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 reportForm 10-Q and our audited consolidated financial statements and related notes thereto and management’s discussion"Management’s Discussion and analysisAnalysis of financial conditionFinancial Condition and resultsResults of operationsOperations" included in our Annual Report on Form 10-K for the yearsyear ended December 31, 2016 and 2015 included in our prospectus dated October 12, 2017,2021, filed with the Securities and Exchange Commission (SEC) on March 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 SEC, pursuantimplied by such forward-looking statements. Please refer to Rule 424(b) under the Securities Act"Note Regarding Forward-Looking Statements" section of 1933.this Form 10-Q for additional information.
Company BusinessOverview
WeWe are a specialty pharmaceutical company focused on the development and commercialization of products for patients treated by ear, nose and throat or ENT,(ENT) and allergy specialists. Our leadfirst commercial product, XHANCE® (fluticasone propionate) nasal spray, 93 mcg,micrograms (mcg), is a therapeutic that utilizesutilizing our proprietary Exhalation Delivery System or EDS, to deliver(EDS) that delivers a topically-acting and potent anti-inflammatory corticosteroid for the treatment of chronic sinusitisrhinosinusitis with nasal polyps and, if approved, chronic rhinosinusitis without nasal polyps.polyps (also known as chronic sinusitis). Chronic sinusitisrhinosinusitis is a serious nasal inflammatory disease that is currently treated using therapies, such as intranasal steroids or INS, that(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 currentconventional INS. We also believe that payors will respond favorably to XHANCE's clinical, cost, and quality-of-care profile, as compared to current and potential future costly drug therapy and surgical treatment options.
OnIn September 18, 2017, the U.S. Food and Drug Administration or FDA,(FDA) approved our new drug application, or NDA, for XHANCE for the treatment of nasal polyps in adults. 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.
•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.
•Although XHANCE prescriptions have grown since the start of the pandemic, the rate of growth was below our pre-pandemic expectations. The duration and magnitude of the impact of the COVID-19 pandemic on XHANCE prescriptions and XHANCE net revenue remains uncertain and it has and could in the future continue to affect our ability to remain in compliance with the financial covenant to achieve certain minimum trailing twelve month consolidated XHANCE net product sales and royalties and other covenants under that certain Note Purchase 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
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).
•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.
•For subjects participating in our two chronic sinusitis trials, procedures to facilitate ongoing treatment and capture of data during periods of in-person care restrictions were 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 on our business is still unknown. It is likely to continue to have adverse impacts on XHANCE prescription growth and net revenues as a result of fewer patients visiting physician offices, restrictions imposed by some physician offices relating to territory managers' visits, changes in employment that can adversely affect availability of insurance coverage of XHANCE, our ability to maintain compliance with the financial and 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 2022 was 87,600, which represents 6% growth for prescriptions when compared to estimated second quarter 2021 prescriptions of 82,900. The INS prescription market increased 4% from second quarter 2021 to second quarter 2022 based on third-party prescription data. In addition, the total estimated number of XHANCE prescriptions was 86,300 in the third quarter of 2021, 93,700 in the fourth quarter of 2021, and 80,600 in the first quarter of 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. Based on third-party prescription data, INS market prescriptions decreased 4% from fourth quarter 2020 to the first quarter of 2021, 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 available to receive a new prescription for XHANCE. Demand has historically been, and we expect will continue to launchbe, 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 21,000 physicians. Our target physician audience includes all ENT and Allergy specialist physicians who, based on third-party data, write intranasal steroid
spray prescriptions. In addition, our current target audience includes specialty-like primary care physicians called on by our 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 21,000 physicians of 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 2022, and 5.6% in the second quarter of 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-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 2022 was 29,200, which represents 1% growth for new prescriptions when compared to estimated second quarter 2021 new prescriptions of 29,000. In addition, the total estimated number of XHANCE new prescriptions was 27,900 in the third quarter of 2021, 29,900 in the fourth quarter of 2021, and 28,200 in the first quarter of 2022. Based on third-party prescription data, the INS market for new prescriptions increased 8% from the second quarter of 2021 to the second quarter of 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 2022 was 58,400, which represents 8% growth for refill prescriptions when compared to estimated second quarter 2021 refill prescriptions of 53,900. In addition, the total estimated number of XHANCE refill prescriptions was 58,400 in the third quarter of 2021, 63,800 in the fourth quarter of 2021, and 52,400 in the first quarter of 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 2018 with2022 was 7,600, which represents 6% growth when compared to the estimated 7,188 physicians who had at least one patient fill a dedicated contract sales force targeting a specialty prescriber base comprised of approximately 15,000 ENT and allergy physicians in the United States. We plan to initiate additional clinical trials ofprescription for XHANCE in the second quarter of 2021. In addition, the total estimated number of physicians who had at least one patient fill a prescription for XHANCE was 7,196 in the third quarter of 2021, 7,532 in the fourth quarter of 2021, and 7,690 in the first quarter of 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 2022 was 1,550, which represents 10% growth when compared to the estimated 1,414 physicians who had more than 15 XHANCE prescriptions filled by their patients in the second quarter of 2021. In addition, the total estimated number of physicians who had more than 15 XHANCE prescriptions filled by their patients was 1,459 in the third quarter of 2021, 1,589 in the fourth quarter of 2021, and 1,468 in the first quarter of 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 $235 in the second quarter of 2022 which represents an approximately 6% increase when compared to the $221 average XHANCE net product revenues per prescription in the second quarter of 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
above a target threshold. In addition, average XHANCE net revenues per prescription were $253 in the third quarter of 2021, $240 in the fourth quarter of 2021, and $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 90 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. Our sales team is equipped with educational materials demonstrating the benefit and safety profile of 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. 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 support. This program provides patient co-pay assistance to eligible commercially insured patients. These patients may obtain XHANCE for as little as $0 out-of-pocket.
•Market Access. Based on currently available third-party data and our internal analyses as of July 31, 2022, we believe that 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 for an approved indication prior to becoming eligible for coverage for XHANCE. We estimate that approximately half of 2018the 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 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.
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 in the U.S. We believe XHANCE has the potential to broaden our market opportunity. XHANCE isbe the second commercial product that we have developed utilizing our EDS. Our first commercial product (now marketed as Onzetra® Xsail®), indicated for the acute treatment of migraines in adults, was licensed in 2013 to Avanir Pharmaceuticals, Inc., or Avanir, and wasdrug therapy approved by the FDA in January 2016.
XHANCE Pre-Commercialization Activities Update
In preparation for the commercial launchtreatment 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, completed enrollment of approximately 330 chronic sinusitis patients with and without nasal polyps in July of 2021. The second trial, ReOpen2, was initiated in the second quarter of 2019 and completed enrollment of approximately 220 chronic sinusitis patients without nasal
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 quarterly 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 examining the safety and efficacy of XHANCE versus a placebo Exhalation Delivery System (which we trained and deployed through a contract sales organization (CSO) a field teamrefer to as placebo EDS) in adults with chronic sinusitis with or without nasal polyps. This clinical trial (which we refer to as ReOpen2) is intended to serve as the second of approximately 85 contracttwo pivotal clinical nurse educators (CNEs). The objectives of the CNE team priortrials we intend to submit to the deployment of our contract sales force are to introduce Optinose asFDA in a company, raise awareness of the significant unmet need that exists within nasal polyps, explain how the Optinose EDS enables delivery of medication to targeted areas deep in the nose and familiarize health care practitioners with proper use of XHANCE. The CNE team initiated customer engagement activities on November 13, 2017 targeting approximately 10,000 ENT and allergy specialists. In addition to the recruitment and deployment of the CNE team, we also commenced recruitment activities related to our contract sales force in November.
In addition to the activities we carried out with our CSO, in November 2017 we hired 10 regional business leaders (also known as district managers) to work with the contract sales force and form the basis of the OptiNose field-based sales leadership team.
XHANCE Pediatric Study Update
As part of its approval offuture 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.
Top-line results from ReOpen2 are summarized below.
Study Design
The clinical trial included a single-blind EDS-placebo lead-in and a EDS-placebo control group, a multi-center, multi-national study population to increase generalizability and an assessment of the safety 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 Set | 75 | 73 | 74 |
Completed Study | 69 | 70 | 71 |
Subjects Discontinuing Early | 6 | 3 | 3 |
ReOpen2 had co-primary endpoints of (i) change in a composite score of nasal congestion/obstruction symptoms, nasal discharge, and facial pain and pressure from baseline to week, and (ii) change in average percent of opacified volume of the ethmoid and maxillary sinuses from baseline to week 24. The severity of nasal symptoms was recorded by patients in 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 volume of the ethmoid and maxillary sinuses occupied by disease was assessed using computer-assisted assessment of CT scans to determine the percentage (0-100%) of the sinus 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 functioning, quality of life and sleep.
Top-Line Efficacy Results
The 186- and 372-mcg treatment groups achieved statistically significant reductions in the primary assessments of composite symptom scores at week 4 and reductions in the opacified volume of the maxillary and ethmoid 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 opacified volume (or APOV) of the ethmoid and maxillary sinuses from baseline to week 24.
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| | | | Difference from Placebo EDS |
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Treatment | n | Baseline Score (Standard Deviation) | Mean (Standard Error) Change from Baseline | Mean | 95% confidence interval | P-value (1) |
Change in CSS from Baseline to Week 4 |
XHANCE 372 mcg | 74 | 5.97 (1.59) | -1.74 (0.20) | -0.93 | -1.49, -0.37 | 0.001 |
XHANCE 186 mcg | 73 | 5.87 (1.48) | -1.54 (0.20) | -0.73 | -1.29, -0.17 | 0.011 |
Placebo EDS | 75 | 6.15 (1.77) | -0.81 (0.20) | - | - | - |
Change in APOV in the Ethmoid and Maxillary Sinuses from Baseline to Week 24 |
XHANCE 372 mcg | 74 | 61.50 (18.46) | -5.14 (1.74) | -6.33 | -11.08, -1.58 | 0.009 |
XHANCE 186 mcg | 73 | 60.51 (19.37) | -7.00 (1.73) | -8.19 | -12.93, -3.45 | <0.001 |
Placebo EDS | 75 | 64.09 (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
XHANCE was well tolerated across the 186- and 372-mcg dose groups and the safety profile in this trial was generally consistent with the safety profile contained in XHANCE’s currently approved label.No serious adverse events were reported in ReOpen2. 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 ReOpen2
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Adverse Event (AE) | Placebo EDS BID (N =75) n (%) | XHANCE 186 mcg BID (N =73) n (%) | XHANCE 372 mcg BID (N =74) n (%) |
COVID-19 | 2 (2.7) | 3 (4.1) | 7 (9.5) |
Epistaxis | 0 | 4 (5.5) | 7 (9.5) |
Headache | 6 (8.0) | 2 (2.7) | 7 (9.5) |
Depression | 1 (1.3) | 0 | 3 (4.1) |
Pooled Results from the ReOpen Program
In July 2022, we announced selected pooled results from the ReOpen program. First, to inform possible differences in response of patients 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 without 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 incidence of exacerbations compared to placebo comparator. Reductions in the number of exacerbations, ranging from 53 to 80%, were found for subgroups of chronic sinusitis patients with or without nasal polyps in adults, the FDA required186 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 at least one of the four cardinal symptoms of chronic sinusitis (nasal congestion/obstruction, rhinorrhea, facial pain/pressure, and loss of sense of smell) lasting at least 3 days accompanied by an escalation in medical care, such as doctor visits or antibiotic or steroid prescription.
In addition, we conductcompleted an analysis of mean change in APOV by Patient-Reported Global Change Score (PGIC). The PGIC is a randomized, double-blind, placebo controlled clinical7-point Likert scale on which the subject directly reports their perceived overall change in disease since initiating study in childrenmedication.
The following three tables summarize these results.
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| | | | Difference from Placebo EDS |
Treatment | n | Baseline Score | LS Mean Change from Baseline | LS Mean | Nominal P-value (1) |
Change in Symptoms in Prior Nasal Steroid Users from Baseline to Week 4 (Pooled) |
XHANCE 186 or 372 mcg | 172 | 5.63 | -1.46 | -0.7 | <0.001 |
Placebo EDS | 108 | 5.84 | -0.77 | - | - |
Change in APOV in CS Patients without Nasal Polyps from Baseline to Week 24 (Pooled) |
XHANCE 186 or 372 mcg | 225 | 61.33 | -6.31 | -4.76 | 0.004 |
XHANCE 372 mcg | 112 | 61.26 | -6.5 | -4.95 | 0.01 |
XHANCE 186 mcg | 113 | 61.4 | -6.12 | -4.57 | 0.019 |
Placebo EDS | 116 | 63.32 | -1.55 | - | - |
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Treatment Group | n | Events | LS Mean | Incidence Rate Ratio (Active/PBO) | P-value (1) |
Frequency of Exacerbations over 24 Weeks (Full Analysis Set/All Patients)
|
XHANCE 186 or 372 mcg | 362 | 35 | 0.081 | 0.389 | 0.001 |
XHANCE 372 mcg | 180 | 15 | 0.072 | 0.343 | 0.002(2) |
XHANCE 186 mcg | 182 | 20 | 0.092 | 0.441 | 0.012 |
Placebo EDS | 185 | 41 | 0.208 | - | - |
Frequency of Exacerbations over 24 Weeks (Patients with Nasal Polyps) |
XHANCE 186 or 372 mcg | 137 | 12 | 0.052 | 0.276 | 0.005 |
XHANCE 372 mcg | 68 | 4 | 0.038 | 0.203 | 0.01 |
XHANCE 186 mcg | 69 | 8 | 0.07 | 0.376 | 0.055 |
Placebo EDS | 69 | 17 | 0.187 | - | - |
Frequency of Exacerbations over 24 Weeks (Patients without Nasal Polyps) |
XHANCE 186 or 372 mcg | 225 | 23 | 0.113 | 0.472 | 0.032 |
XHANCE 372 mcg | 112 | 11 | 0.113 | 0.47 | 0.077 |
XHANCE 186 mcg | 113 | 12 | 0.113 | 0.474 | 0.076 |
Placebo EDS | 116 | 24 | 0.239 | - | - |
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 Improved | Much Improved | Minimally Improved | No Change | Minimally Worsened | Much Worsened | Very Much Worsened |
|
Subjects | 67 | 64 | 164 | 90 | 16 | 10 | 4 |
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 adolescents with nasal polyposis to assess372-mcg dose groups and the safety efficacy,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 pharmacokinetics of XHANCEmore common than the placebo EDS in this population. The FDA originally indicated the study was to be conducted in children and adolescents 6 to 17 years of age. On October 302017, the FDA notified us that in response to our request it had modified the required age range to 12 to 17 years of age.trial.
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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 (%) |
Epistaxis | 1 (0.5) | 9 (4.9) | 20 (10.9) |
COVID-19 | 8 (4.3) | 5 (2.7) | 12 (6.7) |
Nasopharyngitis | 8 (4.3) | 9 (4.9) | 7 (3.8) |
Headache | 7 (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 $20.6 million and $18.4 million in net product revenues for the three months ended June 30, 2022 and 2021, respectively, and $35.3 million and $29.3 million for the six months ended June 30, 2022 and 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 80% of our total prescriptions (TRxs) in the period, our average net product revenues per prescription for the second quarter of 2022 was $235, an increase compared to average net product revenues per prescription of $221 in the second quarter of 2021 and an increase compared to $183 in the first quarter of 2022.
The increase in average net product revenues per prescription from the second quarter of 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.
The increase in average net product revenues per prescription from the first quarter of 2022 to the second quarter of 2022 is largely a consequence of the reset of many patient insurance deductibles in January. As a result of this annual reset, we provide greater copay support under our assistance programs. In addition, we believe another contributor to the first 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 lowering average net product revenues per prescription as it reduces the proportion of prescriptions that are covered (reimbursed) by a commercial insurer, which results in us providing greater copay support under our assistance 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 2022 net product revenues will be between $85.0 million and $92.0 million. Previously we expected full year 2022 net product revenues would be at least $90.0 million. 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 full year 2022 average net product revenues per prescription will be greater than $220.
Licensing revenues
To date, we have not generated any revenues from product sales. Substantially all of our revenue to date has been derived from the AVP-825 License Agreement. We do not expect to generate significant product revenue unless and until we commercialize XHANCE and our other product candidates.
In July 2013, we, through ourSeptember 2019, OptiNose AS, a wholly owned subsidiary OptiNose AS,of the Company, entered into the AVP-825Currax License Agreement under which we granted an exclusive license to Avanir to further develop and commercialize AVP-825 (now marketed as Onzetra Xsail).Agreement. Under the terms of the AVP-825Currax License Agreement, we have received $70.0Currax paid us a $3.7 million upfront payment in 2019, an additional $0.8 million in aggregate licensing revenuesDecember 2020 upon expiration of the escrow that was established for a limited period to date in connection with the initial signingcover potential indemnification obligations, and the achievement of development milestones, including a $47.5 million payment upon FDA approval of AVP-825 in the first quarter of 2016. We are eligible to receive up to an additional $50.0$1.0 million milestone payment in January 2021 upon the achievement of annual sales milestones and tiered low double-digit royaltya specified regulatory milestone. We are not eligible to receive any further payments once and if net salesfrom Currax under the terms of the product exceed a specified cumulative threshold. We do not expect to generate any additional revenue from the AVP-825Currax License Agreement inother than reimbursement for certain expenses.
Costs of product sales
Costs of product sales includes the near term.cost of inventory sold, which includes direct and indirect manufacturing and supply chain costs.
Research and development expense
Research and development expense consists substantiallyprimarily of costsexpenses incurred in connection with the developmentto prepare for, initiate and pursuitconduct our planned clinical trials, ongoing research efforts of regulatory approval for XHANCE for the treatment of nasal polyps.new products and device improvements. We expense research and development costs as incurred. These expenses include:
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▪ | personnel expenses, including salaries, benefits and stock-based compensation expense; |
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▪ | costs of funding research performed by third parties, including pursuant to agreements with contract research organizations, or CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials; |
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▪ | expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials; |
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▪ | consultant fees and expenses associated with outsourced professional scientific development services; |
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▪ | expenses for regulatory activities, including filing fees paid to regulatory agencies and costs incurred to compile filings with the FDA; |
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▪ | costs incurred to maintain, expand and protect our patent portfolio; and |
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▪ | allocated expenses for facility costs, including rent, utilities, depreciation and maintenance. |
▪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 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
▪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 for the foreseeable future as we expect to continue the development of XHANCE for a follow-on indication for the treatment of chronic sinusitis and our other product candidates. At this time, due to the inherently unpredictable nature of preclinical and clinical development, and given the preliminary natureClinical trial costs associated with our chronic sinusitis program represent a substantial portion of our clinical trial design for XHANCE for a follow-on indication fortotal research and development expenses. While we would expect to continue to incur regulatory and other development expenses after the treatmentconclusion of our chronic sinusitis and the FDA-mandated pediatric studies for XHANCE, and the early stage of our other product candidates,clinical program, we are unable to estimate with any certaintyexpect the costs we will incur andassociated with the timelines we will require in our continued development efforts.conduct of clinical trials to significantly decrease.
Selling, general and administrative expense
Selling, generalGeneral 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 legalregulatory fees related to corporate matters and professional fees for legal, patent, accounting and other consulting services.
We anticipate that our general and administrative expense will increase as a result of an expanded infrastructure and an increased headcount to support the commercialization of XHANCE. We also anticipate higher corporate infrastructure costs including, but not limited to accounting, legal, human resources, consulting and investor
relations fees, as well as increased director and officer insurance premiums, associated with becoming a public company.
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 efforts. Additionally, sales and marketing-related expenses consist of market researchinclude fees paid to our PPN partners for services unrelated to traditional distribution functions, such as data fees and other pre-commercial activities to prepare for the anticipated commercialization of XHANCE, as well as salaries and related benefits for employees focused on such efforts. We anticipate an increase in headcount and expense, including in connection with the engagement of a dedicated contract sales organization, as a result of our preparation for the commercial launch of XHANCE in the United States.benefit claims 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 amounts amortized and accrued under our convertible notes that were converted into preferred stock in March 2017.the Note Purchase Agreement.
Other (income) expense
Other (income) expense consists primarily of grant and other income as a result of government cost reimbursements for research and development activities over a contractually defined period, as well as 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 SeptemberJune 30, 20172022 and 20162021
The following table sets forth our selected consolidated statements of operations data for the periods indicated (in thousands): | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2022 | | 2021 |
Revenues: | | | |
Net product revenues | $ | 20,582 | | | $ | 18,357 | |
Licensing revenues | — | | | — | |
Total revenues | 20,582 | | | 18,357 | |
Costs and expenses: | | | |
Cost of product sales | 2,143 | | | 2,425 | |
Research and development | 4,270 | | | 8,179 | |
Selling, general and administrative | 29,514 | | | 27,308 | |
Total operating expenses | 35,927 | | | 37,912 | |
Loss from operations | (15,345) | | | (19,555) | |
Other (income) expense: | | | |
Interest (income) expense | 4,050 | | | 4,000 | |
Other (income) expense | 2 | | | (53) | |
Total other (income) expense | 4,052 | | | 3,947 | |
Net loss | $ | (19,397) | | | $ | (23,502) | |
Net product revenues
|
| | | | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 |
Licensing revenues | $ | — |
| | $ | — |
|
Operating expenses: | |
| | |
|
Research and development | 6,641 |
| | 3,868 |
|
Selling, general and administrative | 6,553 |
| | 1,761 |
|
Total operating expenses | 13,194 |
| | 5,629 |
|
Loss from operations | (13,194 | ) | | (5,629 | ) |
Other (income) expense: |
|
| | |
|
Interest (income) expense | (61 | ) | | 847 |
|
Other (income) expense | (65 | ) | | (370 | ) |
Total other (income) expense | (126 | ) | | 477 |
|
Net loss | $ | (13,068 | ) | | $ | (6,106 | ) |
Licensing Revenues
There was no licenseNet 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 SeptemberJune 30, 20172022.
Cost of product sales
Cost of product sales related to XHANCE were $2.1 million and 2016.$2.4 million for the three months ended June 30, 2022 and 2021, respectively.
Research and development expense
Research and development expenses were $6.6expense was $4.3 million and $3.9$8.2 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The $2.7 million increaseThis decrease was primarily attributable primarily to: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.
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▪ | a $1.5 million increase in expenses related to the preparation of contract manufacturing capabilities in anticipation of the expected commercial launch of XHANCE for the treatment of nasal polyps; |
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▪ | a $0.9 million increase in personnel and bonus expenses due to increases in headcount, as well as increases in bonus expense as a result of the achievement of Company performance targets; |
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▪ | a $0.4 million increase in stock-based compensation expense; |
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▪ | a $0.4 million increase in medical affairs spending in connection with the conduct, reporting and planning for current and future research programs and to prepare for our planned clinical trials for a follow-on indication for the treatment of chronic sinusitis; |
These increases were offset primarily by:
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▪ | a $0.5 million decrease in regulatory expenses as a result of the substantial completion of our NDA submission activities for XHANCE for the treatment of nasal polyps; and |
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▪ | a $0.3 million decrease in expenses associated with the completion of an anthropometric study which assessed the usability of XHANCE in children under 18 years of age in preparation for the FDA mandated pediatric studies. |
Selling, general and administrative expense
Selling, general and administrative expenses were $6.6expense was $29.5 million and $1.8$27.3 million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The $4.8$2.2 million increase was due primarily to:
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▪ | a $2.2 million increase in commercial expenses related to our preparation for the expected commercial launch of XHANCE for the treatment of nasal polyps; |
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▪ | a $1.0 million increase in administrative and consultancy expenses as a result of our preparations to become a public company; |
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▪ | a $0.9 million increase in personnel and bonus expenses due to increases in headcount as well as increases in bonus expense as a result of the achievement of Company performance targets; and |
▪a $0.4$1.9 million increase in stock-based compensation expense.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 $(61,000)$4.1 million and $0.8$4.0 million for the three months ended SeptemberJune 30, 20172022 and 2016, respectively. Interest2021, respectively, which was primarily comprised of interest expense foron the threePharmakon Senior Secured Notes during both periods.
Comparison of six months ended SeptemberJune 30, 2016 was related primarily to our convertible notes. The convertible notes were converted to shares of preferred stock in March 2017.2022 and 2021
Other (income) expense, net
Other income, net, was $(65,000) and $0.4 million for the three months ended September 30, 2017 and 2016, respectively. The income in both periods was attributable primarily to grant eligible research and development expenses incurred by OptiNose AS, our Norwegian subsidiary.
Comparison of the nine months ended September 30, 2017 and 2016
The following table sets forth our selected consolidated statements of operations data for the periods indicated (in thousands): | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
Revenues: | | | |
Net product revenues | $ | 35,342 | | | $ | 29,317 | |
Licensing revenues | — | | | 1,000 | |
Total revenues | 35,342 | | | 30,317 | |
Costs and expenses: | | | |
Cost of product sales | 4,157 | | | 4,165 | |
Research and development | 9,072 | | | 13,404 | |
Selling, general and administrative | 58,853 | | | 54,493 | |
Total operating expenses | 72,082 | | | 72,062 | |
Loss from operations | (36,740) | | | (41,745) | |
Other (income) expense: | | | |
Interest (income) expense | 7,989 | | | 7,855 | |
Other (income) expense | 1 | | | (45) | |
Total other (income) expense | 7,990 | | | 7,810 | |
Net loss | $ | (44,730) | | | $ | (49,555) | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Licensing revenues | $ | — |
| | $ | 47,500 |
|
Operating expenses: | |
| | |
|
Research and development | 15,620 |
| | 12,241 |
|
Selling, general and administrative | 13,214 |
| | 5,057 |
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Total operating expenses | 28,834 |
| | 17,298 |
|
Income (loss) from operations | (28,834 | ) | | 30,202 |
|
Other (income) expense: | |
| | |
|
Interest (income) expense | 706 |
| | 2,523 |
|
Other (income) expense | (189 | ) | | (522 | ) |
Total other (income) expense | 517 |
| | 2,001 |
|
Net (loss) income | $ | (29,351 | ) | | $ | 28,201 |
|
Licensing Revenues
Revenue was $47.5Net product revenues related to sales of XHANCE were $35.3 million and $29.3 million for the ninesix months ended SeptemberJune 30, 2016 2022and was2021, respectively. Revenue growth is attributable primarily to the achievement of a development milestone under the terms of the AVP-825 License Agreementan increase in units sold to customers as a result of FDA approvala greater number of Onzetra XsailXHANCE prescriptions dispensed, as well as an increase in January 2016. There were no licensing revenuesour average net selling price during the ninesix months ended SeptemberJune 30, 2017.2022.
Cost of product sales
Cost of product sales related to XHANCE were $4.2 million and $4.2 million for the six months ended June 30, 2022 and 2021, respectively.
Research and development expense
Research and development expenses were $15.6expense was $9.1 million and $12.2$13.4 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The $3.4$4.3 million increasedecrease was attributable primarily to: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.
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▪ | a $1.7 million increase in expenses related to the preparation of contract manufacturing capabilities in anticipation of the expected commercial launch of XHANCE for the treatment of nasal polyps; |
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▪ | a $0.9 million increase in personnel and bonus expenses due to increases in headcount, as well as increases in bonus expense as a result of the achievement of Company performance targets; |
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▪ | a $0.7 million increase in medical affairs spending in connection with the conduct, reporting and planning for current and future research programs and to prepare for our planned clinical trials for a follow-on indication for the treatment of chronic sinusitis; |
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▪ | a $0.6 million increase in stock-based compensation expense; and |
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▪ | a $0.5 million increase in intellectual property expenses as a result of an increase in new patent filings. |
These increases were offset primarily by:
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▪ | a $1.2 million decrease in regulatory expenses as a result of the substantial completion of our NDA submission activities for XHANCE for the treatment of nasal polyps; and |
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▪ | a $0.2 million decrease in expenses associated with the completion of an anthropometric study which assessed the usability of XHANCE in children under 18 years of age in preparation for the FDA mandated pediatric studies. |
Selling, general and administrative expense
Selling, general and administrative expenses were $13.2expense was $58.9 million and $5.1$54.5 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The $8.1$4.4 million increase was due primarily to:
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▪ | a $3.8 million increase in commercial expenses related to our preparation for the expected commercial launch of XHANCE for the treatment of nasal polyps; |
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▪ | a $1.7 million increase in administrative and consultancy expenses as a result of our preparations to become a public company; |
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▪ | a $1.5 million increase in personnel and bonus expenses due to increases in headcount, as well as increases in bonus expense as a result of the achievement of Company performance targets; and |
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▪ | a $0.7 million increase in stock-based compensation expense. |
▪a $2.4 million increase in payroll and related costs;
▪a $1.1 million increase in other sales, marketing and consulting costs;
▪a $0.8 million increase in PPN fees and other patient assistance costs;
▪a $0.1 million increase in other administrative expenses.
Interest (income) expense, net
Interest (income) expense, net, was $0.7$8.0 million and $2.5$7.9 million for the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively. The $1.8 million decrease2021, respectively, which was due primarily tocomprised of interest expense on the conversion of convertible notes to shares of preferred stock in March 2017.
Other (income) expense, net
Other income, net, was $0.2 million and $0.5 million for the nine months ended September 30, 2017 and 2016, respectively. The income inPharmakon Senior Secured Notes during both periods was attributable primarily to grant eligible research and development expenses incurred by OptiNose AS, our Norwegian subsidiary.
periods.
Liquidity and Capital Resources
We have funded our operations primarily through the sale and issuance of stock and convertible debt, as well as through licensing revenues received under the terms of the AVP-825 License Agreement. As of September 30, 2017, we had $49.4 million in cash and cash equivalents. In October 2017, we completed our initial public offering (IPO), selling 8,625,000 shares of our common stock at a price of $16.00 per share. As a result of the IPO, we received approximately $125.5 million in net proceeds, after deducting underwriting discounts and commissions of approximately $9.7 million and estimated offering expenses of approximately $2.8 million payable by us.
Since inception, we have incurred significant net losses and expect to continue to incur net losses for the foreseeable future. We had net income of $28.2 million for the nine months ended September 30, 2016 due primarily to the achievement of a milestone under the AVP-825 License Agreement. However, we incurred net losses of $29.4$44.7 million and $49.6 million for the ninesix months ended SeptemberJune 30, 20172022 and net losses of $13.1 million and $6.1 million for the three months ended September 30, 2017 and 2016,2021, respectively. As of SeptemberJune 30, 2017,2022, we had an accumulated deficit of $191.1$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, 2022, we had $78.3 million in cash and cash equivalents.
The following table shows a summary of our cash flows for the periods indicated (in thousands):
|
| | | | | | | | | |
| | Nine Months Ended September 30, | |
| | 2017 | | 2016 | |
Net cash (used in) provided by operating activities | | $ | (21,872 | ) | | $ | 27,656 |
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Net cash used in investing activities | | (1,210 | ) | | (43 | ) | |
Net cash provided by financing activities | | 35,713 |
| | — |
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Effects of exchange rates on cash and cash equivalents | | (18 | ) | | 46 |
| |
Net (decrease) increase in cash and cash equivalents | | $ | 12,613 |
| | $ | 27,659 |
| |
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
Net cash used in operating activities | | $ | (32,473) | | | $ | (50,518) | |
Net cash used in investing activities | | (50) | | | (10) | |
Net cash provided by financing activities | | 276 | | | 276 | |
Effects of exchange rates on cash and cash equivalents | | 3 | | | — | |
Net decrease in cash, cash equivalents and restricted cash | | $ | (32,244) | | | $ | (50,252) | |
Operating activities
Cash provided by (used in)used in operating activities decreased by $49.5$18.0 million, from $27.6$50.5 million for the ninesix months ended SeptemberJune 30, 20162021 to $(21.9)$32.5 million for the ninesix months ended SeptemberJune 30, 2017.2022. The decrease in cash provided byused in operating activities was attributable primarily to a decrease in accounts receivable and inventory due to increased sales and collections for the net income generated from the $47.5 million of licensing revenue earned in connection with the achievement of a development milestone under the terms of the AVP-825 License Agreement resulting from FDA approval of Onzetra Xsail in January 2016. No revenue was generated from the AVP-825 License Agreement during the ninesix months ended SeptemberJune 30, 2017.2022.
Investing activities
Cash used in investing activities increased $1.2increased by $0.1 million from $43,000 for the ninesix months ended SeptemberJune 30, 20162021 to $1.2 million for the ninesix months ended SeptemberJune 30, 2017. The increase was related2022 due to purchasesproceeds from the sale of equipment in connection with our preparation forduring the commercial launch of XHANCE.six months ended June 30, 2021.
Financing activities
Cash provided by financing activities increased to $35.7was $0.3 million for the ninesix months ended June 30, 2022 and 2021. Cash used in financing activities for both periods was primarily driven by proceeds from the issuance of common stock under our employee stock purchase plan.
Senior Secured Note Purchase Agreement
On September 12, 2019 (the Closing Date), we entered into a Note Purchase Agreement with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of BioPharma Credit Funds (BioPharma). The Note 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 after achieving the $14.5 million consolidated XHANCE net sales and royalties threshold for the quarter ended September 30, 2017 from $02020.
Amounts outstanding under the Pharmakon Senior Secured Notes bear interest at a fixed 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 through to the Maturity Date. Upon repayment of the Senior Secured Notes we will also be required to pay $2.1 million in 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, 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 prepayments (whether mandatory or voluntary) made prior to the 30-month anniversary of the closing of 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 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, pay dividends and distributions, repay junior indebtedness and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Note 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, as follows (in millions):
| | | | | | | | | | | | | | |
| | | | |
| Trailing Twelve-Months Ending | | Requirement under the Note Purchase Agreement After the Second Amendment | |
| March 31, 2022 | | 70.00 | |
| June 30, 2022 | | 75.00 | |
| September 30, 2022 | | 80.00 | |
| December 31, 2022 | | 85.00 | |
| March 31, 2023 | | 98.75 | |
| June 30, 2023 | | 102.50 | |
| September 30, 2023 | | 106.25 | |
| December 31, 2023 | | 110.00 | |
| March 31, 2024 | | 113.75 | |
| June 30, 2024 | | 117.50 | |
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
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 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 nine months ended September 30, 2016. During 2017,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 2022 operating expenses
We expect that our total GAAP operating expenses (consisting of selling, general & administrative expenses and research & development expenses) for 2022 will be between $129.0 million and $134.0 million of which approximately $9.0 million is expected to be stock-based compensation expense. As a result, total GAAP operating expenses excluding stock-based compensation expense are expected to be between $120.0 million and $125.0 million. Previously we received $35.7expected 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 net proceedsselling, general, and administrative expenses from 2021 to 2022 is anticipated primarily due to inflation, and an increase in fees paid to our PPN partners associated with higher projected XHANCE prescription volumes which is offset by an expected decrease in research and development expenses as our clinical trial program in pursuit of a follow-on indication for XHANCE for the saletreatment of our Series D Preferred Stock.chronic sinusitis nears completion.
Future Funding Requirementscapital requirements
We expect to continue to incur significant expenses in connection with our ongoing activities, particularly as we:
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▪ | engage a contract specialty sales force, projected to initially consist of approximately 75 sales representatives, to market XHANCE for the treatment of nasal polyps and build commercial infrastructure to support sales and marketing for XHANCE; |
| |
▪ | continue clinical development activities for XHANCE, including FDA-mandated pediatric studies, and seek regulatory approval for XHANCE for a follow-on indication of chronic sinusitis; |
| |
▪ | hire additional staff and add operational, financial and information systems to execute our business plan; |
| |
▪ | maintain, expand and protect our patent portfolio; |
▪continue advertising and other promotional activities to support the commercialization of XHANCE;
| |
▪ | contract to manufacture XHANCE and our other product candidates; |
| |
▪ | continue research and development activities for our other product candidates; and |
| |
▪ | operate as a public company. |
▪continue to provide co-pay and other patient affordability programs for XHANCE;
▪continue clinical development activities for XHANCE, including studies mandated under the Pediatric Research Equity Act, and activities in pursuit of a follow-on indication for the treatment of chronic sinusitis;
▪evaluate product 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;
▪maintain infrastructure necessary to operate as a publicly-traded, 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; |
| |
▪ | the cost and timing of completion of commercial-scale outsourced manufacturing activities; |
| |
▪ | our clinical development plans for XHANCE, including FDA-mandated pediatric studies and clinical trials for the follow-on indication for the treatment of chronic sinusitis; |
| |
▪ | 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 cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; |
| |
▪ | the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us; |
| |
▪ | potential future licensing revenue from the AVP-825 License Agreement; |
| |
▪ | the initiation, progress, timing, costs and results of clinical trials for our other product candidates; and |
| |
▪ | the extent to which we in-license or acquire other products, product candidates or technologies. |
Although it is difficult to predict future liquidity requirements, we believe that the net proceeds from our IPO, together with our existing cash and cash equivalents, will enable us to fund our operations into the second quarter of 2019. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect that we will need to raise additional capital in the future to further the commercialization of XHANCE for the treatment of nasal polyps including, among other things, continued patient and physician adoption of XHANCE and our ability to complete 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 level of co-pay assistance and other patient affordability programs offered for XHANCE;
▪our clinical development ofplans for XHANCE, forincluding the outcome, timing and cost studies mandated under the Pediatric Research Equity Act, and activities in pursuit of a follow-on indication for the treatment of chronic sinusitis;
▪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;
▪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;
▪the extent to which we in-license, acquire or otherwise partner in development or commercialization of other products, product candidates or 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 supportcarry out our planned development and commercial activities. We believe that our existing cash and cash equivalents will be sufficient to maintain the developmentminimum cash balance required under our outstanding debt and to fund our operations for at least twelve months from the filing date of ourthis Quarterly Report on Form 10-Q. Additional capital, secured in the future through equity or debt financings, partnerships, collaborations, or other product candidates. Additional fundssources, will be required, and may not be available on a timely basis, on favorable terms, or at all, and such funds,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, we 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 obligationsfiling of this quarterly report on Form 10-Q, we expect consolidated XHANCE net sales and commitments
During the nine months ended September 30, 2017, there have been no material changes to our contractual obligations from those described in our prospectus dated October 12, 2017, filed with the SEC pursuant to Rule 424(b) under the Securities Act.
In November 2017, we entered into an agreement with a contract sales organizationroyalties for the recruitment, deploymenttrailing twelve-month period ending December 31, 2022 to be between $85 million and management of a contract$92 million. Previously we expected consolidated XHANCE net sales force to market XHANCE in the United States. Subject to certain limited exceptions, we may not terminate this agreement until after the first anniversary of the deployment of the sales force. We estimate the expenses related to the non-cancellable services during thisand royalties for such twelve month period to be approximately $15.5at least $90 million. Thereafter,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 terminateseek to raise in a financing. Although there can be no guarantee that the agreement subjectholders of the Pharmakon Senior Secured Notes will provide a waiver or modification if requested. In addition, in order to potential early termination fees ranging from $0.1 millioncomplete future financings the investors in such financings may require us to $0.7 million.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.
Critical accounting policies
The Critical Accounting Policies and Significant Judgments and Estimates included in our prospectus dated October 12, 2017,annual report on Form 10-K for the year ended December 31, 2021, as filed with the SEC pursuant to Rule 424(b) under the Securities Acton March 8, 2022, have not materially changed.
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.
JOBSAct
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 exposed to various market risks, which may result in potential losses arising from adverse changes in market rates, sucha smaller reporting company as interest rates and foreign exchange rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes and do not believe we are exposed to material market risk with respect to our cash and cash equivalents.
Through the operation of our subsidiaries based in the United Kingdom and Norway, we are exposed to foreign exchange rate risks. In addition to the operations of our foreign subsidiaries, we also contract with vendors that are located outside the United States, and in some cases make payment of invoices denominated in foreign currencies. We are subject to fluctuations in foreign currency rates in connection with these arrangements. We do not currently hedge our foreign currency exchange rate risk. As of September 30, 2017, we had minimal liabilities denominated in foreign currencies.
As of September 30, 2017, we had cash and cash equivalents of $49.4 million. We do not engage in any hedging activities against changes in interest rates. Becausedefined by Rule 12b-2 of the short-term maturitiesSecurities Exchange Act of our cash1934 and cash equivalents, we doare not believe that an immediate 10% increase in interest rates would have a significant impact onrequired to provide the realized value of our investments.information under this item.
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material effect on our business, financial condition or results of operations during the nine months ended September 30, 2017 and 2016.
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. Our
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designedconceived and operated, can provide only reasonable, not absolute, assurance that the objectives of achieving their objectivesthe disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily applieswas 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 management, with the participation of our chief executive officerChief Executive Officer and our chief financial officer,Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on thatthis evaluation, our chief executive officerChief Executive Officer and our chief financial officerChief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level, as of the end of the period covered by this report.
June 30, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our third fiscal quarterthe three months ended SeptemberJune 30, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)
PART II
ITEM 1. LEGAL PROCEEDINGS
From timeWe are not currently a party to time, we may become involved in litigation relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which would have a material adverse effect on our results of operations, financial condition or cash flows.any legal proceedings.
ITEM 1A. RISK FACTORS
You should carefully consider the risk factors described under the caption "Risk Factors" in our prospectus dated October 12, 2017, filed with the SEC pursuant to Rule 424(b) under the Securities Act. ThereExcept 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 prospectus.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. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent IssuancesAs of Unregistered Securities
On August 7, 2017,June 30, 2022, we granted stock optionshave 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 purchase a total of 160,278 shares of common stock at an exercise price of $7.25 per share to nine employeestime (Purchasers), as previously amended pursuant to our 2010 Stock Incentive Plan, orthat 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 2010 Plan. OnNote 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, 2017, we granted a stock option to purchase 28,879 shares2024 (the Maturity Date). As of common stock at an exercise price of $7.25 per share to one employee pursuant to our 2010 Plan. These grants of stock options were exempt from registrationJune 30, 2022, the outstanding principal, accrued interest and fees under the Securities ActNote 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 reliancefive equal quarterly installments beginning on Rule 701September 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 offerswell 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 Ending | | Requirement under the Note Purchase Agreement After the Second Amendment | |
| March 31, 2022 | | 70.00 | |
| June 30, 2022 | | 75.00 | |
| September 30, 2022 | | 80.00 | |
| December 31, 2022 | | 85.00 | |
| March 31, 2023 | | 98.75 | |
| June 30, 2023 | | 102.50 | |
| September 30, 2023 | | 106.25 | |
| December 31, 2023 | | 110.00 | |
| March 31, 2024 | | 113.75 | |
| June 30, 2024 | | 117.50 | |
Each holder of the Pharmakon Senior Secured Notes may elect to accelerate the repayment of all unpaid principal and accrued interest under written compensatory benefit planssuch 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 contracts relatingcash equivalents in certain deposit accounts and require us to compensationachieve 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 Rule 701. Eachour 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 recipientsexercise of securitiesany power granted in any transaction exempt from registration either received or had adequate access, through employment, business or other relationships, to information about us.
Use of Proceeds
Our IPO was effected through a Registration Statement on Form S-1 (File No. 333-220515) that was declared effective by the SEC on October 12, 2017. On October 17, 2017, 8,625,000 sharesPharmakon Senior Secured Notes. Any such action would materially and adversely affect the ongoing viability of our common stock were sold atbusiness.
On August 10, 2022, we entered into a pricethird amendment (the Third Amendment) to the publicNote 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 $16.00 per share, for aggregate gross proceeds of $138.0 million.the Pharmakon Senior Secured Notes. As of the datefiling of filing this quarterly report on Form 10-Q, we expect consolidated XHANCE net sales and royalties for the offering has terminated,trailing twelve-month period ending December 31, 2022 to be between $85 million and all$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 securities registered pursuantNote 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 offering were sold prior to termination. Jefferiesminimum trailing twelve-month consolidated XHANCE net sales and Piper Jaffray acted as lead joint book-running managersroyalties 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 IPO,future, which would impact the timing and BMO Capital Markets and RBC Capital Markets acted as joint book-running managersamount that we may seek to raise in a financing. Although there can be no guarantee that the IPO.
On October 17, 2017 we received proceeds from the IPO of $128.3 million, which was net of underwriting discounts and commissions of approximately $9.7 million. Of this amount, we paid offering expenses of approximately $2.8 million. The balanceholders of the funds totaling approximately $125.5 million shall be usedPharmakon Senior Secured Notes will provide a waiver or modification if requested. In addition, in a manner consistent withorder to complete future financings the use
investors in such financings may require us to obtain certain modifications to the IPO as described in the Prospectus under “Use of Proceeds.”
The foregoing expenses are a reasonable estimateminimum trailing twelve-month consolidated XHANCE net sales and royalties financial covenant and other provisions of the expenses incurred by us inNote Purchase Agreement which may or may not be acceptable to the offering and do not represent the exact amount of expenses incurred. Allholders of the foregoing expenses were direct or indirect payments to persons other than (i) our directors, officers or any of their associates; (ii) persons owning 10% or more of our common stock; or (iii) our affiliates.Pharmakon Senior Secured Notes.
There has been no material change in the use of proceeds from the IPO as described in the Prospectus under “Use of Proceeds.”
ITEM 3. DEFUALTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Third Amendment to Note Purchase Agreement
None.On August 10, 2022, the Company entered into a third amendment (the Third Amendment) to 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 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 the 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 the Pharmakon Senior Secured Notes issued pursuant to the Note Purchase Agreement.
The foregoing is a summary description of certain terms of the Third Amendment and, by its nature, is not complete. It is qualified in its entirety by reference to the Third 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 Company'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 which is filed as Exhibit 10.2 to this Form 10-Q, and is incorporated herein by 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.
INDEX TO EXHIBITS
| | | | | | | | | | | | | | |
| | | | |
| Exhibit Number | | Exhibit Description | |
| 3.1 | | | Exhibit
Number
| | Exhibit Description |
| 3.1 |
| | | |
| 3.2 |
| | | |
| 10.1 |
| | SupplyCooperation Agreement, dated July 1, 2017,April 25, 2022, by and between Hovione Inter Ltdamong OptiNose, Inc. M. Kingdon Offshore Master Fund L.P., Velan Capital Partners LP and OptiNose US, Inc., OptiNose UK, Ltd and OptiNose AScertain other affiliated investors listed therein (incorporated by reference to Exhibit 10.1410.1 to the Company’s Registration StatementCompany's Current Report on Form S-18-K (File No. 333-220515)001-38241), as filed with the SEC on September 18, 2017)April 26, 2022). | |
| 10.2 |
| * | | |
| 10.3 | | * | Third Amendment, dated August 10, 2022, to the Note Purchase Agreement, dated as of August 18, 2017, by andSeptember 12, 2019, among OptiNose US, Inc., OptiNose, Inc., OptiNose UK Ltd.Limited and OptiNose AS, BioPharma Credit PLC, as collateral agent and Contract Pharmaceuticals Limited Canada (incorporated by referencethe purchasers from time to Exhibit 10.15 to the Company’s Registration Statement on Form S-1 (File No. 333-220515), as filed with the SEC on September 18, 2017)time party thereto. | |
| 10.331.1 |
| * | |
| 31.1 |
| * | | |
| 31.2 |
| * | | |
| 32.1 |
| ** | | |
| 32.2 |
| ** | | |
| 101.INS101.SCH |
| * | XBRL Instance Document. |
| 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.
** Furnished herewith.
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: November 27, 2017 | August 11, 2022 | By: | By: | | /s/ KEITH A. GOLDANMICHELE JANIS |
| | | | Name: | Name: | Keith A. Goldan | Michele Janis |
| | | | Title: | Title: | | Acting Chief Financial Officer |
| | | | | (Principal Financial and Accounting Officer) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| | | OPTINOSE, INC. |
Date: | August 11, 2022 | | By: | | /s/ ANTHONY J. KRICK |
| | | | | Name: | | Anthony J. Krick |
| | | | | Title: | | Chief Accounting Officer |
| | | | | (Principal Accounting Officer) |