use assets$157 $742 
Recognition of lease liabilities$157 $742 
 Six Months Ended
June 30,
 20222021
Operating activities: 
Net loss$(44,730)$(49,555)
Adjustments to reconcile net loss to cash used in operating activities: 
Depreciation and amortization256 324 
Stock-based compensation5,444 5,343 
Amortization of debt discount and issuance costs1,065 861 
Gain on sale of property and equipment— (67)
Changes in operating assets and liabilities:  
Accounts receivable9,683 2,679 
Prepaid expenses and other assets446 451 
Inventory950 (4,218)
Accounts payable1,810 (1,900)
Accrued expenses and other liabilities(7,397)(4,436)
Cash used in operating activities(32,473)(50,518)
Investing activities:  
Purchases of property and equipment(50)(115)
Proceeds from sale of property and equipment— 105 
Cash used in investing activities(50)(10)
Financing activities:  
Cash paid for financing costs27 (91)
Proceeds from issuance of common stock under employee stock purchase plan249 367 
Cash provided by financing activities276 276 
Effects of exchange rate changes on cash and cash equivalents3 — 
Net decrease in cash, cash equivalents and restricted cash(32,244)(50,252)
Cash, cash equivalents and restricted cash at beginning of period110,515 144,179 
Cash, cash equivalents and restricted cash at end of period$78,271 $93,927 
Supplemental disclosure of noncash activities:  
Fixed asset purchases within accounts payable and accrued expenses$18 $23 
Recognition of right-of-use assets$287 $157 
Recognition of lease liabilities$287 $157 
See accompanying notes to unaudited interim consolidated financial statements
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)


1. Organization and Description of Business
OptiNose, Inc. (the Company) was incorporated in Delaware in May 2010 (inception) and has facilities in Yardley, Pennsylvania, Ewing, New Jersey, and Oslo, Norway. The Company's predecessor entity, OptiNose AS, was formed under the laws of Norway in September 2000. In 2010, OptiNose AS became a wholly-owned subsidiary of the Company as part of an internal reorganization. During 2022, the Company’s board of directors approved the liquidation of Optinose AS and Optinose UK in order to simplify corporate structure.

The Company is a specialty pharmaceutical company focused on the development and commercialization of products for patients treated by ear, nose and throat (ENT) and allergy specialists. The Company's first commercial product, XHANCE® (fluticasone propionate) nasal spray, 93 mcg, is a therapeutic utilizing its proprietary Exhalation Delivery System (EDS) device that delivers a topically-acting corticosteroid for the treatment of chronic rhinosinusitis with nasal polyps and, if approved, chronic rhinosinusitis without nasal polyps (also referred to as chronic sinusitis). XHANCE was approved by the United States (US) Food and Drug Administration (FDA) in September 2017 for the treatment of nasal polyps in patients 18 years of age or older. XHANCE was made widely available through commercial channels in April 2018.
2. Liquidity
Since inception, the Company's operations have focused on organization and staffing, business planning, raising capital, establishing an intellectual property portfolio, conducting preclinical studies and clinical trials, pursuing regulatory approvals and most recently, commercializing XHANCE in the US. As of June 30, 2021,2022, the Company had cash and cash equivalents of $93,916.$78,264. For the six months ended June 30, 2022, the Company had a net loss of $44,730 and negative cash from operations of $32,473. As of June 30, 2022, the Company had an accumulated deficit of $654,791.
The Company will likely require additional capital in the future secured through equity or debt financings, partnerships, collaborations, or other sources in order to meet its debt service obligations, including repayment, under the Company's outstanding senior secured notes, and to carry out the Company's planned development and commercial activities. The terms of the outstanding senior secured notes, including applicable covenants, are described in Note 8. If additional capital is not securedobtained when required, the Company may need to delay or curtail its operations until additional funding is received.
The Company is subject to a number of risks similar to other life sciences companies, including, but not limited to, successful discovery, development and commercialization of its products and product candidates, raising additional capital, the development by its competitors of new technological innovations, protection of proprietary technology and market acceptance of the Company's products.

3. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited interim consolidated financial statements have been prepared in conformity with US generally accepted accounting principles (GAAP). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB).
In the opinion of management, the accompanying unaudited interim financial statements include all normal and recurring adjustments (which consist primarily of accruals and estimates that impact the financial statements) considered necessary to present fairly the Company's financial position as of June 30, 20212022 and its results of operations for the three and six months ended June 30, 20212022 and 20202021 and cash flows for the six months ended June 30, 20212022 and 2020.2021. Operating results for the three and six months ended June 30, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. The unaudited interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2020 contained in the Company’s annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 3, 2021.
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Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
statements. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2021 contained in the Company’s annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 8, 2022.
Use of estimates
The preparation of the unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and reported amounts of expenses during the reporting period. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited interim consolidated financial statements, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined to be necessary.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivable. The Company generally invests its cash in deposits with high credit quality financial institutions. Additionally, the Company performs periodic evaluations of the relative credit standing of these financial institutions.
Customer and supplier concentration
The Company has exposure to credit risk in accounts receivable from sales of product. XHANCE is sold to wholesale pharmaceutical distributors and Preferred Pharmacy Networkpreferred pharmacy network (PPN) partners, who, in turn, sell XHANCE to pharmacies, hospitals and other customers. NaNFive customers represented approximately 44%40% of the Company's accounts receivable at June 30, 20212022 and 5five customers represented approximately 31%26% and 29% of the Company's net product sales for the three and six months ended June 30, 2021.2022.
The Company purchases XHANCE and its components from several third-party suppliers and manufacturing partners, certain of which are available through a single source. Although the Company could obtain each of these components from alternative third-party suppliers, it would need to qualify and obtain FDA approval for another supplier as a source for each such component. The Company has initiated the process of qualifying an alternate third-party supplier for select components of XHANCE. Alternate third party suppliers of XHANCE components are subject to qualification and approval from the FDA.
Fair value of financial instruments
At June 30, 20212022 and December 31, 2020,2021, the Company's financial instruments included cash and cash equivalents, accounts receivable, grants receivable, accounts payable and accrued expenses. The carrying amounts reported in the Company's financial statements for these instruments approximate their respective fair values because of the short-term nature of these instruments. In addition, the Company believes that at June 30, 2021,2022, the carrying value of long-term debt approximated fair value as the interest rates are reflective of the rate the Company could obtain on debt with similar terms and conditions. At June 30, 20212022 and December 31, 2020,2021, there were no financial assets or liabilities measured at fair value on a recurring basis.
Restricted cash
As of June 30, 20212022 and December 31, 2020,2021, the restricted cash balance included in prepaid expenses and other assets was $11$7 and $23,$13, respectively.
Net product revenues
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC 606), which the Company adopted on January 1, 2018. The Company recognizes revenue from XHANCE
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Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
sales at the point customers obtain control of the product, which generally occurs upon delivery. The transaction price that is recognized as revenue for products includes an estimate of variable consideration. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available. The components of the Company’s variable consideration include the following:
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Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
Provider Chargebacks and Discounts. Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These components of variable consideration are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable.
Trade Discounts and Allowances. The Company generally provides customers with discounts that include incentive fees which are explicitly stated in the Company’s contracts. These discounts are recorded as a reduction of revenue and accounts receivable in the period in which the related product revenue is recognized.
Product Returns. Consistent with industry practice, the Company has a product returns policy that provides customers a right of return for product purchased within a specified period prior to and subsequent to the product’s expiration date. The Company estimates the amount of its product that may be returned and presents this amount as a reduction of revenue in the period the related product revenue is recognized, in addition to establishing a liability. The Company considers several factors in the estimation process, including expiration dates of product shipped to customers, inventory levels within the distribution channel, product shelf life, prescription trends and other relevant factors.
Government Rebates. The Company is subject to discount obligations under state Medicaid programs and Medicare. Reserves related to these discount obligations are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. The Company’s liability for these rebates consists of estimates of claims for the current quarter and estimated future claims that will be made for product that has been recognized as revenue but remains in the distribution channel inventories at the end of the reporting period.
Payor Rebates. The Company contracts with certain third-party payors, primarily health insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its products. These rebates are based on contractual percentages applied to the amount of product prescribed to patients who are covered by the plan or the organization with which it contracts. The Company estimates these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.
Patient Assistance. Other programs that the Company offers include voluntary co-pay patient assistance programs intended to provide financial assistance to eligible patients with prescription drug co-payments required by payors and coupon programs for cash payors. The calculation of the current liability for this assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel inventories at the end of each reporting period.
Distribution and Other Fees. The Company pays distribution and other fees to certain customers in connection with the sales of its products. The Company records distribution and other fees paid to its customers as a reduction of revenue, unless the payment is for a distinct good or service from the customer and the Company can reasonably estimate the fair value of the goods or services received. If both conditions are met, the Company records the consideration paid to the customer as an operating expense. These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.
Licensing revenues
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Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
The Company has license agreements with Inexia Limited (Inexia)Centessa Pharmaceuticals (Centessa) and Currax Pharmaceuticals LLC (Currax). These license agreements provide for exclusive licensed rights to certain intellectual property, a non-refundable up-front payment, potential milestone payment(s) and potential royalty payment(s). The Company analyzed the performance obligations under the license agreements, the consideration received to date and the consideration the Company could receive in the future as part of its analysis related to ASC 606. The Company recognized $1,000 as licensing revenue from Currax during the six months ended June 30, 2021 and is not eligible to receive any further payments under the Currax license agreement other than reimbursement for certain expenses.
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Notes The Company does not expect to Unaudited Interim Consolidated Financial Statements (Continued)
(any receive license revenues under the Centessa agreement in thousands, except share and per share data)
the near term.
Net income (loss) per common share
Basic net income (loss) per common share is determined by dividing net income (loss) applicable to Company common stock (Common Stock) holders by the weighted average common shares outstanding during the period. For the three and six months ended June 30, 20212022 and 2020,2021, the outstanding Common Stock options, Restricted Stock units, Common Stock warrants and shares to be issued under the Company's 2017 Employee Stock Purchase Plan have been excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, the weighted average shares used to calculate both basic and diluted net loss per share are the same.
Diluted net loss per common share for the periods presented do not reflect the following potential common shares, as the effect would be antidilutive:
 June 30,
 20212020
Stock options7,980,424 8,385,831 
Restricted stock units2,198,766 1,274,354 
Common stock warrants810,357 2,677,188 
Total10,989,547 12,337,373 
 June 30,
 20222021
Stock options10,235,914 7,980,424 
Restricted stock units2,201,683 2,198,766 
Common stock warrants2,500,000 810,357 
Employee stock purchase plan208,138 — 
Total15,145,735 10,989,547 
Income taxes
In accordance with ASC 270, Interim Reporting, and ASC 740, Income Taxes, the Company is required at the end of each interim period to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. For the three and six months ended June 30, 20212022 and 2020,2021, the Company recorded no tax expense or benefit due to the expected current year loss and its historical losses. As of June 30, 20212022 and December 31, 2020,2021, the Company concluded that a full valuation allowance would be necessary for all of its net deferred tax assets. The Company had no amounts recorded for uncertain tax positions, interest or penalties in the accompanying consolidated financial statements.
Recent accounting pronouncements
In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors—Certain leases with variable payments. ASU No. 2021-05 is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its results of operations, financial position and cash flows and related disclosures.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU No. 2021-04 requires that issuers clarify and reduce diversity in accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its results of operations, financial position and cash flows and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminated certain exceptions and changed guidance on other matters. The exceptions relate to the allocation of income taxes in separate company financial statements, tax accounting for equity method investments and accounting for income taxes when the interim period year-to-date loss exceeds the anticipated full year loss. Changes relate to the accounting for franchise taxes that are income-based and non-income-based, determining if a step up in tax basis is part of a business combination or if it is a separate transaction, when enacted tax law changes should be included in the annual effective tax rate computation, and the
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Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
allocation of taxes in separate company financial statements to a legal entity that is not subject to income tax. The Company has adopted ASU 2019-12 in the first quarter of 2021, and there was no significant impact.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-03, in conjunction with ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 for companies deemed to be smaller reporting companies as of November 15, 2019, with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its results of operations, financial position and cash flows and related disclosures.
4. Inventory
Inventory consisted of the following:
June 30, 2021December 31, 2020
Raw materials$3,336 $2,669 
Work-in-process3,500 2,676 
Finished goods6,467 3,697 
  Total inventory$13,303 $9,042 
June 30, 2022December 31, 2021
Raw materials$2,508 $3,504 
Work-in-process5,989 4,816 
Finished goods2,476 3,527 
  Total inventory$10,973 $11,847 
Inventories are stated at the lower of cost or net realizable value, as determined on a first-in, first-out, basis.
5. Property and Equipment
Property and equipment, net, consisted of the following:
 June 30, 2021December 31, 2020
Computer equipment and software$1,144 $1,128 
Furniture and fixtures366 366 
Machinery and equipment3,266 3,440 
Leasehold improvements609 609 
Construction in process216 271 
5,601 5,814 
Less: accumulated depreciation(3,916)(3,786)
$1,685 $2,028 
Depreciation expense was $119 and $254 for the three months ended June 30, 2021 and 2020, respectively. Depreciation expense was $323 and $562 for the six months ended June 30, 2021 and 2020, respectively. In addition, depreciation expense of $520 and $16 was charged to inventory and prepaid expenses and other assets, respectively, as of June 30, 2021, which represents depreciation expense related to equipment involved in the manufacturing process.
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Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

5. Property and Equipment
Property and equipment, net, consisted of the following:
 June 30, 2022December 31, 2021
Computer equipment and software$1,199 $1,173 
Furniture and fixtures366 366 
Machinery and equipment3,061 3,367 
Leasehold improvements609 609 
Construction in process115 115 
5,350 5,630 
Less: accumulated depreciation(4,287)(4,283)
$1,063 $1,347 
Depreciation expense was $137 and $119 for the three months ended June 30, 2022 and 2021, respectively. Depreciation expense was $255 and $323 for the six months ended June 30, 2022 and 2021, respectively. In addition, depreciation expense of $651 and $10 was charged to inventory and prepaid expenses and other assets, respectively, as of June 30, 2022, which represents depreciation expense related to equipment involved in the manufacturing process.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of:
 June 30, 2021December 31, 2020
Accrued expenses:
   Selling, general and administrative expenses$7,678 $7,385 
   Research and development expenses6,862 5,202 
   Payroll expenses5,694 9,063 
   Product revenue allowances18,339 20,917 
   Other2,630 2,008 
      Total accrued expenses41,203 44,575 
Other current liabilities:
   Lease liability2,124 2,108 
      Total other current liabilities2,124 2,108 
      Total accrued expenses and other current liabilities$43,327 $46,683 
 June 30, 2022December 31, 2021
Accrued expenses:
   Selling, general and administrative expenses$7,016 $6,124 
   Research and development expenses3,086 6,857 
   Payroll expenses7,332 7,569 
   Product revenue allowances23,126 26,521 
   Other2,293 2,057 
      Total accrued expenses42,853 49,128 
Other current liabilities:
   Lease liability2,356 2,094 
      Total other current liabilities2,356 2,094 
      Total accrued expenses and other current liabilities$45,209 $51,222 

7. Licensing Revenue
Currax License Agreement
On September 25, 2019, OptiNose AS entered into a license agreement (the Currax License Agreement) with Currax pursuant to which the Company granted Currax a license to certain intellectual property for the commercialization of Onzetra Xsail® in the US, Canada and Mexico.
Under the terms of the Currax License Agreement, Currax paid the Company an upfront payment of $3,730, which was recognized as license revenue during the year ended December 31, 2019. On December 29, 2020, the Company received an additional $750 upon the expiration of the escrow that was established for a limited period to cover potential indemnification obligations. In addition, in January 2021 the Company received a $1,000 milestone payment in connection with the achievement of a specified regulatory milestone. The Company does not expectis no longer eligible to receive any further payments from Currax under the terms of the Currax License Agreement other than reimbursement for certain expenses.
8. Long-term Debt
On September 12, 2019 (the Closing Date), the Company entered into a Note Purchase Agreement (the Pharmakon Senior Secured Notes) with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of the BioPharma Credit funds (BioPharma). The Pharmakon Senior Secured Notes provide the Company with $130,000 in debt financing, of which $80,000 was issued on the Closing Date, $30,000 was issued on February 13, 2020 (the First Delayed Draw Notes) after achieving the $9,000 XHANCE net sales and royalties threshold for the quarter ended December 31, 2019 and $20,000 was issued on December 1, 2020 after achieving the $14,500 XHANCE net sales and royalties threshold for the quarter ended September 30, 2020.
On August 13, 2020, the Company entered into a letter agreement (the Pharmakon Letter Agreement) to the Pharmakon Senior Secured Notes. The Pharmakon Letter Agreement provided the Company with the option to issue an additional $20,000 of Pharmakon Senior Secured Notes, subject to the Company achieving XHANCE net sales and royalties for the quarter ended June 30, 2021 of at least $26,000 and certain other conditions. As consideration for the Pharmakon Letter Agreement, the Company issued 44,643 shares of Common Stock to Pharmakon. The aggregate fair value of $250 was recorded as debt issuance costs and is being amortized to interest expense over the term of the Pharmakon Senior Notes. As of June 30, 2021, the Company is no longer eligible for the $20,000 additional Pharmakon Senior Secured Notes as the requisite conditions were not satisfied.
On March 2, 2021, the Company entered into an amendment to the Pharmakon Senior Secured Notes. The amendment revised certain minimum trailing twelve-month consolidated XHANCE net sales and royalties the
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Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

Company is required to achieve. As consideration for the amendment,8. Long-term Debt
On September 12, 2019 (the Closing Date), the Company will pay an amendment feeentered into a Note Purchase Agreement with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of $1,300 uponBioPharma Credit Funds (BioPharma). The Note Purchase Agreement provided the earlierIssuer with $130,000 in debt financing, of the prepaymentwhich $80,000 of the Pharmakon Senior Secured Notes was issued on the Closing Date, $30,000 was issued on February 13, 2020 after achieving the $9,000 consolidated XHANCE net sales and royalties threshold for the Maturity Date (defined below). The amendment feequarter ended December 31, 2019 and $20,000 was recorded as debt issuance costsissued on December 1, 2020 after achieving the $14,500 consolidated XHANCE net sales and is being amortized to interest expense overroyalties threshold for the term of the Pharmakon Senior Secured Notes.quarter ended September 30, 2020.
The Pharmakon Senior Secured Notes bear interest at a fixed per annum rate of 10.75% per annum and are scheduled to mature on September 12, 2024 (the Maturity Date). The Company is required to makePrincipal repayments will commence on September 15, 2023, with five equal quarterly installments of principal and interest payments untilthrough the Maturity Date. The Company is also required to make principal payments, which are payable in 8 equal quarterly installments beginning on December 15, 2022 and continuing until the Maturity Date; provided that the Company may, at its election, postpone any such principal payment until the Maturity Date if, as of the applicable payment date, certain trailing four-quarter consolidated XHANCE net sales and royalties thresholds have been achieved.
In conjunction with the Pharmakon Senior Secured Notes, the Company paid an upfront fee of $1,125 on the Closing Date and issued warrants to purchase an aggregate of 810,357 shares of Common Stock at an exercise price equal to $6.72 per share, which expire on September 12, 2022. The upfront fees were recorded as debt discount at issuance and are being amortized to interest expense over the five year term of the loan. The Company also incurred $6,514 in debt issuance costs, including $2,404 related to the fair value of the warrants which are also being amortized to interest expense over the term of the Pharmakon Senior Secured Notes.
The CompanyIssuer is required to repay the Pharmakon Senior Secured Notes in full upon the occurrence of a change of control (as defined in the Note Purchase Agreement). In addition, the CompanyIssuer may make voluntary prepayments in whole or in part. All mandatory and voluntary prepayments are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs prior to the third anniversary of the Closing Date, an amount equal to 2% of the principal prepaid, (ii) if prepayment occurs on or after the third anniversary of the Closing Date but prior to the fourth anniversary of the Closing Date, an amount equal to 1% of the principal prepaid, and (iii) if prepayment occurs on or after the fourth anniversary of the Closing Date, no prepayment premium is required. The Company is also required to pay a "make-whole" amount in respect of any principal paymentsprepayments (whether mandatory or voluntary) made prior to the 30-month anniversary of the issuanceclosing of the applicable note,Company's underwritten public offering on November 18, 2021, in an amount equal to the interest that would have accrued through the 30-month anniversary in respect of such note but for such principal payment.prepayment, provided that in the case of any prepayment made prior to the 15-month anniversary, the Company will not be required to pay a "make-whole" amount in excess of an amount equal to the interest that would have accrued through the 15-month anniversary but for such principal prepayment.
The Pharmakon Senior Secured Notes are secured by a pledge of substantially all of the Company's assets of the Issuer and the Guarantors and the Note Purchase Agreement contains affirmative and negative covenants customary for financings of this type, including limitations on the Company’s and its subsidiaries’ ability, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, repay junior indebtedness and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Pharmakon Senior Secured Notes containNote Purchase Agreement contains financial covenants requiring the Company to maintain at all times certain minimum trailing twelve-month consolidated XHANCE net sales and royalties, tested on a quarterly basis, and at least $30,000 of cash and cash equivalents. As of June 30, 2021,2022, the Company was in compliance with the covenants.
The Note Purchase Agreement also includes events of default customary for financings of this type, in certain cases subject to customary periods to cure, following which BioPharma may accelerate all amounts outstanding under the notes.Pharmakon Senior Secured Notes.
The Company recorded interest expense of $4,012$4,086 and $3,293$4,012 during the three months ended June 30, 20212022 and 2020,2021, respectively, and $7,888$8,159 and $6,156$7,888 during the six months ended June 30, 20212022 and 2020,2021, respectively. Interest expense included total coupon interest and the amortization of debt issuance costs.
The long-term debt balance is comprised of the following:
June 30, 2022December 31, 2021
Face amount$130,000 $130,000 
Front end fees(559)(717)
Debt issuance costs(3,258)(4,165)
Back end fees1,300 1,300 
Long-term debt, net$127,483 $126,418 
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Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)


9. Employee Benefit Plans
For US employees, the Company maintains a defined contribution 401(k) retirement plan. As of June 30, 2022, $91 was recorded in accrued liabilities related to the Company match. The Company's contributions are made in cash.
For foreign employees, the Company maintains a defined contribution pension plan which meets the statutory requirements of the jurisdiction. The Company incurred costs related to the pension plan of $2 and $1 for the three months ended June 30, 2022 and 2021, respectively, and $3 and $3 for the six months ended June 30, 2022 and 2021, respectively.

10. Stockholders' Equity
Common stock warrants
On November 18, 2021, in conjunction with the Second Amendment to the Note Purchase Agreement (the Second Amendment), the Company issued warrants to purchase an aggregate of 2,500,000 shares of Common Stock at an exercise price of $1.60 and fair value of $2,009. Upon execution of the Second Amendment, warrants previously issued of 810,357 at a share price of $6.72 which were set to expire on September 12, 2022, were cancelled.
As of June 30, 2022, the Company had the following warrants outstanding to purchase shares of Common Stock:
Number of SharesExercise Price Per ShareExpiration Date
2,500,000$1.60November 18, 2024


11. Stock-based Compensation
The Company recorded stock-based compensation expense related to stock options and shares issued under the Company's 2010 Stock Incentive Plan and 2017 Employee Stock Purchase Plan (2017 Plan) in the following expense categories of its accompanying consolidated statements of operations for the three and six months ended June 30, 2022 and 2021:
Three Months Ended
June 30,		Six Months Ended
June 30,
 2022202120222021
Cost of product sales$7 $6 $20 $17 
Research and development233 286 429 567 
General and administrative3,204 2,441 4,995 4,759 
$3,444 $2,733 $5,444 $5,343 
In addition, stock-based compensation expense of $85 and $1 was charged to inventory and prepaid expenses and other assets, respectively, during the six months ended June 30, 2022, which represents the total stock-based compensation expense incurred related to employees involved in the manufacturing process of finished goods and samples during the period.
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Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

June 30, 2021December 31, 2020
Face amount$130,000 $130,000 
Front end fees(775)(855)
Debt issuance costs(4,482)(3,943)
Back end fees1,300 0 
Long-term debt, net$126,043 $125,202 

9. Employee Benefit Plans
For US employees, the Company maintains a defined contribution 401(k) retirement plan. As of June 30, 2021, approximately $118 was recorded in accrued liabilities related to the Company match. The Company's contributions are made in cash.
For Norway and UK employees, the Company maintains defined contribution pension plans which meet the statutory requirements of those jurisdictions. The Company incurred costs related to the pension plans of $1 and $5 for the three months ended June 30, 2021 and 2020, respectively, and $3 and $10 for the six months ended June 30, 2021 and 2020, respectively.
10. Stockholders' Equity
As of June 30, 2021, the Company had the following warrants outstanding to purchase shares of Common Stock:
Number of SharesExercise Price Per ShareExpiration Date
810,357 $6.72 September 12, 2022

11. Stock-based Compensation
The Company recorded stock-based compensation expense related to stock options and shares issued under the Company's 2017 Employee Stock Purchase Plan (2017 Plan) in the following expense categories of its accompanying consolidated statements of operations for the three and six months ended June 30, 2021 and 2020:
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Cost of product sales$6 $34 $17 $88 
Research and development286 331 567 588 
General and administrative2,441 2,407 4,759 4,556 
$2,733 $2,772 $5,343 $5,232 
In addition, stock-based compensation expense of $90 and $2 was charged to inventory and prepaid expenses and other assets, respectively, during the six months ended June 30, 2021, which represents the total stock-based compensation expense incurred related to employees involved in the manufacturing process of finished goods and samples during the period.
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Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

Stock Options
The Company issues stock-based awards pursuant to its 2010 Stock Incentive Plan. Effective as of October 12, 2017, the Company's 2010 Stock Incentive Plan was amended and restated (A&R Plan).The Company has issued service-based, performance-based, and performance-basedmarket-based stock options that generally have a contractual life of up to 10 years and may be exercisable in cash or as otherwise determined by the Company's board of directors or committee thereof. Vesting generally occurs over a period of not greater than four years. Performance-based options may vest upon the achievement of certain milestones in connection with the Company's development programs. Additionally, the Company has issued stock options in excess of the fair market value of Common Stock on the issuance date that were only exercisable upon a change in control or upon or after an initial public offering.milestones. As of June 30, 2021,2022, all of the performance conditions related to performance-based stock options issued by the Company had been achieved. Market-based options may vest upon the achievement of certain market-based objectives relating to the trading price of the Common Stock.
The following table summarizes the activity related to stock option grants to employees and nonemployeesnon-employees for the six months ended June 30, 2021:2022:
 SharesWeighted
average
exercise price
per share		Weighted
average
remaining
contractual life
Outstanding at December 31, 20217,958,781 $8.87 6.50
Granted2,902,370 1.88 
Exercised(67,125)1.63 
Expired(135,983)8.89 
Forfeited(422,129)3.86
Outstanding at June 30, 202210,235,914 $7.65 6.62
Exercisable at June 30, 20225,819,746 $10.37 5.26
Vested and expected to vest at June 30, 20229,342,884 $7.65 6.62
 SharesWeighted
average
exercise price
per share		Weighted
average
remaining
contractual life
Outstanding at December 31, 20206,852,733 $10.34 6.84
Granted1,542,696 3.52 
Exercised0 0 
Expired(284,889)12.59 
Forfeited(130,116)6.46
Outstanding at June 30, 20217,980,424 $9.00 6.92
Exercisable at June 30, 20214,837,027 $11.17 5.66
Vested and expected to vest at June 30, 20217,980,424 $9.00 6.92
During the six months ended June 30, 2022, stock options to purchase 2,902,370 shares of Common Stock were granted to employees and generally vest over four years. Included in the total stock options granted were market-based options to purchase 959,215 shares of Common Stock. The stock options, including the market-based options, had an estimated weighted average grant date fair value of $1.19. During the six months ended June 30, 2021, stock options to purchase 1,542,696 shares of Common Stock were granted to employees andthat generally vest over four years. The stock options had an estimated weighted average grant date fair value of $2.29. During the six months ended June 30, 2020, stock options to purchase 1,259,331 shares of Common Stock were granted to employees that generally vest over four years. The stock options had an estimated weighted average grant date fair value of $3.44.
Included in the table above are 140,000 of options granted outside the A&R Plan. The grants were made pursuant to the NASDAQ inducement grant exception in accordance with NASDAQ Listing Rule 5635(c)(4).
The grant date fair value of each stock option grant, other than market-based stock option grants, was estimated at the time of grant using the Black-Scholes option-pricing model using the following weighted average assumptions:
Six Months Ended June 30,
20212020
Risk free interest rate1.00 %0.72 %
Expected term (in years)6.086.03
Expected volatility74.28 %68.64 %
Annual dividend yield0.00 %0.00 %
Fair value of common stock$3.52 $5.64 
Six Months Ended June 30,
20222021
Risk free interest rate1.82 %1.00 %
Expected term (in years)6.086.08
Expected volatility72.67 %74.28 %
Annual dividend yield0.00 %0.00 %
Fair value of common stock$1.90 $3.52 
At June 30, 2021,2022, the unrecognized compensation cost related to unvested stock options, other than market-based stock options, expected to vest was $10,695.$6,655. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2.292.28 years.
During the six months ended June 30, 2022, market-based options to purchase 959,215 shares of Common Stock were granted to employees and generally become eligible to vest over four years, subject to the achievement of certain market-based objectives relating to the trading price of the Common Stock. Stock based compensation for these awards is recognized over the derived service period of approximately 2 years. The grant date fair value of
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

each stock option grant, as well as the derived service period for these awards, was estimated at the time of grant using a Monte Carlo simulation based on the following assumptions:
Six Months Ended
June 30,
2022
Risk free rates of return1.70 %
Expected volatility75.00 %
Annual dividend yield— %
Restricted Stock Units
The Company has issued service-based and performance-based restricted stock units (RSUs). Vesting generally occurs over a period not greater than four years. Vesting of the performance-based RSUs is subject to the achievement of certain milestones in connection with the Company's development programs.
The following table summarizes the activity related to RSUs granted to employees for the six months ended June 30, 2021:
2022:
 Shares
Balance at Outstanding at December 31, 202020211,491,5891,959,358 
Granted957,9901,105,246 
Vested and settled(203,743)(598,775)
Expired/forfeited/canceled(47,070)(264,146)
Balance at Outstanding at June 30, 202120222,198,7662,201,683 
Expected to vest at June 30, 202120222,198,7662,201,683 
In March 2021,During the six months ended June 30, 2022, the Company granted 957,9901,105,246 RSUs at a grant date fair value of $3.51,$1.85, all of which were service-based RSUs. No performance-based RSUs were granted in 2021.2022. As of June 30, 2021,2022, one of the milestones associated with the previously granted performance based-RSUs were not probable of achievement,was achieved. As a result 248,830 RSUs vested on June 15, 2022 and accordingly, 0 stock based compensation expense has beenof $1,346 was recognized for these awards. At June 30, 2021,2022, the unrecognized compensation cost related to unvested service-based RSUs expected to vest was $6,064,$5,041, to be recognized over an estimated weighted-average amortization period of 2.542.63 years. The unrecognized compensation cost related to unvested performance-based RSUs was $3,095,$1,749, which will be recognized commencing in the period in which the performance condition is deemed probable of achievement over the remaining service period.
Included in the table above are 60,000 RSUs granted outside the A&R Plan. The grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq Listing Rule 5635(c)(4).
2017 Employee Stock Purchase Plan
Under the 2017 Plan, shares of Common Stock may be purchased by eligible employees who elect to participate in the 2017 Plan at 85% of the lower of the fair market value of Common Stock on the first or last day of designated offering periods. The Company recognized stock-based compensation expense of $91$74 and $137$91 during the three months ended June 30, 20212022 and 2020,2021, respectively, and $199$162 and $287$199 during the six months ended June 30, 20212022 and 2020,2021, respectively, related to the 2017 Plan.
The Company calculated the fair value of each option grant and the shares issued under the 2017 Plan on the respective dates of grant using the following weighted average assumptions:
Six Months Ended June 30,
20212020
Risk free interest rate0.09 %1.57 %
Expected term (in years)0.50.5
Expected volatility86.88 %79.59 %
Annual dividend yield0.00 %0.00 %

12. Subsequent events
On August 11, 2021, the Company entered into an Open Market Sale AgreementSM (the Sale Agreement) with Jefferies LLC, as sales agent (Jefferies), under which the Company may issue and sell its Common Stock from time to time for an aggregate sales price of up to $50,000 through Jefferies (the Shares).
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

The Company has agreedcalculated the fair value of each option grant and the shares issued under the 2017 Plan on the respective dates of grant using the following weighted average assumptions:
Six Months Ended June 30,
20222021
Risk free interest rate0.22 %0.09 %
Expected term (in years)0.50.5
Expected volatility88.56 %86.88 %
Annual dividend yield0.00 %0.00 %

15. Subsequent Events
On August 10, 2022, the Company entered into a Third Amendment to pay Jefferiesthe Note Purchase Agreement (the Third Amendment). The Third Amendment reduced the minimum consolidated XHANCE net sales and royalties required to be achieved under the Note Purchase Agreement for the trailing twelve-month period ending December 31, 2022 from $90,000 to $85,000 in exchange for a commission rate of up to 3.0%$780 fee due on the repayment of the gross proceeds of any Shares sold through Jefferies as sales agent under the Sale Agreement, and has provided Jefferies with customary indemnification rights.Pharmakon Senior Secured Notes.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this section in conjunction with our unaudited interim consolidated financial statements and related notes included in Part I. Item 1 of this Form 10-Q and our audited consolidated financial statements and related notes thereto and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, filed with the Securities and Exchange Commission (SEC) on March 3, 2021.8, 2022. In addition to historical information, some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by such forward-looking statements. Please refer to the "Note Regarding Forward-Looking Statements" section of this Form 10-Q for additional information.
Company Overview
We are a specialty pharmaceutical company focused on the development and commercialization of products for patients treated by ear, nose and throat (ENT) and allergy specialists. Our first commercial product, XHANCE® (fluticasone propionate) nasal spray, 93 micrograms (mcg), is a therapeutic utilizing our proprietary Exhalation Delivery System (EDS) device that delivers a topically-acting corticosteroid for the treatment of chronic rhinosinusitis with nasal polyps and, if approved, chronic rhinosinusitis without nasal polyps (also referred toknown as chronic sinusitis). Chronic rhinosinusitis is a serious nasal inflammatory disease that is treated using therapies, such as intranasal steroids (INS), which have significant limitations. We believe XHANCE has a differentiated clinical profile with the potential to become part of the standard of care for this disease because it is able to deliver medication to the primary site of inflammation high and deep in the nasal passages in regions not adequately reached by conventional INS.
In September 2017, the United StatesU.S. Food and Drug Administration (FDA) approved XHANCE for the treatment of nasal polyps in patients 18 years of age or older. XHANCE was made widely available through commercial channels in April 2018.
We have completed two Phase 3b clinical trials of XHANCE for a follow-on indication for the treatment of chronic sinusitis. Positive top-line results from the trials were announced in March and June 2022. Based on the results of these trials, XHANCE has the potential to be the first drug therapy approved by the FDA for the treatment of chronic sinusitis. We plan to submit a supplemental new drug application for XHANCE to the U.S. Food and Drug Administration (FDA) by the end of 2022.
Business Updates in Response to the COVID-19 Pandemic
The COVID-19 pandemic has caused business and economic disruption, and the duration and impact of that disruption is uncertain at this time.
•In mid-March 2020, we transitioned to a full-time, virtual work environment in which all employees, including sales representatives (whom we refer to as territory managers), were encouraged to work from their place of residence. Our decision was based on actions taken by federal, state and local governments to contain the spread of severe acute respiratory coronavirus 2 (SARS-CoV-2) and the related Coronavirus Disease 2019 (COVID-19), as well as the impact of “social distancing” efforts and various mitigation actions implemented by healthcare practices across the United States. Shortly after our transition to a full-time, virtual work environment, our territory managers began virtual details of XHANCE to target audience physicians.
•We have been monitoring, and will continue to monitor, federal, state, and local government requirements and guidances. In certain instances, the various mitigation efforts have been updated to facilitate a return to a working environment with fewer restrictions. Where permitted by governmental requirements and the policies of physician offices, our territory managers began to return to in-person detailing of physicians in May and June 2020. Given the localized nature of the restrictions that are in place and the potential for restrictions to return, we have equipped our territory managers to operate in an environment that will include a mix of virtual and in-person physician detailing with dependencies on geography and time. We are currently operating under a hybrid-model for our office-based employees which includes a mix of in-office and work-from-home days.
•Federal, state and local government requirements and guidances have impacted virtually all of the physicians' offices in which our territory managers detail XHANCE. These impacts include reduced patient visits, temporary halt of territory managers' visits, restrictions imposed on territory managers' visits and temporary closings of physicians' offices.
•Late in the first quarter of 2020 we began to observe an adverse impact of the COVID-19 pandemic on XHANCE prescription growth and, as a result XHANCE net revenue. Although XHANCE prescription (and in particular, new prescription growth) and XHANCE net revenue continue to be adversely impacted by the COVID-19 pandemic, the magnitude of the impact has slowly improved as federal, state and local government requirements and guidances have been updated to facilitate economic reopening. Based on
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third-party prescription data as well as data from Preferred Pharmacy Network (PPN) partners, XHANCE prescriptions increased 11% from first quarter 2020 to second quarter 2020, increased 11% from second quarter 2020 to third quarter 2020, increased 7% from third quarter 2020 to fourth quarter 2020, decreased 2% from fourth quarter 2020 to first quarter 2021, and increased 14% from first quarter 2021 to second quarter 2021. Although XHANCE prescriptions and XHANCE net revenue have grown during this COVID-19 period,since the start of the pandemic, the rate of growth was below our pre-pandemic expectations. Additionally, theThe duration and magnitude of the impact of the COVID-19 pandemic on XHANCE prescriptions and XHANCE net revenue areremains uncertain and mayit has and could in the future continue to affect our ability to remain in compliance with our revenuethe financial covenant to achieve certain minimum trailing twelve month consolidated XHANCE net product sales and royalties and other covenants under our Pharmakonthat certain Note Purchase Agreement.Agreement dated as of September 12, 2019 that we entered into with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of the BioPharma Credit Funds (BioPharma), as amended pursuant to that certain letter agreement dated as of August 13, 2020, as further amended by that certain First Amendment to Note Purchase Agreement dated as of March 2, 2021, as further amended pursuant to that certain Second Amendment to Note Purchase Agreement dated as of
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November 16, 2021, and as further amended pursuant to that certain Third Amendment dated as of August 10, 2022 (as so amended, the Note Purchase Agreement).
•Due to the impacts of the COVID-19 pandemic, one of our contract manufacturers implemented a reduced work schedule and additional precautions which resulted in delays in the manufacture of XHANCE in second quarter 2020 but did not result in an interruption to commercial or clinical supply. We believe we are maintaining appropriate levels of finished product inventories in the event of future supply disruption; however, the duration and magnitude of a future negative impact from the COVID-19 pandemic could constrain our supply of XHANCE.
•Previous guidance related to the expected timing of results fromFor subjects participating in our two ongoing chronic sinusitis clinical trials, indicated that top-line results from both trials would be available in the second half of 2021. Pauses in patient enrollment due to factors related to the COVID-19 pandemic have had, and may continue to have, varying effects in different geographies and over time have led to a change in our projected timeline for initial data availability and may lead to additional changes in the future. We completed enrollment in the first of our ongoing chronic sinusitis clinical trials in July 2021 and expect top-line results in the first quarter of 2022. We expect to complete enrollment of subjects in our second clinical trial for chronic sinusitis in the fourth quarter of 2021 and expect top-line results in the second quarter of 2022. For those subjects currently participating in these studies, procedures to facilitate ongoing treatment and capture of data during periods of in-person care restrictions have beenwere put in place. Pauses in patient enrollment due to factors related to the COVID-19 pandemic had varying effects in different geographies resulted in delays and additional costs associated with our chronic sinusitis trials.
The full impact of the COVID-19 pandemic including the potential for and emergence of different strains of the virus, on our business is still unknown,unknown. It is likely to continue to have adverse impacts on XHANCE prescription growth and XHANCE net revenues as a result of fewer patients visiting physician offices, and restrictions imposed by physicians'some physician offices onrelating to territory managermanagers' visits, continued high unemploymentchanges in employment that can adversely affecting demandaffect availability of insurance coverage of XHANCE, our ability to maintain compliance with the financial and payor mix,other covenants under the Note Purchase Agreement, and the availability and cost of capital for us to fund our business operations and service our debt. We will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to our operations as necessary.

XHANCE Business Update
We track and report metrics that we believe are an important part of assessing our progress in key strategic areas including:
•XHANCE Prescriptions and Market Share. Based on third-party prescription data as well as data from PPN partners, the total estimated number of XHANCE prescriptions in the second quarter of 20212022 was 82,900,87,600, which represents 33%6% growth for prescriptions when compared to estimated second quarter 20202021 prescriptions of 62,500.82,900. The INS prescription market increased approximately 5%4% from second quarter 20202021 to second quarter 20212022 based on third-party prescription data. In addition, the total estimated number of XHANCE prescriptions was 69,00086,300 in the third quarter of 2020, 73,9002021, 93,700 in the fourth quarter of 2020,2021, and 72,60080,600 in the first quarter of 2021.2022. The decrease of prescriptions from fourth quarter 2021 to first quarter 2022 was primarily driven by changes to our co-pay assistance program in January 2022 intended to increase average net revenue per prescription by decreasing the proportion of prescriptions filled by patients with insurance coverage that required co-pays above a target threshold as well as by seasonal factors as described below.
A seasonal effect has historically been observed in the INS prescription market in which market volume generally peaks near the middle of the second quarter and declines into the early part of the third quarter of each calendar year. As the result of the COVID-19 pandemic, the market volume peak and subsequent declines did not follow the normal trends in 2020. Based on third-party prescription data, INS market prescriptions increased 7% from the fourth quarter of 2019 to the first quarter of 2020, decreased 16% from the first quarter of 2020 to the second quarter of 2020, decreased 6% from the second quarter of 2020 to the third quarter of 2020, increased 3% from the third quarter of 2020 to the fourth quarter of 2020, decreased 4% from fourth quarter 2020 to the first quarter of 2021, and increased 14% from the first quarter of 2021 to the second quarter of 2021, decreased 4% from the second quarter of 2021 to the third quarter of 2021, increased 1% from the third quarter 2021 to the fourth quarter 2021, were flat from the fourth quarter of 2021 to the first quarter of 2022, and increased 7% from the first quarter of 2022 to the second quarter 2022. In addition, based on third-party prescription data, INS market prescriptions were flat from full year 2020 to full year 2021.
Although the underlying disease that we are treating is chronic and causes symptoms year-round, we believe the variation in patient flow through the offices of relevant physician specialists, and seasonality in disease flare-ups, has an impact on the number of patients that present themselves and who are therefore
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available to receive a new prescription for XHANCE. Demand has historically been, and we expect will continue to be, impacted by the INS market seasonality and the seasonal variation in patient visits with their doctor, resulting in reduced XHANCE prescription demand in the third quarter.
Additionally, we believe that first quarter prescription demand and average net revenue per prescription for XHANCE is adversely impacted by the annual resetting of patient healthcare insurance plan deductibles and changes in individual patients' healthcare insurance coverage, both of which often occur in January.
We track the market share of XHANCE within our current target audience. For this purpose, we calculate market share as the proportion of XHANCE prescriptions to the number of prescriptions written for other INS within our current target audience of approximately 18,00021,000 physicians. Our target physician audience includes all ENT and allergyAllergy specialist physicians who, based on third-party data, write intranasal steroid
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spray prescriptions. In addition, our current target audience includes specialty-like primary care physicians called on by our territory managers or kaléo sales representatives. Prior to the fourth quarter 2020 initiation of XHANCE co-promotion by kaléo, our target audience included approximately 10,000 physicians called on by Optinose sales territory managers.
We believe market share, in addition to XHANCE prescription volume, provides important information regarding XHANCE utilization because market share normalizes XHANCE prescriptions for market effects including the INS market seasonality, seasonal variation in patient visits with their doctor, annual deductible resets and annual changes in individual patient's healthcare insurance coverage referenced above. Based on third-party prescription data as well as data from PPN partners, we estimate XHANCE had a market share in our current target audience of 18,00021,000 physicians of 4.4% in the second quarter of 2020, 4.9% in the third quarter of 2020, 5.1%4.8% in the fourth quarter of 2020, 5.0% in the first quarter of 2021, 5.2% in the second quarter of 2021, 5.7% in the third quarter of 2021, 5.9% in the fourth quarter of 2021, 5.4% in the first quarter of 2021,2022, and 5.4%5.6% in the second quarter of 2021.2022 . Note that most of the INS prescriptions written within our target physician audience are for chronic sinusitis, allergic rhinitis and other conditions outside of our nasal polyp indication. Our target physician audience is subject to revision each quarter to account for changes such as revised sales target prioritization, and physician retirements. Changes to the target physician audience can contribute to some of the quarter over quarterquarter-over-quarter change in market share.
•XHANCE New Prescriptions and Refill Prescriptions. The underlying disease that we are treating is chronic and, as a result, many patients may fill multiple prescriptions per year. We monitor new prescriptions as they create the potential for future refill prescriptions. Based on third-party prescription data as well as data from PPN partners, the total estimated number of XHANCE new prescriptions in the second quarter of 20212022 was 29,000,29,200, which represents 55%1% growth for new prescriptions when compared to estimated second quarter 20202021 new prescriptions of 18,700.29,000. In addition, the total estimated number of XHANCE new prescriptions was 23,00027,900 in the third quarter of 2020, 24,6002021, 29,900 in the fourth quarter of 20202021, and 25,90028,200 in the first quarter of 2021.2022. Based on third-party prescription data, the INS market for new prescriptions increased 19%8% from the second quarter of 2020 to the second quarter of 2021 and increased 19% from the first quarter of 2021 to the second quarter of 2021.2022 and increased 7% from the first quarter of 2022 to the second quarter of 2022.
We track refill prescriptions and provide patient assistance to support refill programs that are administered by our PPN partners. Based on third-party prescription data as well as data from PPN partners, the total estimated number of XHANCE refill prescriptions in the second quarter of 20212022 was 53,900,58,400, which represents 23%8% growth for refill prescriptions when compared to estimated second quarter 20202021 refill prescriptions of 43,800.53,900. In addition, the total estimated number of XHANCE refill prescriptions was 46,10058,400 in the third quarter of 2020, 49,3002021, 63,800 in the fourth quarter of 2020,2021, and 46,70052,400 in the first quarter of 2021.2022.
•Prescribing Breadth and Depth. We track the number of physicians who prescribe XHANCE in a time period to evaluate the breadth of prescribing. Based on third-party prescription data as well as data from PPN partners, the total estimated number of physicians who had at least one patient fill a prescription for XHANCE in the second quarter of 20212022 was 7,188,7,600, which represents 16%6% growth when compared to the estimated 6,2097,188 physicians who had at least one patient fill a prescription for XHANCE in the second quarter of 2020.2021. In addition, the total estimated number of physicians who had at least one patient fill a prescription for XHANCE was 6,4437,196 in the third quarter of 2020, 6,7082021, 7,532 in the fourth quarter of 2020,2021, and 6,9207,690 in the first quarter of 2021.2022.
We also track the number of prescriptions filled by a prescribing physician's patients in a time period to evaluate depth of prescribing. Based on third-party prescription data as well as data from PPN partners, the total estimated number of physicians who had more than 15 XHANCE prescriptions filled by their patients in the second quarter of 20212022 was 1,414,1,550, which represents 38%10% growth when compared to the estimated
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1,028 1,414 physicians who had more than 15 XHANCE prescriptions filled by their patients in the second quarter of 2020.2021. In addition, the total estimated number of physicians who had more than 15 XHANCE prescriptions filled by their patients was 1,1531,459 in the third quarter of 2020, 1,2752021, 1,589 in the fourth quarter of 2020,2021, and 1,2851,468 in the first quarter of 2021.2022.
•XHANCE Net Product Revenues per Prescription. We calculate average net product revenues per prescription, one metric that we use to gauge the profitability of XHANCE, by dividing net product revenues for the quarter by the estimated number of XHANCE prescriptions dispensed during the quarter. Average XHANCE net product revenues per prescription were $221$235 in the second quarter of 20212022 which represents an approximately 35%6% increase when compared to the $164$221 average XHANCE net product revenues per prescription in the second quarter of 2020.2021. This increase was primarily driven by changes to our co-pay assistance program in January 2022 intended to increase average net revenue per prescription by decreasing the proportion of prescriptions filled by patients with insurance coverage that required co-pays
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above a target threshold. In addition, average XHANCE net revenues per prescription were $224$253 in the third quarter of 2020, $2112021, $240 in the fourth quarter of 2020,2021, and $151$183 in the first quarter of 2022. Average XHANCE net product revenues per prescription were $210 for the six months ended June 30, 2022 which represents an approximately 12% increase when compared to the $188 average XHANCE net product revenues per prescription for the six months ended June 30, 2021.
Sales, Marketing & Distribution
We have established a commercial infrastructure designed to drive adoption and sales of XHANCE with healthcare professionals who treat patients with nasal polyps. We believe that approximately 15,000 physicians treat an estimated 3.5 million chronic rhinosinusitis patients, an estimated 1.2 million of whom have chronic rhinosinusitis with nasal polyps.
•Customer Model.  We have a sales force of approximately 10090 territory managers who target over 10,000 ENTs, allergists and “specialty-like” primary care physicians, and we target additional physicians through digital and non-personal promotion in areas where we do and do not have territory managers. In addition, we initiated a co-promotion agreementOur sales team is equipped with kaléo in October 2020 to promote XHANCE to an audienceeducational materials demonstrating the benefit and safety profile of up to 6,000 prescribers, about half of whom are outside of our current called-on universe.XHANCE. In the future we may increase the number of geographic territories as well as hire additional territory managers in order to increase the number of called-on target physicians and frequency of calls. Our sales team, and the sales team of our co-promotion partner, are equipped with educational materials demonstrating the benefit and safety profile XHANCE. We believe that in the long term, direct-to-consumer (DTC) advertising could be an effective way to increase XHANCE prescription growth.

•XHANCE Co-Pay Savings Program. We believe our co-pay savings program provides an affordability solution for patients that physicians will support. This program provides patient co-pay assistance including a first prescriptionto eligible commercially insured patients. These patients may obtain XHANCE for as little as no out-of-pocket cost ($0 co-pay) to eligible commercially insured patients and low subsequent co-pays for refills ranging from $0 to $50 per XHANCE unit.out-of-pocket.

•Market Access.  Based on currently available third-party data and our internal analyses as of June 30, 2021,July 31, 2022, we believe that greater than 75%approximately 80% of commercially insured lives are currently in a plan that covers XHANCE. However, payors may change coverage levels for XHANCE, positively or negatively, at any time. Additionally, payors generally impose restrictions on access to or usage of XHANCE, such as by requiring prior authorizations or "step-edits". For example, insurers may require that a physician attest that they are treating a patient first use a generic INSfor an approved indication prior to becoming eligible for coverage for XHANCE. SomeWe estimate that approximately half of the commercially covered lives as of July 31, 2022 are in a plan that requires a prior authorization and most of those prior authorizations request information regarding prior use of INS and a patient diagnosis of nasal polyps. In some cases, patients do not meet the payors' utilization management criteria, and in other cases, healthcare providers may not complete the administrative process required to demonstrate or document that the patients for whom XHANCE has been prescribed meet the payors’ utilization management criteria (i.e., prior authorizations or step-edits) and, as a result, patients may not gain access to XHANCE treatment. In our contract negotiations with payors we seek to balance patient access and affordability, breadth of coverage, payor utilization management and rebates levels. We have also contracted with the Centers for Medicare and Medicaid Services for coverage of certain government insured lives and continue to expand XHANCE market access for other government-insured populations.

•Trade and Distribution We currently sell XHANCE primarily to Preferred Pharmacy Network (PPN)PPN partners. We established this channel to offer patients the option of filling prescriptions through a network of preferred pharmacies that may be able to better serve the needs of patients through services including delivery of XHANCE by mail and performing certain patient services such as patient insurance benefit verification. We also sell XHANCE to wholesale pharmaceutical distributors, who, in turn, sell XHANCE to retail pharmacies, hospitals and other customers. We have contracted with a third-party logistics provider for key services related to logistics, warehousing and inventory management, and distribution. Further, our third-party logistics provider provides customer order fulfillment services and accounts receivable management.
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XHANCE Development
In addition to XHANCE’s existing indication for the treatment of nasal polyps, in order to broaden our U.S. market opportunity, we initiated a clinical trial program in pursuit of a follow-on indication for the treatment of chronic sinusitis.sinusitis in the U.S. We believe XHANCE has the potential to be the first drug therapy approved by the FDA for the treatment of chronic sinusitis. We expect the program will be comprised of two Phase 3b clinical trials, the first of which, ReOpen1, was initiated in the fourth quarter of 2018, and completed enrollment of approximately 330 subjectschronic sinusitis patients with and without nasal polyps in July of 2021, and the2021. The second of whichtrial, ReOpen2, was initiated in the second quarter of 2019 and is estimated to enrollcompleted enrollment of approximately 399 subjects. Estimated enrollment220 chronic sinusitis patients without nasal
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polyps in October of 2021. We announced positive top-line results for ReOpen1 and ReOpen2 in March and June 2022, respectively.

ReOpen 1

Top-line results from ReOpen1 were summarized in our Form 10-Q for the secondquarterly period ended March 31, 2022, filed with the Securities and Exchange Commission on May 12, 2022.

ReOpen2

ReOpen2 was a randomized double-blinded, placebo controlled Phase 3 clinical trial is subjectexamining the safety and efficacy of XHANCE versus a placebo Exhalation Delivery System (which we refer to change for factors that may include interim analysesas placebo EDS) in adults with chronic sinusitis with or without nasal polyps. This clinical trial (which we refer to as ReOpen2) is intended to informserve as the statistical powering.second of two pivotal clinical trials we intend to submit to the FDA in a future supplemental NDA for XHANCE for the treatment of adults with chronic sinusitis. This clinical trial was conducted in the United States, Australia, Bulgaria, Czechia, New Zealand, Poland, Romania, Spain, The Republic of Georgia and the United Kingdom.
In April 2021, we completed
Top-line results from ReOpen2 are summarized below.

Study Design

The clinical trial included a previously planned, blinded interim analysissingle-blind EDS-placebo lead-in and a EDS-placebo control group, a multi-center, multi-national study population to assess the variance in oneincrease generalizability and an assessment of the twosafety and efficacy of multiple doses (186 or 372 mcg twice daily) over a 24-week period.A total of 222 adult subjects were enrolled in this study.

Placebo EDS
(N=110)		OPN-375 186 µg
(N=110)		OPN-375 372 µg
(N=107)
Full Analysis Set757374
Completed Study697071
Subjects Discontinuing Early633

ReOpen2 had co-primary endpoints (changeof (i) change in Composite Scorea composite score of Nasal Symptomsnasal congestion/obstruction symptoms, nasal discharge, and facial pain and pressure from baseline to week, 4) in our first clinical trial for chronic sinusitis The analysis was performed on blinded interim data from approximately half of the initial estimated enrollment of 378 patients. The result of this interim analysis was that the observed variance in this endpoint was lower than the variance assumed when we estimated sample size for statistical powering during the initial design of the trial.
In June 2021, we completed a previously planned, blinded interim analysis to assess the variance in the other co-primary endpoint (changeand (ii) change in average percent opacification of opacified volume by CT scanof the ethmoid and maxillary sinuses from baseline to week 24)24. The severity of nasal symptoms was recorded by patients in this trial.an electronic diary immediately before dosing in the morning (AM) and evening (PM), and was measured using 7-day average instantaneous AM diary scores. Each symptom was scored from 0-3. The analysis was performed on blinded interim data from approximately one-thirdvolume of the initial estimated enrollmentethmoid and maxillary sinuses occupied by disease was assessed using computer-assisted assessment of 378 patients for whom 6-month CT scan data was available. The result of this interim analysis was thatscans to determine the observed variance in this endpoint was also lower than the variance assumed when we estimated sample size for statistical powering during the initial designpercentage (0-100%) of the study. Basedsinus cavity space summed across all ethmoid and maxillary sinuses that was opacified.CT scans were performed at screening and at Week 24.
This trial also evaluated several secondary endpoints, including the proportion of patients with acute disease exacerbations and their time to exacerbation and the Sinonasal Outcome Test-22 score, which considers the core defining signs and symptoms of chronic sinusitis and the impact on the resultsfunctioning, quality of these two interim analyses,life and our assumptionssleep.

Top-Line Efficacy Results

The 186- and estimates relating to the trial, we anticipate that the initial targeted statistical power will be372-mcg treatment groups achieved with the approximately 330 patients currently enrolledstatistically significant reductions in the trial. As a result, we have closed enrollmentprimary assessments of composite symptom scores at week 4 and reductions in the first CS trialopacified volume of the maxillary and are now focusing allethmoid sinuses on CT scans at week 24 relative to a placebo EDS.

The following table summarizes the mean change in composite symptom scores (or CSS) from baseline to week 4 and the change in the percent of our recruitment efforts onopacified volume (or APOV) of the second CS trial.ethmoid and maxillary sinuses from baseline to week 24.

Difference from Placebo EDS
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TreatmentnBaseline Score (Standard Deviation)Mean (Standard Error) Change from BaselineMean95% confidence intervalP-value (1)
Change in CSS from Baseline to Week 4
XHANCE 372 mcg745.97 (1.59)-1.74 (0.20)-0.93-1.49, -0.370.001
XHANCE 186 mcg735.87 (1.48)-1.54 (0.20)-0.73-1.29, -0.170.011
Placebo EDS756.15 (1.77)-0.81 (0.20)---
Change in APOV in the Ethmoid and Maxillary Sinuses from Baseline to Week 24
XHANCE 372 mcg7461.50 (18.46)-5.14 (1.74)-6.33-11.08, -1.580.009
XHANCE 186 mcg7360.51 (19.37)-7.00 (1.73)-8.19-12.93, -3.45<0.001
Placebo EDS7564.09 (17.74)+1.19 (1.74)---
1 - The p-value, or probability value, is a measure of statistical significance reflecting the likelihood that an observed result occurred by chance.

Top-Line Safety Results

For clarity, both of these interim analyses were blinded to treatment groupXHANCE was well tolerated across the 186- and therefore could not evaluate372-mcg dose groups and the magnitude of difference, if any, between treatment groups.safety profile in this trial was generally consistent with the safety profile contained in XHANCE’s currently approved label. Accordingly, these interim analysesNo serious adverse events were not designed to,reported in ReOpen2. The table below summarizes adverse events that occurred at a rate of more than 3% with XHANCE and do not, provide evidence regarding possible superiority of active treatment overmore common than the placebo or success of the trials.EDS in this trial.

With enrollment completed,Summary of Adverse Events with XHANCE Reported in ≥ 3%
and More Common Than Placebo EDS in ReOpen2
Adverse Event (AE)Placebo EDS BID
(N =75)
n (%)		XHANCE 186 mcg BID
(N =73)
n (%)		XHANCE 372 mcg BID
(N =74)
n (%)
COVID-192 (2.7)3 (4.1)7 (9.5)
Epistaxis04 (5.5)7 (9.5)
Headache6 (8.0)2 (2.7)7 (9.5)
Depression1 (1.3)03 (4.1)


Pooled Results from the ReOpen Program
In July 2022, we expect top-lineannounced selected pooled results from the firstReOpen program. First, to inform possible differences in response of our two ongoing Phase 3bpatients previously using a standard nasal steroid spray, a pre-planned analysis of pooled data assessed symptom improvement for patients entering the trials with at least moderate symptoms despite reporting use of a standard nasal steroid spray. For this subgroup, patients receiving XHANCE improved more from baseline than patients receiving placebo comparator. Second, a pooled analysis was performed to assess change in CT scans, measured by APOV at week 24, for the subgroup of patients receiving XHANCE who had chronic sinusitis clinical trialswithout nasal polyps. Compared to patients treated with placebo comparator, XHANCE treatment produced greater reduction in sinus opacification in this subgroup. Differences between active and placebo in 186 mcg or 372 mcg XHANCE treatment groups were similar and nominally statistically significant. Finally, an analysis of pooled data found that the 372 mcg treatment group achieved a type 1 error controlled statistically significant reduction of 66% in the first quarterincidence of 2022. We expectexacerbations compared to complete enrollmentplacebo comparator. Reductions in the second clinical trialnumber of exacerbations, ranging from 53 to 80%, were found for subgroups of chronic sinusitis patients with or without nasal polyps in the fourth quarter186 mcg or 372 mcg XHANCE treatment groups in additional pre-planned exploratory analyses that were not type 1 error controlled. Exacerbations were defined as a worsening of 2021 with top-line results available in the second quarter of 2022.

OPN-019 Development Update
In June 2020, we announced the initiation of development of a new product candidate, OPN-019, which combines our proprietary intranasal Exhalation Delivery System (EDS) device with an antiseptic.
Because componentsat least one of the drug-device combination product candidate, including both the active drugfour cardinal symptoms of chronic sinusitis (nasal congestion/obstruction, rhinorrhea, facial pain/pressure, and delivery device, are currently commercially availableloss of sense of smell) lasting at least 3 days accompanied by an escalation in the U.S., we anticipate that the development of OPN-019 may be streamlined and accelerated. Subsequent to a pre-Investigational New Drug (IND) submission we have engaged with the FDA regarding an IND and clinical development pathway.
We have performed in vitro testing against SARS-CoV-2 with a candidate formulation in which a 4-log reduction (a 99.99% reduction) in virus count was produced. In addition, we performed tests against other pathogens. For most pathogens tested, 3-log to 6-log reductions (99.9% to 99.9999% reductions) in virus count were observed.
In March 2021, we announced our plan to conduct a randomized, proof-of-concept trial in Mexico in subjects who have tested positive for SARS-CoV-2 infection, who were recently infected, and who have mildmedical care, such as doctor visits or no symptoms. In July 2021, we received approval from regulatory authorities in Mexico to proceed with this pilot trial. The trial drug was made available in Mexico in July 2021, and the trial is open for enrollment. The trial will evaluate both the magnitude and duration of viral load reduction after a single dose of OPN-019. Given the design of the study and the endpoints to be evaluated, we expect to have initial results shortly after each cohort completes enrollment.

antibiotic or steroid prescription.
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We expect to leverageIn addition, we completed an analysis of mean change in APOV by Patient-Reported Global Change Score (PGIC). The PGIC is a 7-point Likert scale on which the proof-of-concept clinical data to support our pursuit of grants, partnerships, and/or other sources of capital that will be necessary to fund future development.subject directly reports their perceived overall change in disease since initiating study medication.
The following three tables summarize these results.
Difference from Placebo EDS
TreatmentnBaseline ScoreLS Mean Change from BaselineLS MeanNominal
P-value (1)
Change in Symptoms in Prior Nasal Steroid Users from Baseline to Week 4 (Pooled)
XHANCE 186 or 372 mcg1725.63-1.46-0.7<0.001
Placebo EDS1085.84-0.77--
Change in APOV in CS Patients without Nasal Polyps from Baseline to Week 24 (Pooled)
XHANCE 186 or 372 mcg22561.33-6.31-4.760.004
XHANCE 372 mcg11261.26-6.5-4.950.01
XHANCE 186 mcg11361.4-6.12-4.570.019
Placebo EDS11663.32-1.55--

Treatment GroupnEventsLS MeanIncidence Rate Ratio (Active/PBO)
P-value (1)
Frequency of Exacerbations over 24 Weeks (Full Analysis Set/All Patients)
XHANCE 186 or 372 mcg362350.0810.3890.001
XHANCE 372 mcg180150.0720.343
0.002(2)
XHANCE 186 mcg182200.0920.4410.012
Placebo EDS185410.208--
Frequency of Exacerbations over 24 Weeks (Patients with Nasal Polyps)
XHANCE 186 or 372 mcg137120.0520.2760.005
XHANCE 372 mcg6840.0380.2030.01
XHANCE 186 mcg6980.070.3760.055
Placebo EDS69170.187--
Frequency of Exacerbations over 24 Weeks (Patients without Nasal Polyps)
XHANCE 186 or 372 mcg225230.1130.4720.032
XHANCE 372 mcg112110.1130.470.077
XHANCE 186 mcg113120.1130.4740.076
Placebo EDS116240.239--
1.The p-value, or probability value, is a measure of statistical significance reflecting the likelihood that an observed result occurred by chance and compares the indicated group to the relevant placebo EDS group. Unless otherwise noted, all p-values shown in this table represent nominal p-values (meaning they are exploratory, not type 1 error controlled) and therefore have an increased possibility of being a chance finding
2.This p-value for all patients receiving XHANCE 372 mcg in the ReOpen Program is a type 1 error controlled statistically significant result. All other p-values shown in this table are nominal p-values.

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Mean change in APOV by Patient-Reported Global Change Score at Week 24
PGIC Category
Very Much ImprovedMuch ImprovedMinimally ImprovedNo ChangeMinimally WorsenedMuch WorsenedVery Much Worsened
Subjects67641649016104
Mean Change in APOV(10.53)%(7.26)%(2.86)%(0.32)%2.01 %4.82 %5.30 %
Pooled Safety Results from the ReOpen Program
XHANCE was well tolerated across the 186- and 372-mcg dose groups and the safety profile in the ReOpen program was generally consistent with the safety profile contained in XHANCE’s currently approved label.No serious adverse events were reported in the ReOpen program. The table below summarizes adverse events that occurred at a rate of more than 3% with XHANCE and more common than the placebo EDS in this trial.
Summary of Adverse Events with XHANCE Reported in ≥ 3%
and More Common Than Placebo EDS in Pooled data
Adverse Event (AE)Placebo EDS BID
(N =187)
n (%)		XHANCE 186 mcg BID
(N =184)
n (%)		XHANCE 372 mcg BID
(N =183)
n (%)
Epistaxis1 (0.5)9 (4.9)20 (10.9)
COVID-198 (4.3)5 (2.7)12 (6.7)
Nasopharyngitis8 (4.3)9 (4.9)7 (3.8)
Headache7 (3.7)4 (2.2)10 (5.5)

Financial Operations Overview
The following discussion sets forth certain components of our consolidated statements of operations as well as factors that impact those items.
Net product revenues
Sales of XHANCE generated $18.4$20.6 million and $10.3$18.4 million in net product revenues for the three months ended June 30, 20212022 and 2020,2021, respectively, and $29.3$35.3 million and $17.3$29.3 million for the six months ended June 30, 20212022 and 2020,2021, respectively. In accordance with GAAP, we determine net product revenues for XHANCE, with specific assumptions for variable consideration components including but not limited to trade discounts and allowances, co-pay assistance programs and payor rebates.
Based on available XHANCE prescription data purchased from third parties and data from our PPN partners, who collectively dispensed more than 85%80% of our total prescriptions (TRxs) in the period, our average net product revenues per prescription for the second quarter of 20212022 was approximately $221,$235, an increase compared to average net product revenues per prescription of $151$221 in firstthe second quarter of 2021 and an increase compared to $164$183 in the first quarter of 2022.
The increase in average net product revenues per prescription from the second quarter of 2020.2021 to the second quarter of 2022 is driven largely by changes in 2022 to our co-pay assistance program that were intended to increase revenues per prescription by decreasing the proportion of prescriptions filled by patients with insurance coverage that required co-pays above a target threshold.
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The increase in average net product revenues per prescription from the first quarter of 20212022 to the second quarter of 20212022 is largely a consequence of reduced co-paythe reset of many patient insurance deductibles in January. As a result of this annual reset, we provide greater copay support under our assistance programs asprograms. In addition, we believe another contributor to the resultfirst quarter 2022 increase is related to changes in patients' healthcare insurance coverage that reduce demand for refill prescriptions early in the year. This reduction in refill prescriptions also has the effect of patients' meeting their out-of-pocket expense thresholds.
The increase inlowering average net product revenues per prescription fromas it reduces the second quarterproportion of 2020 to the second quarter of 2021 is driven largelyprescriptions that are covered (reimbursed) by the absence of a one-time co-paycommercial insurer, which results in us providing greater copay support under our assistance program that was available to patients in the second quarter of 2020, as well as changes in 2021 to our co-pay assistance plan that were intended to increase revenues per prescription by reducing the rate of growth in prescription fills by commercially insured patients in plans that do not cover XHANCE, while sustaining growth in covered plans.programs.
We calculate average net product revenues per prescription, one metric that we use to gauge the profitability of XHANCE, by dividing net product revenues for the quarter by the estimated number of XHANCE prescriptions dispensed during the quarter. As a result, average net product revenues per prescription is subject to variability. That variability is impacted by factors that do not necessarily reflect a change in the price that is paid for an individual unit of XHANCE, including but not limited to ordering patterns and inventory levels for our wholesale customers and PPN partners, patient utilization rates of affordability programs and the proportion of patients acquiring XHANCE through an insurance benefit. There is also the potential for variability that results from changes in estimation methodology by the third parties that we rely upon to provide prescription data which may lead to revisions of historical estimates of prescription volumes and our calculated average net product revenues per prescription.
We expect full year 20212022 net product revenues towill be between $85.0 million and $92.0 million. Previously we expected full year 2022 net product revenues would be at least $80.0$90.0 million. In addition,We revised our full year 2022 guidance for net revenue because we experienced greater than expected vacancy rates in our sales territories in recent months and greater than expected summer seasonal volume declines. We expect thatfull year 2022 average net product revenues per prescription for the full year of 2021 will exceed $200. Factors supporting this expected growth include patients meeting their out-of-pocket expense thresholds, expected improvements in insurance coverage and continued strength in the proportion of prescription refills.be greater than $220.
Licensing revenues
In September 2019, OptiNose AS, a wholly owned subsidiary of the Company, entered into the Currax License Agreement. Under the terms of the Currax License Agreement, Currax paid us a $3.7 million upfront payment in 2019, an additional $0.8 million in December 2020 upon expiration of the escrow that was established for a limited period to cover potential indemnification obligations, and an additional $1.0 million milestone payment in January 2021 upon the achievement of a specified regulatory milestone. We are not eligible to receive any further payments from Currax under the terms of the Currax License Agreement other than reimbursement for certain expenses.
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Costs of product sales
Costs of product sales includes the cost of inventory sold, which includes direct and indirect manufacturing and supply chain costs.
Research and development expense
Research and development expense consists primarily of expenses incurred to prepare for, initiate and conduct our planned clinical trials, ongoing research efforts of new products and device improvements. We expense research and development costs as incurred. These expenses include:
▪personnel expenses, including salaries, benefits and stock-based compensation expense;
▪costs of funding clinical development performed by third parties, including pursuant to agreements with contract research organizations (CROs), as well as investigative sites and consultants that conduct or support our nonclinical studies and clinical trials;
▪expenses associated with the continued development of our EDS devices;the EDS;
▪expenses incurred under agreements with contract manufacturing organizations (CMOs), including manufacturing scale-up expenses prior to regulatory approval of products for commercial sale and the cost of acquiring and manufacturing preclinical study and clinical trial materials;
▪consultant fees and expenses associated with outsourced professional scientific development services;
▪expenses for regulatory activities, including filing fees paid to regulatory agencies and costs incurred to compile and respond to filings with the FDA prior to regulatory approval of products for commercial sale; and
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▪allocated expenses for facility costs, including rent, utilities, depreciation and maintenance.
We typically use our employee, consultant and infrastructure resources across our research and development programs. Although we track certain outsourced development costs by product candidate, we do not allocate personnel costs or other internal costs to specific product candidates.
We plan to incur research and development expenses as we continue the development of XHANCE for the treatment of chronic sinusitis and our other product candidates. Clinical trial costs associated with our chronic sinusitis program represent a substantial portion of our total research and development expenses. While we would expect to continue to incur regulatory and other development expenses after the conclusion of our chronic sinusitis clinical program, we expect the costs associated with the conduct of clinical trials to significantly decrease. Due to the inherently unpredictable nature of clinical development, compounded by the uncertainty introduced by the COVID-19 pandemic, the rate of subject enrollment, number of subjects required, and trial duration and outcome, there is uncertainty as to the exact timing of when we expect our research and development costs related to the clinical development of XHANCE to significantly decrease.
Selling, general and administrative expense
General and administrative expense consists primarily of personnel expenses, including salaries, benefits and stock-based compensation expense, for employees in executive, finance, accounting, business development, information technology, legal and human resource functions. General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expense, as well as regulatory fees and professional fees for legal, patent, accounting and other consulting services.
Sales and marketing expenses include our sales team and supporting promotional materials, digital promotion, peer-to-peer education, congresses / conventions, samples, and marketing activities targeted towards health care providers, payors and patients/consumers, including initiatives and fees related to our co-promotion agreement with kaléo.efforts. Additionally, sales and marketing-related expenses include fees paid to our PPN partners for services unrelated to traditional distribution functions, such as data fees and benefit claims adjudication and other enhanced services performed as part of our PPN.
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adjudication.
Interest (income) expense
Interest (income) expense consists of interest earned on our cash and cash equivalents held with institutional banks and interest expense is primarily related to our note purchase agreement (Pharmakon Senior Secured Notes) with Pharmakon Advisors, LP (Pharmakon).the Note Purchase Agreement.
Other (income) expense
Other (income) expense consists primarily of foreign currency (income) losses due to exchange rate fluctuations on transactions denominated in a currency other than our functional currency.
Consolidated Results of Operations
Comparison of three months ended June 30, 20212022 and 20202021
The following table sets forth our selected consolidated statements of operations data for the periods indicated (in thousands):
 Three Months Ended June 30,
 20222021
Revenues:
Net product revenues$20,582 $18,357 
Licensing revenues— — 
   Total revenues20,582 18,357 
Costs and expenses:  
Cost of product sales2,143 2,425 
Research and development4,270 8,179 
Selling, general and administrative29,514 27,308 
Total operating expenses35,927 37,912 
Loss from operations(15,345)(19,555)
Other (income) expense: 
Interest (income) expense4,050 4,000 
Other (income) expense2 (53)
Total other (income) expense4,052 3,947 
Net loss$(19,397)$(23,502)
 Three Months Ended June 30,
 20212020
Revenues:
Net product revenues$18,357 $10,272 
Licensing revenues— — 
   Total revenues18,357 10,272 
Costs and expenses:  
Cost of product sales2,425 1,700 
Research and development8,179 5,474 
Selling, general and administrative27,308 25,697 
Total operating expenses37,912 32,871 
Loss from operations(19,555)(22,599)
Other (income) expense: 
Interest (income) expense4,000 3,260 
Other (income) expense(53)(7)
Total other (income) expense3,947 3,253 
Net loss$(23,502)$(25,852)
Net product revenues
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Net product revenues related to sales of XHANCE were $20.6 million and $18.4 million for the three months ended June 30, 2022and 2021, respectively. Revenue growth is attributable primarily to an increase in our average net selling price during the three months ended June 30, 2022.
Cost of product sales
Cost of product sales related to XHANCE were $2.1 million and $2.4 million for the three months ended June 30, 2022 and 2021, respectively.
Research and development expense
Research and development expense was $4.3 million and $8.2 million for the three months ended June 30, 2022 and 2021, respectively. This decrease was primarily attributable primarily to a decrease in costs related to the conduct of our clinical trials of XHANCE for the treatment of chronic sinusitis, both trials had top-line data readouts in 2022.
Selling, general and administrative expense
Selling, general and administrative expense was $29.5 million and $27.3 million for the three months ended June 30, 2022 and 2021, respectively. The $2.2 million increase was due primarily to:
▪a $1.9 million increase in payroll and related costs;
▪a $0.6 million increase in PPN fees and other patient assistance costs;
The increase was offset by a $0.3 million decrease in other sales, marketing and administrative expenses.
Interest (income) expense, net
Interest (income) expense, net, was $4.1 million and $4.0 million for the three months ended June 30, 2022 and 2021, respectively, which was primarily comprised of interest expense on the Pharmakon Senior Secured Notes during both periods.
Comparison of six months ended June 30, 2022 and 2021
The following table sets forth our selected consolidated statements of operations data for the periods indicated (in thousands):
 Six Months Ended June 30,
 20222021
Revenues:
Net product revenues$35,342 $29,317 
Licensing revenues— 1,000 
   Total revenues35,342 30,317 
Costs and expenses:  
Cost of product sales4,157 4,165 
Research and development9,072 13,404 
Selling, general and administrative58,853 54,493 
Total operating expenses72,082 72,062 
Loss from operations(36,740)(41,745)
Other (income) expense: 
Interest (income) expense7,989 7,855 
Other (income) expense1 (45)
Total other (income) expense7,990 7,810 
Net loss$(44,730)$(49,555)
Net product revenues
Net product revenues related to sales of XHANCE were $18.4$35.3 million and $10.3$29.3 million for the threesix months ended June 30, 20212022 and 2020,2021, respectively. Revenue growth is attributable primarily to an increase in units sold to customers as a result of a greater number of XHANCE prescriptions dispensed, as well as an increase in our average net selling price during the threesix months ended June 30, 2021.2022.
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Cost of product sales
Cost of product sales related to XHANCE were $2.4$4.2 million and $1.7$4.2 million for the threesix months ended June 30, 20212022 and 2020,2021, respectively, with the increase attributed primarily to an increase in units sold to customers during the period..
Research and development expense
Research and development expense was $8.2$9.1 million and $5.5$13.4 million for the threesix months ended June 30, 20212022 and 2020,2021, respectively. The $2.7$4.3 million increasedecrease was attributable primarily to a $3.0 million increasedecrease in clinical expensescosts related to the conduct of our clinical trials of XHANCE for the treatment of chronic sinusitis. This increase was offset by a $0.3 million decreasesinusitis, both trials had top-line data readouts in device development and personnel costs.2022.
Selling, general and administrative expense
Selling, general and administrative expense was $27.3$58.9 million and $25.7$54.5 million for the threesix months ended June 30, 20212022 and 2020,2021, respectively. The $1.6$4.4 million increase was due primarily to:
▪a $0.5$2.4 million increase in marketing costs, including HCP marketing, speaker programspayroll and training, print production and market research;
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▪a $0.5 million increase in legal fees primarily related to additional spend for patent and legal services; andcosts;
▪a $0.4$1.1 million increase in serviceother sales, marketing and consulting costs;
▪a $0.8 million increase in PPN fees paid to our PPN partners, the result of and other patient assistance costs;
▪a greater number of XHANCE prescriptions dispensed by our PPN partners during the period.$0.1 million increase in other administrative expenses.
Interest (income) expense, net
Interest (income) expense, net, was $4.0$8.0 million and $3.3$7.9 million for the threesix months ended June 30, 20212022 and 2020,2021, respectively, which was primarily comprised of interest expense on the Pharmakon Senior Secured Notes during both periods. The increase was related to increased principal balance of the Pharmakon Senior Secured Notes.
Comparison of six months ended June 30, 2021 and 2020
The following table sets forth our selected consolidated statements of operations data for the periods indicated (in thousands):
 Six Months Ended June 30,
 20212020
Revenues:
Net product revenues$29,317 $17,334 
Licensing revenues1,000 — 
   Total revenues30,317 17,334 
Costs and expenses:  
Cost of product sales4,165 3,056 
Research and development13,404 10,406 
Selling, general and administrative54,493 52,757 
Total operating expenses72,062 66,219 
Loss from operations(41,745)(48,885)
Other (income) expense: 
Interest (income) expense7,855 5,791 
Other (income) expense(45)32 
Total other (income) expense7,810 5,823 
Net loss$(49,555)$(54,708)
Net product revenues
Net product revenues related to sales of XHANCE were $29.3 million and $17.3 million for the six months ended June 30, 2021and 2020, respectively. Revenue growth is attributable primarily to an increase in units sold to customers as a result of a greater number of XHANCE prescriptions dispensed during the six months ended June 30, 2021.
Licensing revenues
Licensing revenues were $1.0 million for the six months ended June 30, 2021 as a result of the milestone payment received under the terms of the Currax License Agreement. No licensing revenue was recognized during the six months ended June 30, 2020.
Cost of product sales
Cost of product sales related to XHANCE were $4.2 million and $3.1 million for the six months ended June 30, 2021 and 2020, respectively, with the increase attributed primarily to an increase in units sold to customers during the period.
Research and development expense
Research and development expense was $13.4 million and $10.4 million for the six months ended June 30, 2021 and 2020, respectively. The $3.0 million increase was attributable primarily to a $3.3 million increase in clinical expenses related to the conduct of our clinical trials of XHANCE for the treatment of chronic sinusitis. This increase was offset by a $0.3 million decrease in device development and personnel costs.
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Selling, general and administrative expense
Selling, general and administrative expense was $54.5 million and $52.8 million for the six months ended June 30, 2021 and 2020, respectively. The $1.7 million increase was due primarily to:
▪a $1.0 million increase in service fees paid to our PPN partners, as a result of a greater number of XHANCE prescriptions dispensed by our PPN partners during the period;
▪a $0.6 million increase in marketing and market research expenses;
▪a $0.4 million increase in office expenses and consulting; and
▪a $0.3 million increase in legal fees primarily related to additional spend for patent and legal services.
This increase was offset by a $0.6 million decrease in personnel expenses.
Interest (income) expense, net
Interest (income) expense, net, was $7.9 million and $5.8 million for the six months ended June 30, 2021 and 2020, respectively, which was primarily comprised of interest expense on the Pharmakon Senior Secured Notes during both periods. The increase was primarily related to increased principal balance of the Pharmakon Senior Secured Notes as well as a decrease in interest income earned on cash deposits.
Liquidity and Capital Resources
Since inception, we have incurred significant net losses and expect to continue to incur net losses for the foreseeable future. We incurred net losses of $49.6$44.7 million and $54.7$49.6 million for the six months ended June 30, 20212022 and 2020,2021, respectively. As of June 30, 2021,2022, we had an accumulated deficit of $577.3$654.8 million. We have funded our operations primarily through the sale and issuance of stock and debt, as well as through sales of XHANCE and licensing revenues. As of June 30, 2021,2022, we had $93.9$78.3 million in cash and cash equivalents.
The following table shows a summary of our cash flows for the periods indicated (in thousands):
 Six Months Ended June 30,
 20212020
Net cash used in operating activities$(50,518)$(51,518)
Net cash used in investing activities(10)(309)
Net cash provided by financing activities276 29,950 
Effects of exchange rates on cash and cash equivalents— (9)
Net decrease in cash, cash equivalents and restricted cash$(50,252)$(21,886)
 Six Months Ended June 30,
 20222021
Net cash used in operating activities$(32,473)$(50,518)
Net cash used in investing activities(50)(10)
Net cash provided by financing activities276 276 
Effects of exchange rates on cash and cash equivalents3 — 
Net decrease in cash, cash equivalents and restricted cash$(32,244)$(50,252)
Operating activities
Cash used in operating activities decreased by $1.0$18.0 million, from $51.5 million for the six months ended June 30, 2020 to $50.5 million for the six months ended June 30, 2021.2021 to $32.5 million for the six months ended June 30, 2022. The decrease in cash used in operating activities was attributable to an increase in revenue, offset by an increase in expenses and net working capital. The increase in expenses was primarily attributable to an increase in clinical trial-related expenses in pursuit of a follow-on indication for XHANCE for the treatment of chronic sinusitis, and the increase in net working capital was due to an increase in inventory production and a decrease in accounts payablereceivable and accrued liabilitiesinventory due to timing duringincreased sales and collections for the six months ended June 30, 2021.2022.
Investing activities
Cash used in investing activities decreasedincreased by $0.3$0.1 million from the six months ended June 30, 20202021 to the six months ended June 30, 2021. Purchases2022 due to proceeds from the sale of equipment during the six months ended June 30, 2020 of $0.3 million decreased in the six months ended June 30, 2021 to $0.1 million, which was offset by $0.1 million of proceeds from the sale of manufacturing equipment.2021.
Financing activities
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Cash provided by financing activities was $0.3 million for the six months ended June 30, 2022 and 2021. Cash provided by financing activities was $29.9 million for the six months ended June 30, 2020. Cash provided byused in financing activities for the six months ended June 30, 2020both periods was primarily driven by the receipt of $30.0 million from the issuance of the
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First Delayed Draw Notes under the Pharmakon Senior Secured Notes. Cash provided by financing activities for the six months ended June 30, 2021 was driven by proceeds from the issuance of common stock under the 2017 Plan.our employee stock purchase plan.
Senior Secured Note Purchase Agreement
On September 12, 2019 (the Closing Date), we entered into thea Note Purchase Agreement (the Pharmakon Senior Secured Notes) with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of the BioPharma Credit fundsFunds (BioPharma). The Pharmakon Senior Secured Notes provideNote Purchase Agreement provided us, through our subsidiary OptiNose US, Inc., with $130.0 million in debt financing, of which $80.0 million of Pharmakon Senior Secured Notes was issued on the Closing Date, $30.0 million was issued on February 13, 2020 after achieving the $9.0 million consolidated XHANCE net sales and royalties threshold for the quarter ended December 31, 2019 and $20.0 million was issued on December 1, 2020.

On August 13, 2020 we entered into a letter agreement (the Pharmakon Letter Agreement) toafter achieving the Pharmakon Senior Secured Notes. The Pharmakon Letter Agreement provided us with the option to issue an additional $20.0$14.5 million of Pharmakon Senior Secured Notes, subject to us achieving XHANCE net sales and royalties for the quarter ended June 30, 2021 of at least $26.0 million and certain other conditions. As consideration for the Pharmakon Letter Agreement, we issued 44,643 shares of Common Stock to Pharmakon. The aggregate fair value of $250,000 was recorded as debt issuance costs and is being amortized to interest expense over the term of the Pharmakon Senior Secured Notes. As of June 30, 2021, we are no longer eligible for the $20.0 million additional Pharmakon Senior Secured Notes as the requisite conditions were not satisfied.
On March 2, 2021, we entered into an amendment to the Pharmakon Senior Secured Notes. The amendment revised certain minimum trailing twelve-month consolidated XHANCE net sales and royalties we are required to achieve. As considerationthreshold for the amendment, we will pay an amendment fee of $1.3 million uponquarter ended September 30, 2020.
Amounts outstanding under the earlier of the prepayment of the Pharmakon Senior Secured Notes and September 12, 2024.
The Pharmakon Senior Secured Notes bear interest at a fixed per annum rate of 10.75% per annum and are scheduled to mature on September 12, 2024 (the Maturity Date). We are required to make interest-only payments on the Pharmakon Senior Secured Notes until September 2023. Principal repayments will commence on September 15, 2023, with five equal quarterly installments of principal and interest payments untilthrough to the Maturity Date. We areUpon repayment of the Senior Secured Notes we will also be required to make principal payments, which are payablepay $2.1 million in eight equal quarterly installments beginning on December 15, 2022 and continuing until the Maturity Date; provided that we may, at our election, postpone any such principal payment until the Maturity Date if, as of the applicable payment date, certain trailing four-quarter consolidated XHANCE net sales and royalties thresholds have been achieved.fees.
We are required to repay the Pharmakon Senior Secured Notes in full upon the occurrence of a change of control (as defined in the Note Purchase Agreement). In addition, we may make voluntary prepayments in whole or in part. All mandatory and voluntary prepayments are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs prior to the third anniversary of the Closing Date, an amount equal to 2% of the principal prepaid, (ii) if prepayment occurs on or after the third anniversary of the Closing Date but prior to the fourth anniversary of the Closing Date, an amount equal to 1% of the principal prepaid;prepaid, and (iii) if prepayment occurs on or after the fourth anniversary of the Closing Date, no prepayment premium is required. We are also required to pay a "make-whole" amount in respect of any principal paymentsprepayments (whether mandatory or voluntary) made prior to the 30-month anniversary of the issuanceclosing of the applicable note,our underwritten public offering on November 18, 2021, in an amount equal to the interest that would have accrued through the 30-month anniversary in respect of such note but for such principal payment.prepayment, provided that in the case of any prepayment made prior to the 15-month anniversary, we will not be required to pay a "make-whole" amount in excess of an amount equal to the interest that would have accrued through the 15-month anniversary but for such principal prepayment.
The Pharmakon Senior Secured Notes are secured by a pledge of substantially all of our assets and the Note Purchase Agreement contains affirmative and negative covenants customary for financings of this type, including limitations on our and our subsidiaries’ ability, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, grant certain license rights to our products, technologies and other intellectual property rights; pay dividends and distributions, repay junior indebtedness and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Pharmakon Senior Secured Notes containNote Purchase Agreement contains financial covenants requiring us to maintain at all times certain minimum trailing twelve-month consolidated XHANCE net sales and royalties, tested on a quarterly basis, andas follows (in millions):
Trailing Twelve-Months EndingRequirement under the Note Purchase Agreement After the Second Amendment
March 31, 202270.00
June 30, 202275.00
September 30, 202280.00
December 31, 202285.00
March 31, 202398.75
June 30, 2023102.50
September 30, 2023106.25
December 31, 2023110.00
March 31, 2024113.75
June 30, 2024117.50
We are also required to maintain at all times at least $30.0 million of cash and cash equivalents.
As of June 30, 2022, we were in compliance with the covenants. The Note Purchase Agreement also includes events of default
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customary for financings of this type, in certain cases subject to customary periods to cure, following which BioPharma may accelerate all amounts outstanding under the notes.Pharmakon Senior Secured Notes.
On August 10, 2022, we entered into the Third Amendment to the Note Purchase Agreement (the Third Amendment). The Third Amendment reduced the minimum consolidated XHANCE net sales and royalties required to be achieved under the Note Purchase Agreement for the trailing twelve-month period ending December 31, 2022 from $90.0 million to $85.0 million (as reflected in the table above) in exchange for a $0.8 million fee due on the repayment of the Pharmakon Senior Secured Notes.
Projected 20212022 operating expenses
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We expect that our total GAAP operating expenses (consisting of selling, general & administrative expenses and research & development expenses) for 20212022 will be between $137.0$129.0 million and $142.0$134.0 million of which approximately $10.0$9.0 million is expected to be non-cash stock-based compensation expense. As a result, total GAAP operating expenses excluding non-cash stock-based compensation expense are expected to be between $127.0$120.0 million and $132.0$125.0 million. Previously we expected total GAAP operating expenses (consisting of selling, general & administrative expenses and research & development expenses) for 2022 to be between $135.0 million and $140.0 million of which approximately $10.0 million was expected to be stock-based compensation expense. An increase in selling, general, and administrative expenses from 20202021 to 20212022 is anticipated primarily due primarily to inflation, and an increase in fees paid to our PPN partners associated with higher projected XHANCE prescription volumes andwhich is offset by an increaseexpected decrease in research and development expenses related toas our clinical trial program in pursuit of a follow-on indication for XHANCE for the treatment of chronic sinusitis.sinusitis nears completion.
Future fundingcapital requirements
We expect to continue to incur significant expenses in connection with our ongoing activities, particularly as we:
▪maintain and expand our sales force and the commercial infrastructure to support the sales and marketing for XHANCE;
▪continue advertising and other promotional activities including the kaléo co-promotion, to support the commercialization of XHANCE;
▪continue to provide co-pay and other patient affordability programs;programs for XHANCE;
▪continue clinical development activities for XHANCE, including an FDA-mandated post-marketing pediatric studystudies mandated under the Pediatric Research Equity Act, and clinical trials foractivities in pursuit of a follow-on indication for the treatment of chronic sinusitis;
▪continue research and development activities for additionalevaluate product candidates, including OPN-019;candidates;
▪continue to contract to manufacture XHANCE and our other product candidates;
▪maintain, expand and protect our patent portfolio;
▪service our debt obligations under the Pharmakon Senior Secured Notes issued in September 2019, February 2020 and December 2020;Notes;
▪maintain infrastructure necessary to operate as a publicly-traded, FDA-regulated commercial-stage company; and
▪hire additional staff and add operational, financial and information systems to execute our business plan.
Our future fundingcapital requirements, both near and long-term, will depend on many factors, including, but not limited to:
▪the duration and impact of the COVID-19 pandemic on our business;
▪the success of our commercialization of XHANCE for the treatment of nasal polyps including, among other things, continued patient and physician acceptanceadoption of XHANCE and our ability to maintain adequate insurance coverage and reimbursement for XHANCE;
▪the cost of commercialization activities for XHANCE, including product manufacturing, distribution, marketing and sales;
▪net product revenues received from sales of XHANCE;
▪the costs and timing of expanding our sales force;
▪the level of co-pay assistance and other patient affordability programs offered for XHANCE;
▪our clinical development plans for XHANCE, including the outcome, timing and cost studies mandated under the Pediatric Research Equity Act, and activities in pursuit of an FDA-mandated post-marketing pediatric study and clinical trials for the supplementala follow-on indication for the treatment of chronic sinusitis;
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▪the outcome, timing and cost of the regulatory approval process of XHANCE for chronic sinusitis by the FDA, including the potential for the FDA to require that we perform more studies and clinical trials than those that we currently expect;
▪the costs involved in preparing, filing and prosecuting patent applications and annuity fees relating to issued patents;
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▪the cost of maintaining and enforcing our intellectual property rights, as well as the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us;
▪the initiation, progress, timing, costs and results of clinical trials and other research and development related to additional product candidates, including OPN-019; andcandidates;
▪the extent to which we in-license, acquire or otherwise partner in development or commercialization of other products, product candidates or technologies.technologies; and
▪our ability to maintain compliance with the financial covenant to achieve certain minimum trailing twelve-month consolidated XHANCE net sales and royalties and the other provisions under the Note Purchase Agreement, and, if needed and available from the holders of the Pharmakon Senior Secured Notes, the costs and conditions associated with obtaining a waiver or modification of such covenant or other provisions.
Although it is difficult to predict our future liquidity requirements, we will likely require additional capital in the future secured through equity or debt financings, partnerships, collaborations, or other sources in order to meet the debt service obligations under our outstanding Pharmakon Senior Secured Notes, including repayment, and to carry out our planned development and commercial activities. We believe that our existing cash and cash equivalents will be sufficient to maintain the minimum cash balance required under our outstanding debt facility and to fund our operations for at least twelve months from the filing date of this Quarterly Report on Form 10-Q. Additional capital, secured in the future through equity or debt financings, partnerships, collaborations, or other sources, will be required, and may not be available on a timely basis, on favorable terms, or at all, and such capital, if raised, may not be sufficient to meet our debt service obligations, including repayment, or enable us to continue to implement our long-term business strategy. Commencing on September 15, 2023, we will be required to begin making principal repayments on our debt in five quarterly installments of $26.0 million each through maturity in September 2024. If additional capital is not secured when required, we may need to delay or curtail our operations until such funding is received. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected and we may need to delay or curtail our operations until such funding is received. Additionally, we may fail to satisfy our debt covenants, may never become profitable, or if we do, may not be able to sustain profitability on a recurring basis.
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulationsAs of the SEC.
Contractual obligations and commitments
The following table summarizes our contractual obligations at June 30, 2021:
TotalLess than 1 year1-3 years3-5 yearsMore than 5 years
(in thousands)
Operating leases(1)
$3,200 $1,286 $1,914 $— $— 
Long-term debt(2)
164,966 14,169 132,825 17,972 — 
  Total$168,166 $15,455 $134,739 $17,972 $— 
(1) Reflects obligations pursuant to our office leases in Yardley, Pennsylvania, Ewing, New Jersey and Oslo, Norway and leasesfiling of certain other equipment.

(2) Reflects principal, interest obligations and exit fees pursuant to the Pharmakon Senior Secured Notes entered intothis quarterly report on September 12, 2019 (the Closing Date). The Pharmakon Senior Secured Notes bear interest at 10.75% and are scheduled to mature on September 12, 2024 (the Maturity Date). We are required to make quarterly interest payments until the Maturity Date. Principal payments are payable in eight equal quarterly installments beginning on December 15, 2022 and continuing until the Maturity Date; provided thatForm 10-Q, we may, at our election and upon achieving certain trailing four-quarterexpect consolidated XHANCE net sales and royalties postponefor the trailing twelve-month period ending December 31, 2022 to be between $85 million and $92 million. Previously we expected consolidated XHANCE net sales and royalties for such twelve month period to be at least $90 million. If we are unable to achieve at least $85 million of consolidated XHANCE net sales and royalties for the trailing twelve-month period ending December 31, 2022 or are unable to achieve the minimum consolidated XHANCE net sales and royalties for any such amortization payment untilother trailing twelve-month period as required under the Maturity Date. TheNote Purchase Agreement, and we are unable to obtain a waiver or modification to this financial covenant, we will be in breach under the Note Purchase Agreement, which will constitute an event of default under the terms of the Note Purchase Agreement. If the holders of the Pharmakon Senior Secured Notes include eventselect to accelerate the repayment of default customary forall or a portion of the unpaid principal, accrued interest and other amounts due under such holders’ Pharmakon Senior Secured Notes in such an event, we will require additional capital secured through equity or debt financings, partnerships, collaborations, or other sources in order to meet such payment obligations, and to carry out our planned development and commercial activities. The holders of this type (including, among others, failurethe Pharmakon Senior Secured Notes have, in the past, conditioned modifications to comply with affirmative, negativethe minimum trailing twelve-month consolidated XHANCE net sales and royalties financial covenants),covenant and other provisions of the Note Purchase Agreement on our securing additional capital through equity financings and other conditions and fees, and could do so again in the future, which would impact the timing and amount that we may seek to raise in a financing. Although there can be no guarantee that the holders of the Pharmakon Senior Secured Notes will provide a waiver or modification if requested. In addition, in order to complete future financings the investors in such financings may require us to obtain certain cases subjectmodifications to customary periodsthe minimum trailing twelve-month consolidated XHANCE net sales and royalties financial covenant and other provisions of the Note Purchase Agreement which may or may not be acceptable to cure, following which BioPharma may accelerate all amounts outstanding under the notes.holders of the Pharmakon Senior Secured Notes.
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We are also party to a manufacturing services agreement with one of our suppliers pursuant to which we are obligated to purchase a minimum number of products per month or potentially be subject to a payment of $5,000 per week for any month in which we do not purchase such minimum number of products.
Critical accounting policies
The Critical Accounting Policies and Significant Judgments and Estimates included in our annual report on Form 10-K for the year ended December 31, 2020,2021, as filed with the SEC on March 3, 2021,8, 2022, have not materially changed.
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Recent accounting pronouncements
See Note 3 to our unaudited interim consolidated financial statements of this Form 10-Q for a description of recent accounting pronouncements applicable to our consolidated financial statements.
JOBS Act
The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
ITEM 3. QUALITATIVEQUANTITATIVE AND QUANTITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.
Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a 15(e)13a-15(e) and 15d 15(e)15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 20212022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
ITEM 1A. RISK FACTORS
Except as set forth below, there have been no material changes to the risk factors previously disclosed in Part I, “Item 1A, Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 8, 2022.

Our failure to comply with the covenants or other terms of the Note Purchase Agreement, including as a result of events beyond our control, could result in a default under the Note Purchase Agreement that could materially and adversely affect the ongoing viability of our business.

As of June 30, 2022, we have issued $130.0 million of senior secured notes (the Pharmakon Senior Secured Notes) under that certain Note Purchase Agreement, dated September 12, 2019, among us and our subsidiaries, OptiNose US, Inc., OptiNose UK Limited and OptiNose AS, BioPharma Credit PLC, as collateral agent, and the purchasers party thereto from time to time (Purchasers), as previously amended pursuant to that certain letter agreement dated August 13, 2020, as further amended pursuant to that certain first amendment to Note Purchase Agreement dated March 2, 2021, as further amended pursuant to that certain second amendment to Note Purchase Agreement dated November 16, 2021 and as further amended pursuant to that certain third amendment to Note Purchase Agreement dated August 10, 2022 (as amended, the Note Purchase Agreement). We are not eligible to issue any additional Pharmakon Senior Secured Notes under the Note Purchase Agreement. Amounts outstanding under the Note Purchase Agreement bear interest at a fixed rate of 10.75% per annum and are scheduled to mature on September 12, 2024 (the Maturity Date). As of June 30, 2022, the outstanding principal, accrued interest and fees under the Note Purchase Agreement was $131.8 million.

We are required to make quarterly interest payments until the Maturity Date. We are also required to make principal payments, which are payable in five equal quarterly installments beginning on September 15, 2023, and continuing until the Maturity Date. The Pharmakon Senior Secured Notes are guaranteed by OptiNose, Inc. and our subsidiaries and are secured by a pledge of substantially all of our and their assets.

The Note Purchase Agreement contains various covenants that limit our ability to engage in specified types of transactions without our lenders’ prior consent, as well as financial covenants that require us to maintain at least $30.0 million of cash and cash equivalents in certain deposit accounts and require us to achieve certain minimum trailing twelve-month consolidated XHANCE net sales and royalties, tested on a quarterly basis. The financial covenant to achieve minimum trailing twelve-month consolidated XHANCE net product sales and royalties under the Note Purchase Agreement are as follows (amounts in millions):

Trailing Twelve-Months EndingRequirement under the Note Purchase Agreement After the Second Amendment
March 31, 202270.00
June 30, 202275.00
September 30, 202280.00
December 31, 202285.00
March 31, 202398.75
June 30, 2023102.50
September 30, 2023106.25
December 31, 2023110.00
March 31, 2024113.75
June 30, 2024117.50

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Each holder of the Pharmakon Senior Secured Notes may elect to accelerate the repayment of all unpaid principal and accrued interest under such holders’ Pharmakon Senior Secured Notes upon consummation of a specified change of control transaction or occurrence of certain events of default (as specified in the Note Purchase Agreement), including, among other things:
▪    our default in a payment obligation under the Pharmakon Senior Secured Notes;
▪    our breach of a financial covenant (including the financial covenants that require us to maintain at least $30.0 million of cash and cash equivalents in certain deposit accounts and require us to achieve certain minimum trailing twelve-month consolidated XHANCE net sales and royalties, tested on a quarterly basis), the restrictive covenants or other terms of the Pharmakon Senior Secured Notes;
▪    our breach of reporting obligations;
▪    our failure to properly maintain the collateral;
▪    any circumstance that could reasonably be expected to have a material adverse effect (as defined in the Note Purchase Agreement) on us;
▪    certain regulatory and/or commercial actions that cause an ongoing delay in commercialization of XHANCE; and
▪    certain specified insolvency and bankruptcy-related events.
Subject to any applicable cure period set forth in the Pharmakon Senior Secured Notes, all amounts outstanding with respect to the Pharmakon Senior Secured Notes (principal and accrued interest), as well as any applicable prepayment premiums or interest “make-whole” payments, would become due and payable immediately upon an event of default at a default interest rate of 13.75%. Our assets or cash flow may not be sufficient to fully repay our obligations under the Pharmakon Senior Secured Notes if the obligations thereunder are accelerated upon any events of default. The duration and magnitude of the negative impact from the COVID-19 pandemic on XHANCE net revenues has previously affected, and could affect in the future, our ability to meet the consolidated XHANCE net product sales and royalties threshold to remain in compliance with our financial covenants. Further, if we are unable to repay, refinance or restructure our obligations under the Pharmakon Senior Secured Notes, the holders of such Pharmakon Senior Secured Notes could proceed to protect and enforce their rights under the Pharmakon Senior Secured Notes by exercising such remedies (including foreclosure on the assets securing our obligations under the Pharmakon Senior Secured Notes and the Note Purchase Agreement) as are available to the holders thereunder and in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in the Pharmakon Senior Secured Notes or in aid of the exercise of any power granted in the Pharmakon Senior Secured Notes. Any such action would materially and adversely affect the ongoing viability of our business.
On August 10, 2022, we entered into a third amendment (the Third Amendment) to the Note Purchase Agreement to reduce the minimum consolidated XHANCE net sales and royalties required to be achieved for the trailing twelve-month period ending December 31, 2022 from $90.0 million to $85.0 million (such reduction is reflected in the table above) in exchange for a $0.8 million fee due on the repayment of the Pharmakon Senior Secured Notes. As of the filing of this quarterly report on Form 10-Q, we expect consolidated XHANCE net sales and royalties for the trailing twelve-month period ending December 31, 2022 to be between $85 million and $92 million. Previously we expected consolidated XHANCE net sales and royalties for such twelve month period to be at least $90 million. If we are unable to achieve at least $85 million of consolidated XHANCE net sales and royalties for the trailing twelve-month period ending December 31, 2022 or are unable to achieve the minimum consolidated XHANCE net sales and royalties for any other trailing twelve-month period as required under the Note Purchase Agreement, and we are unable to obtain a waiver or modification to this financial covenant, we will be in breach under the Note Purchase Agreement, which will constitute an event of default under the terms of the Note Purchase Agreement. If the holders of the Pharmakon Senior Secured Notes elect to accelerate the repayment of all or a portion of the unpaid principal, accrued interest and other amounts due under such holders’ Pharmakon Senior Secured Notes in such an event, we will require additional capital secured through equity or debt financings, partnerships, collaborations, or other sources in order to meet such payment obligations, and to carry out our planned development and commercial activities. The holders of the Pharmakon Senior Secured Notes have, in the past, conditioned modifications to the minimum trailing twelve-month consolidated XHANCE net sales and royalties financial covenant and other provisions of the Note Purchase Agreement on our securing additional capital through equity financings and other conditions and fees, and could do so again in the future, which would impact the timing and amount that we may seek to raise in a financing. Although there can be no guarantee that the holders of the Pharmakon Senior Secured Notes will provide a waiver or modification if requested. In addition, in order to complete future financings the
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investors in such financings may require us to obtain certain modifications to the minimum trailing twelve-month consolidated XHANCE net sales and royalties financial covenant and other provisions of the Note Purchase Agreement which may or may not be acceptable to the holders of the Pharmakon Senior Secured Notes.


ITEM 5. OTHER INFORMATION
Third Amendment to Note Purchase Agreement
On August 11, 2021,10, 2022, the Company entered into an Open Market Salea third amendment (the Third Amendment) to that certain Note Purchase Agreement,SM (the Sale Agreement) with Jefferies LLC, dated September 12, 2019, among us and our subsidiaries, OptiNose US, Inc., OptiNose UK Limited and OptiNose AS, BioPharma Credit PLC, as salescollateral agent, (Jefferies), under whichand the Company may issue and sell its Common Stockpurchasers party thereto from time to time (Purchasers), as previously amended pursuant to that certain letter agreement dated August 13, 2020, as further amended pursuant to that certain first amendment to Note Purchase Agreement dated March 2, 2021 and as further amended pursuant to that certain second amendment to Note Purchase Agreement dated November 16, 2021 (as amended, the Note Purchase Agreement). The Third Amendment reduced the minimum consolidated XHANCE net sales and royalties required to be achieved under the Note Purchase Agreement for an aggregate sales pricethe trailing twelve-month period ending December 31, 2022 from $90.0 million to $85.0 million in exchange for a $0.8 million fee due on the repayment of upthe Pharmakon Senior Secured Notes issued pursuant to $50.0 million through Jefferies (the Shares).the Note Purchase Agreement.
The offer and salesforegoing is a summary description of certain terms of the Shares, if any, will be made under the Company’s registration statement on Form S-3 to be filed with the SEC on the date hereof (the Registration Statement), the base prospectus contained therein,Third Amendment and, a prospectus supplement related to the offering of the Shares, also contained therein. No sales may be made under the Registration Statement until it has been declared effective by the SEC. Upon the SEC’s declaration of such effectiveness, the delivery of an issuance notice and subject to the terms and conditions of the Sale Agreement, sales of the Shares, if any, under the Sale Agreement will be made by any method that is deemed to be an “at the market” offering as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended (the Securities Act), including but not limited to sales made directly on or through The Nasdaq Global Select Market or any other existing trading market for the Shares. The Company has no obligation to sell any of the Shares and may at any time suspend offers under the Sale Agreement or terminate the Sale Agreement in accordance with the terms thereof.
The Company has agreed to pay Jefferies a commission rate of up to 3.0% of the gross proceeds of any Shares sold through Jefferies as sales agent under the Sale Agreement. The Company has also provided Jefferies with customary indemnification rights.
The information set forth in this Item 5 shall not constitute an offer to sell or the solicitation of any offer to buy the Shares, nor shall there be an offer, solicitation or sale of the Shares in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state.
This description of the Sale Agreementits nature, is not complete andcomplete. It is qualified in its entirety by reference to the full textThird Amendment which is filed as Exhibit 10.3 to this Form 10-Q, and is incorporated herein by reference.

Indemnification Agreements with Recently Appointed Officers
As previously reported, on June 2, 2022 the Company appointed Ms. Janis to serve as the Company's Acting Chief Financial Officer (and principal financial officer) and appointed Anthony Krick to serve as the Company's Chief Accounting Officer (and principal accounting officer). In connection with such appointments, the Company entered into its standard form of indemnification agreement for officers and directors with each of Ms. Janis and Mr. Krick on August 8, 2022. The indemnification agreements provide Ms. Janis and Mr. Krick with contractual rights to indemnification and, in some cases, expense advancement in any action or proceeding arising out of their respective services as one of the SaleCompany's officers or as a director or officer of any other company or enterprise to which he may provides services at the Company's request.
The foregoing is a summary description of certain terms of the indemnification agreements and, by its nature, is not complete. It is qualified in its entirety by reference to the Form of Indemnification Agreement a copy of which is attached heretofiled as Exhibit 10.110.2 to this Form 10-Q, and is incorporated herein by reference herein.reference.


ITEM 6. EXHIBITS
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q. Where so indicated, exhibits that were previously filed are incorporated by reference. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated.
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INDEX TO EXHIBITS
Exhibit
Number		 Exhibit Description
3.1 
3.2 
10.1 
10.2 *
10.3 *
31.1 *
31.2 *
32.1 **
32.2 **
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 *Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*    Filed herewith.
*    Filed*    Furnished herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
OPTINOSE, INC.
Date:August 11, 2022By:/s/ MICHELE JANIS
Name:Michele Janis
Title:Acting Chief Financial Officer
(Principal Financial Officer)

  OPTINOSE, INC.
Date:August 11, 20212022 By: /s/ KEITH A. GOLDANANTHONY J. KRICK
    Name: Keith A. GoldanAnthony J. Krick
    Title: Chief FinancialAccounting Officer
(Principal Financial and Accounting Officer)


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