UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
(Mark one)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 20172023
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ______________.
 
Commission file number: 001-38241

optinoselogorgba36.jpg


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

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

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



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


Large accelerated filero☐
Accelerated filero
☐
Non-accelerated filerý (Do not check if a smaller reporting company)
 ☒
Smaller reporting companyo
☒
Emerging growth companyý
☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.ý☐
  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yeso☐ Noý☒

The number of shares of the registrant's common stock outstanding at November 27, 20171, 2023 was 37,817,713112,311,984 shares.


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Table of Contents


NOTE REGARDING FORWARD-LOOKING STATEMENTS
1
PART I — FINANCIAL INFORMATION
24
24
35
46
57
69
610
1723
2433
2433
PART II — OTHER INFORMATION
2534
2634
Risk Factors
2635
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
26
Item 3.
Defaults Upon Senior Securities
26
Item 4.
Mine and Safety Disclosures
26
Item 5.
Other information
26
Item 6.
Exhibits
27
Signatures
28
_________________________


Unless the context otherwise requires, all references in this Form 10-Q to "Optinose," "Company," "we," "us," and "our" refer to OptiNose, Inc. and its subsidiaries.
_________________________

Trademark Notice
OPTINOSE®OPTINOSE®, XHANCE®, EDS® and XHANCE™EXHALATION DELIVERY SYSTEMTM are trademarks or registered trademarks of ours in the United States. All other trademarks, trade names and service marks appearing in this prospectusForm 10-Q are the property of their respective owners. We do not intend our use or display of other companies' trademarks, trade names or trademarksservice marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.


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NOTE REGARDING FORWARD-LOOKING STATEMENTS


This Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements relating to:
▪the potential advantages of XHANCE and our product candidates;
▪the planned launch of XHANCE in the United States in the second quarter of 2018;
▪planned product development activities, studies and clinical trials, including our plans to initiate additional clinical trials of XHANCE in pursuit of a follow-on indication for chronic sinusitis;
▪our expectation that our existing cash and cash equivalents will be sufficient to fund our operations into the second quarter of 2019; and
▪our future expenses and capital expenditures;
▪the potential uses for and advantages of XHANCE®, the Exhalation Delivery System™ (also referred to as, the EDS®) and related technologies;
▪our planned activities in pursuit of a follow-on indication for chronic sinusitis;
▪the potential for XHANCE to be the first product approved by the U.S. Food and Drug Administration (FDA) for the treatment of chronic sinusitis;
▪the potential to expand into the primary care segment and our plans to seek a partner for such expansion;
▪our belief that the current practice of postoperative intranasal steroid (INS) use could support XHANCE’s adoption as a maintenance therapy to improve outcomes following sinus surgery;
▪the potential for XHANCE to be the standard of care for the treatment of chronic rhinosinusitis with and without nasal polyps;
▪the potential benefits of our patient affordability programs (including recent changes we made to the XHANCE co-pay assistance program) and their potential effect on XHANCE demand and financial results;
▪our expectation for XHANCE prescriptions to be impacted by the seasonality observed in the INS market and the seasonal variation in patient visits with their doctor;
▪our expectation for XHANCE prescriptions and average net revenue per prescription to be adversely impacted by the annual resetting of patient healthcare insurance plan deductibles and changes in individual patients' healthcare insurance coverage, both of which often occur in January;
▪XHANCE prescription, net revenue, prescriber and other business trends;
▪the potential for increasing rates of enforcement of payor utilization management criteria to negatively impact XHANCE prescription volumes;
▪the rate and degree of market acceptance and market opportunity of XHANCE;
▪the potential for us to decrease our reliance on sole-source suppliers and increase the third party manufacturing capacity that is available to us;
▪our expectation that the research and development costs will significantly decrease in 2023 as compared to 2022;
▪our expectation that our operating expenses (consisting of selling, general & administrative expenses and research & development expenses) in 2023 will be between $88.0 million and $93.0 million and that our non-cash stock-based compensation expense will be approximately $6.0 million;
▪our expectation that XHANCE net product revenues for the full year of 2023 will be between $66.0 million and $70.0 million;
▪our expectation that the average net product revenue per prescription for XHANCE for the full year of 2023 will be approximately $200;
▪our potential non-compliance with certain covenants of the A&R Note Purchase Agreement, and the consequences of failing to achieve compliance with such covenants or obtain a waiver or modification of such covenants;
▪our belief that our existing cash and cash equivalents will be sufficient to fund our operations and debt service obligations for approximately the next 12 months if we are able to maintain compliance with the
1
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financial and other covenants and terms of the A&R Note Purchase Agreement or obtain a waiver to or modification of such covenants;
▪our expectations and the accuracy of our estimates regarding our future expenses, revenue, capital requirements, potential sources of capital and consequences of failing to obtain additional capital;
▪our ability to continue as a going concern;
▪our plans to liquidate and dissolve our wholly-owned subsidiaries, OptiNose AS and OptiNose UK, in 2023;
as well as other statements relating to our future operations, financial performance and financial condition, prospects, strategies, objectives or other future events. Forward-looking statements appear primarily in the sections of this Form 10-Q entitled “Item 1. Financial Statements,” and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by words such as “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” "target," “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” “scheduled” and similar expressions, although not all forward-looking statements contain these identifying words.
Forward-looking statements are based upon our current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other factors that could cause actual results to differ materially and adversely from those expressed or implied by such statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-Q and in our prospectus dated October 12, 2017,annual report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission or SEC, pursuant to Rule 424(b) under the Securities Act of 1933,(SEC), and in particular, the risks and uncertainties discussed therein under the caption “Risk Factors”. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. As a result, you should not place undue reliance on forward-looking statements.
Additionally, the forward-looking statements contained in this Form 10-Q represent our views only as of the date of this Form 10-Q (or any earlier date indicated in such statement). While we may update certain forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if new information becomes available in the future. However, you are advised to consult any further disclosures we make on related subjects in the reports that we file with the SEC.

The foregoing cautionary statements are intended to qualify all forward-looking statements wherever they may appear in this Form 10-Q. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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MARKET, INDUSTRY AND OTHER DATA
This Form 10-Q contains estimates, projections, market research and other data generated by independent third parties, by third parties on our behalf and by us concerning prescription data, inventory data, markets for XHANCE, XHANCE market access and the INS market. Information that is based on estimates, projections, market research or similar methodologies is inherently subject to uncertainties and actual results, events or circumstances may differ materially from results, events and circumstances reflected in this information. As a result, you are cautioned not to give undue weight to such information.


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PART I


ITEM 1. FINANCIAL STATEMENTS
OptiNose, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
 September 30,
2017		 December 31,
2016
 (unaudited)  
Assets 
  
Current assets: 
  
Cash and cash equivalents$49,410
 $36,797
Grants and other receivables231
 384
Inventory241
 —
Deposits and other current assets438
 3,494
Total current assets50,320
 40,675
Property and equipment, net1,433
 323
Deferred offering costs2,285
 —
Deposits and other assets — long-term1,097
 553
Total assets$55,135
 $41,551
Liabilities, redeemable convertible preferred stock and stockholders' deficit 
  
Current liabilities: 
  
Accounts payable$3,876
 $3,369
Accrued expenses5,606
 2,541
Deferred other income217
 —
Total current liabilities9,699
 5,910
Convertible notes payable, net—
 15,256
Accrued interest—
 3,409
Total liabilities9,699
 24,575
Redeemable convertible preferred stock, $0.001 par value: 
  
Series A, 285,480 shares authorized, issued and outstanding at September 30, 2017 and December 31, 2016 (liquidation value of $5,381 at September 30, 2017)5,381
 5,381
Series B-1, 35,680 shares authorized, issued and outstanding at September 30, 2017 and December 31, 2016 (liquidation value of $673 at September 30, 2017)673
 673
Series B-2, 782,600 shares authorized, issued and outstanding at September 30, 2017 and December 31, 2016 (liquidation value of $14,760 at September 30, 2017)14,760
 14,760
Series C, 4,115,344 shares authorized, issued and outstanding at September 30, 2017 and December 31, 2016 (liquidation value of $113,128 at September 30, 2017)112,974
 105,738
Series C-1, 1,656,410 shares authorized, issued and outstanding at September 30, 2017 and December 31, 2016 (liquidation value of $44,354 at September 30, 2017)44,354
 41,621
Series C-2, 687,474 and 0 shares authorized, issued and outstanding at September 30, 2017 and December 31, 2016, respectively, actual (liquidation value of $20,345 at September 30, 2017)20,345
 —
Series D, 1,369,863 and 0 shares authorized at September 30, 2017 and December 31, 2016, respectively, 1,117,578 and 0 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively, actual (liquidation value of $38,236 at September 30, 2017)38,055
 —
Total redeemable convertible preferred stock236,542
 168,173
Stockholders' deficit: 
  
Common stock, $0.001 par value; 13,067,149 and 10,624,486 shares authorized at September 30, 2017 and December 31, 2016, respectively; 4,067,717 shares issued and outstanding at September 30, 2017 and December 31, 20164
 4
Additional paid-in capital—
 —
Accumulated deficit(191,001) (151,102)
Accumulated other comprehensive loss(109) (99)
Total stockholders' deficit(191,106) (151,197)
Total liabilities, redeemable convertible preferred stock and stockholders' deficit$55,135
 $41,551
 September 30, 2023December 31, 2022
 (unaudited)
Assets  
Current assets:  
Cash and cash equivalents$66,845 $94,244 
Accounts receivable, net21,373 33,932 
Inventory8,043 9,443 
Prepaid expenses and other current assets2,359 2,865 
Total current assets98,620 140,484 
Property and equipment, net882 795 
Other assets1,905 2,943 
Total assets$101,407 $144,222 
Liabilities and stockholders' deficit  
Current liabilities:  
Accounts payable$5,006 $5,291 
Accrued expenses and other current liabilities29,162 44,864 
Short term debt, net129,813 128,575 
Total current liabilities163,981 178,730 
Warrant liability14,300 21,490 
Other liabilities741 626 
Total liabilities179,022 200,846 
Stockholders' deficit:  
Common stock, $0.001 par value; 350,000,000 shares authorized at September 30, 2023 and 200,000,000 shares authorized at December 31, 2022; 112,311,983 and 111,492,761 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively112 111 
Additional paid-in capital632,765 628,242 
Accumulated deficit(710,408)(684,893)
Accumulated other comprehensive loss(84)(84)
Total stockholders' deficit(77,615)(56,624)
Total liabilities and stockholders' deficit$101,407 $144,222 
See accompanying notes to unaudited interim consolidated financial statements

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OptiNose, Inc.
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 20172023 and 20162022
(in thousands, except share and per share data)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Licensing revenues$—
 $—
 $—
 $47,500
Operating expenses:     
  
Research and development6,641
 3,868
 15,620
 12,241
Selling, general and administrative6,553
 1,761
 13,214
 5,057
Total operating expenses13,194
 5,629
 28,834
 17,298
(Loss) income from operations(13,194) (5,629) (28,834) 30,202
Other (income) expense:     
  
Grant and other income(30) (370) (123) (536)
Interest income(61) (38) (156) (109)
Interest expense—
 885
 862
 2,632
Foreign currency (gains) losses(35) —
 (66) 14
Net (loss) income$(13,068) $(6,106) $(29,351) $28,201
Deemed dividend4,105
 2,752
 11,255
 8,254
Accretion to redemption value19
 527
 1,093
 1,582
Net (loss) income attributable to common stockholders$(17,192) $(9,385) $(41,699) $18,365
Net (loss) income per share of common stock     
  
basic$(4.23) $(2.32) $(10.25) $0.77
diluted$(4.23) $(2.32) $(10.25) $0.63
Weighted average common shares outstanding     
  
basic4,067,717
 4,050,065
 4,067,717
 4,049,800
diluted4,067,717
 4,050,065
 4,067,717
 4,975,012
 Three Months Ended September 30,Nine Months Ended September 30, 2023
 2023202220232022
Revenues:
Net product revenues$19,823 $20,078 $51,122 $55,420 
      Total revenues19,823 20,078 51,122 55,420 
Costs and expenses:
  Cost of product sales2,225 2,125 6,502 6,282 
Research and development1,281 3,267 4,017 12,339 
Selling, general and administrative18,011 25,486 60,839 84,339 
Total operating expenses21,517 30,878 71,358 102,960 
Loss from operations(1,694)(10,800)(20,236)(47,540)
Other (income) expense:
Unrealized (gain) loss on fair value of warrants3,200 — (7,190)— 
Interest income(545)(48)(1,974)(218)
Interest expense4,940 4,207 14,436 12,365 
Foreign currency (gains) loss5 (5)8 (3)
Net loss$(9,294)$(14,954)$(25,516)$(59,684)
Net loss per share of common stock, basic and diluted$(0.08)$(0.18)$(0.23)$(0.72)
Weighted average common shares outstanding, basic and diluted112,230,155 83,320,704 111,996,456 82,846,868 
See accompanying notes to unaudited interim consolidated financial statements



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OptiNose, Inc.
Consolidated Statements of Comprehensive Income and Loss(Loss)
For the Three and Nine Months Ended September 30, 20172023 and 20162022
(in thousands)
(Unaudited) 

 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
Net (loss) income$(13,068) $(6,106) $(29,351) $28,201
Other comprehensive (loss) income:     
  
Foreign currency translation adjustment(4) 13
 (10) 42
Comprehensive (loss) income$(13,072) $(6,093) $(29,361) $28,243
 Three Months Ended September 30,Nine Months Ended September 30, 2023
 2023202220232022
Net loss$(9,294)$(14,954)$(25,516)$(59,684)
Other comprehensive income (loss):
Foreign currency translation adjustment— — — (3)
Comprehensive loss$(9,294)$(14,954)$(25,516)$(59,687)
See accompanying notes to unaudited interim consolidated financial statements

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OptiNose, Inc.
Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and
Stockholders' Deficit
For the Nine Months Ended September 30, 2017
(Unaudited)
(in thousands, except share data)
(unaudited)
Nine Months Ended September 30, 2023
Stockholders' Equity (Deficit)
Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Stockholders'
Equity (Deficit)
SharesAmount
Balance at December 31, 2022111,492,761 $111 $628,242 $(684,893)$(84)$(56,624)
Stock compensation expense— — 1,520 — — 1,520 
Vesting of restricted stock units343,406 1 — — — 1 
Issuance of common stock under employee stock purchase plan119,727 — 164 — — 164 
Foreign currency translation adjustment— — — — — — 
Net loss— — — (18,847)— (18,847)
Balance at March 31, 2023111,955,894 $112 $629,927 $(703,740)$(84)$(73,785)
Stock compensation expense— — 1,499 — — 1,499 
Vesting of restricted stock units135,840 — — — — — 
Foreign currency translation adjustment— — — — — — 
Net income— — — 2,626 — 2,626 
Balance at June 30, 2023112,091,734 $112 $631,426 $(701,114)$(84)$(69,660)
Stock compensation expense— — 1,204 — — 1,204 
Vesting of restricted stock units88,667 — — — — — 
Issuance of common stock under employee stock purchase plan131,582 — 135 — — 135 
Foreign currency translation adjustment— — — — — — 
Net loss— — — (9,294)— (9,294)
Balance at September 30, 2023112,311,983 $112 $632,765 $(710,408)$(84)$(77,615)

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Redeemable
Convertible Preferred
Stock
  Stockholders' Deficit
   Common Stock 
Additional
Paid -in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders'
Deficit
 Shares Amount  Shares Amount 
Balance at December 31, 20166,875,514
 $168,173
  4,067,717
 $4
 $—
 $(151,102) $(99) $(151,197)
Conversion of convertible debt to Series C-2 preferred stock687,474
 19,527
  —
 —
 —
 —
 —
 —
Sale of Series D preferred stock, net of issuance costs1,117,578
 36,494
  —
 —
 —
 —
 —
 —
Stock compensation expense—
 —
  —
 —
 1,800
 —
 —
 1,800
Accretion of Series C, Series C-1 & Series D preferred stock to redemption value—
 1,093
  —
 —
 (1,093) —
 —
 (1,093)
Accretion of Series C, Series C-1, Series C-2 & Series D preferred stock in lieu of 8% dividend—
 11,255
  —
 —
 (707) (10,548) —
 (11,255)
Foreign currency translation adjustment—
 —
  —
 —
 —
 

 (10) (10)
Net loss—
 —
  —
 —
 —
 (29,351) —
 (29,351)
Balance at September 30, 20178,680,566
 $236,542
  4,067,717
 $4
 $—
 $(191,001) $(109) $(191,106)
Nine Months Ended September 30, 2022
Stockholders' Equity (Deficit)
Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Loss		Total
Stockholders'
Equity (Deficit)
SharesAmount
Balance at December 31, 202182,238,900 $82 $588,288 $(610,061)$(81)$(21,772)
Stock compensation expense— — 1,998 — — 1,998 
Vesting of restricted stock units262,942 — — — — — 
Issuance of common stock under employee stock purchase plan179,206 1 249 — — 250 
Foreign currency translation adjustment— — — — (1)(1)
Net loss— — — (25,333)— (25,333)
Balance at March 31, 202282,681,048 $83 $590,535 $(635,394)$(82)$(44,858)
Stock compensation expense— — 3,474 — — 3,474 
Vesting of restricted stock units and exercise of options363,318 — — — — — 
Foreign currency translation adjustment— — — — (2)(2)
Net loss— — — (19,397)— (19,397)
Balance at June 30, 202283,044,366 $83 $594,009 $(654,791)$(84)$(60,783)
Stock compensation expense— — 1,917 — — 1,917 
Vesting of restricted stock units and exercise of options267,967 — 98 — — 98 
Issuance of common stock under employee stock purchase plan208,138 1 305 — — 306 
Foreign currency translation adjustment— — — — — — 
Net loss— — — (14,954)— (14,954)
Balance at September 30, 202283,520,471 $84 $596,329 $(669,745)$(84)$(73,416)

See accompanying notes to unaudited interim consolidated financial statements


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OptiNose, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 20172023 and 20162022
(in thousands)
(Unaudited) 
 Nine Months Ended
September 30,
 2017 2016
Operating activities: 
  
Net (loss) income$(29,351) $28,201
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: 
  
Depreciation and amortization104
 56
Stock-based compensation1,800
 539
Amortization of debt discount and issuance costs194
 582
Changes in operating assets and liabilities: 
  
Grants and other receivables159
 (333)
Deposits and other assets2,519
 (1,667)
Inventory(241) —
Accounts payable(574) (524)
Accrued expenses2,633
 (1,207)
Accrued interest668
 2,050
Deferred other income217
 (41)
Cash (used in) provided by operating activities(21,872) 27,656
Investing activities: 
  
Purchases of property and equipment(1,210) (43)
Cash used in investing activities(1,210) (43)
Financing activities: 
  
Proceeds from the sale of Series D preferred stock36,494
 —
Cash paid for financing costs(781) —
Cash provided by financing activities35,713
 —
Effects of exchange rate changes on cash and cash equivalents(18) 46
Net increase in cash and cash equivalents12,613
 27,659
Cash and cash equivalents at beginning of period36,797
 15,198
Cash and cash equivalents at end of period$49,410
 $42,857
Supplemental disclosure of noncash financing activities: 
  
Deemed dividend$11,255
 $8,254
Accretion to redemption value$1,093
 $1,582
Deferred offering costs within accounts payable and accrued expenses$1,504
 $—
Conversion of convertible notes payable and accrued interest into Series C-2 preferred stock$19,527
 $—
 Nine Months Ended
September 30,
 20232022
Operating activities: 
Net loss$(25,516)$(59,684)
Adjustments to reconcile net loss to cash used in operating activities: 
Depreciation and amortization282 400 
Stock-based compensation4,219 7,391 
Change in fair value of warrant liability(7,190)— 
Amortization of debt discount and issuance costs1,242 1,689 
Changes in operating assets and liabilities:  
Accounts receivable12,559 8,833 
Prepaid expenses and other assets2,432 1,215 
Inventory1,348 1,524 
Accounts payable(346)395 
Accrued expenses and other liabilities(16,471)(11,734)
Cash used in operating activities(27,441)(49,971)
Investing activities:  
Purchases of property and equipment(255)(60)
Cash used in investing activities(255)(60)
Financing activities:  
Proceeds from the exercise of stock options1 93 
Proceeds from issuance of common stock under employee stock purchase plan299 556 
Cash paid for financing costs(4)— 
Cash provided by financing activities296 649 
Effects of exchange rate changes on cash and cash equivalents— (12)
Net decrease in cash, cash equivalents and restricted cash(27,400)(49,394)
Cash, cash equivalents and restricted cash at beginning of period94,244 110,515 
Cash, cash equivalents and restricted cash at end of period$66,845 $61,121 
Supplemental disclosure of cash flow information:
Cash paid for interest13,194 10,637 
Supplemental disclosure of noncash activities:  
Fixed asset purchases within accounts payable and accrued expenses$61 $4 
Recognition of right-of-use assets and lease liabilities$890 $508 
See accompanying notes to unaudited interim consolidated financial statements
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)




1. Organization and Description of Business
OptiNose, Inc. (the Company) was incorporated in Delaware in May 2010 (inception) and has facilities in Yardley, Pennsylvania and Ewing, New Jersey, Oslo, Norway and Swindon, England.Jersey. The Company's predecessor entity, OptiNose AS, was formed under the laws of Norway in September 2000. In 2010, OptiNose AS became a wholly-owned subsidiary of the Company as part of an internal reorganization. During 2022, the Company's board of directors approved the liquidation of OptiNose AS and OptiNose UK, which is expected to be completed in 2023, in order to simplify the corporate structure.
The Company is a specialty pharmaceutical company focused on the development and commercialization of products for patients treated by ear, nose and throat (ENT) and allergy specialists. The Company's first two FDA-approved products utilize its proprietary Exhalation Delivery Systems (EDS), which are capable of deep intranasal deposition of medication. OptiNose developed its firstcommercial product, OnzetraXHANCE® Xsail® (sumatriptan nasal power) through the completion of Phase III clinical trials and subsequently out-licensed the product to Otsuka Pharmaceutical Co., Ltd. Onzetra Xsail received FDA approval and was launched in the U.S. in 2016. The Company's second product, XHANCE (fluticasone propionate) nasal spray, 93 mcg,microgram (mcg), is a therapeutic utilizing the Company's proprietary Exhalation Delivery System (EDS) that utilizes EDS to deliverdelivers a topically-acting corticosteroid for the treatment of chronic rhinosinusitis. Onrhinosinusitis with nasal polyps and, if approved, chronic rhinosinusitis without nasal polyps (commonly referred to as chronic sinusitis). XHANCE was approved by the United States (US) Food and Drug Administration (FDA) in September 18, 2017 the FDA approved the Company's NDA for XHANCE for the treatment of nasal polyps in patients 18 years of age or older,older. XHANCE was made widely available through commercial channels in April 2018. In January 2023, the indication statement for XHANCE was changed from “for the treatment of nasal polyps” to “for the treatment of chronic rhinosinusitis with nasal polyps” to reflect current FDA labeling terminology and not based on new XHANCE is in developmentclinical trial data. In February 2023, the Company submitted a prior approval efficacy supplement (sNDA) to the FDA to support the approval of a new indication for XHANCE for the treatment of chronic sinusitis.rhinosinusitis.

In October 2017, the Company completed an initial public offering (IPO) of its common stock, selling 8,625,000 shares at $16.00 per share. As a result of the IPO, the Company received approximately $125,540 in net proceeds, after deducting discounts and commissions of approximately $9,660 and estimated offering expenses of approximately $2,800 payable by the Company. The interim consolidated financial statements, do not give effect to the IPO. Upon consummation of the IPO, all of the outstanding shares of the Company’s redeemable convertible preferred stock were converted into an aggregate of 25,068,556 shares of common stock.
2. Liquidity
Since inception, the Company's operations have focused on organization and staffing, business planning, raising capital, establishing an intellectual property portfolio, conducting preclinical studies and clinical trials, and pursuing regulatory approvals. The Company has not generated any revenue from product sales.approvals and commercializing XHANCE in the US. As of September 30, 2017,2023, the Company had cash and cash equivalents of $49,410. During the nine months ended September 30, 2017, the Company sold 1,117,578 shares$66,845 and a working capital deficiency of Series D preferred stock, which resulted in gross proceeds to the Company of $36,712 (Note 9). Additionally, in October 2017, the Company completed an IPO of its common stock, selling 8,625,000 shares at $16.00 per share. As a result of the IPO, the Company received approximately $125,540 in net proceeds, after deducting discounts and commissions of approximately $9,660 and estimated offering expenses of approximately $2,800 payable by the Company.$65,361.
The Company will need to secure additional capital in the future through equity or debt financings, partnerships, collaborations, or other sources in order to carry out all of the Company's planned development and commercial activities. If additional capital is not secured when required, the Company may need to delay or curtail its operations until such funding is received. The Company is subject to a number of risks similar to other life sciences companies, including but not limited to, successful discovery, development and developmentcommercialization of its products and product candidates, raising additional capital, the development by its competitors of new technological innovations, protection of proprietary technology and market acceptance of the Company's products. The Company has incurred recurring net losses since inception and has accumulated a deficit of $710,408 as of September 30, 2023.
The Company entered into a Note Purchase Agreement (the Note Purchase Agreement) on September 12, 2019 with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of the BioPharma Credit Funds (BioPharma) which was subsequently amended on August 13, 2020, March 2, 2021, November 16, 2021, August 10, 2022, and November 9, 2022. On November 23, 2022, the Company amended and restated the Note Purchase Agreement (the A&R Note Purchase Agreement). Pursuant to the A&R Note Purchase Agreement, the financial covenants requiring the Company to achieve minimum trailing twelve-month consolidated XHANCE net product sales and royalties were modified (See Note 8). The principal balance outstanding under the A&R Note Purchase Agreement was $130,000 at September 30, 2023.
The Company's continuation as a going concern is dependent on its ability to maintain compliance with its covenants under the A&R Note Purchase Agreement, including minimum trailing twelve-month consolidated XHANCE net sales and royalties the Company is required to achieve commencing with the trailing twelve months ending March 31, 2024 and its ability to generate sufficient cash flows from operations to meet its obligations and/or obtain additional capital through equity or debt financings, partnerships, collaborations, or other sources, as may be required. The A&R Note Purchase Agreement includes events of default, in certain cases subject to customary periods to cure, following which Pharmakon may accelerate all amounts outstanding pursuant to the A&R Note Purchase Agreement. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
The A&R Note Purchase Agreement also requires the Company to maintain at all times a minimum of $30,000 of cash and cash equivalents. The Company believes that it is probable that its existing cash and cash equivalents will
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

not be adequate to fund its operations and maintain at least $30,000 of cash and cash equivalents as required under the A&R Note Purchase Agreement for at least twelve-months following the filing of this Form 10-Q, which will constitute a default of the liquidity financial covenant under the A&R Note Purchase Agreement if the Company is unable to obtain additional capital or obtain a waiver or modification to this liquidity covenant prior to falling below such $30,000 threshold.
The Company also believes it is probable that it will not achieve the trailing twelve-month minimum consolidated XHANCE net sales and royalties thresholds under the A&R Note Purchase Agreement for the initial period ending March 31, 2024, which will constitute a default under the A&R Note Purchase Agreement if the Company is unable to obtain a modification or waiver of such minimum consolidated XHANCE net sales and royalties thresholds.
Further, the A&R Note Purchase Agreement includes a requirement that the report and opinion on the consolidated financial statements commencing with the year ending December 31, 2023, not be subject to any statement as to “going concern” (subject to certain exceptions). In addition, the consolidated financial statements commencing with the quarter ended March 31, 2024, shall also not be subject to any statement as to “going concern” (subject to certain exceptions). The Company has concluded that it is unlikely that it will be able comply with these provisions in 2024. Failure to comply with these provisions would also constitute an event of default under the A&R Note Purchase Agreement.
In the event of any of the foregoing defaults, the holders of the Pharmakon Senior Secured Notes may elect to accelerate the repayment of all unpaid principal, accrued interest and other amounts due, which may require the Company to delay or curtail its operations until additional funding is received.The terms of theA&R Note PurchaseAgreement and the Pharmakon Senior Secured Notes, including applicable covenants, are described in Note 8.
Management’s plans to mitigate this risk may include reducing expenses, raising additional capital through equity or debt financings, partnerships, collaborations or other sources, and requesting a modification or waiver of the covenants under the A&R Note Purchase Agreement. However, there can be no assurance that the Company will be successful in reducing expenses, raising additional capital, or obtaining a modification or waiver of the covenants under the A&R Note Purchase Agreement. If the Company is unable to reduce expenses, raise additional capital or obtain a modification or waiver of the covenants under the A&R Note Purchase Agreement, the Company may need to delay or curtail its operations. As a result of these factors, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern within one year after the date these consolidated financial statements are issued.
3. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying unaudited interim consolidated financial statements have been prepared in conformity with US generally accepted accounting principles (GAAP). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASU) of the Financial Accounting Standards Board (FASB).
In the opinion of management, the accompanying unaudited interim financial statements include all normal and recurring adjustments (which consist primarily of accruals and estimates that impact the financial statements) considered necessary to present fairly the Company's financial position as of September 30, 20172023 and its results of

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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)

operations for the three and nine months ended September 30, 20172023 and 20162022 and cash flows for the nine months ended September 30, 20172023 and 2016.2022. Operating results for the three and nine months ended September 30, 20172023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2023. The unaudited interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited interim financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2016 included2022 contained in the final prospectus dated October 12, 2017 Company’s annual report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (SEC).SEC on March 7, 2023.
Recapitalization
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On September 29, 2017, the Company filed a certificate of amendmentOptiNose, Inc.
Notes to amend its certificate of incorporation to (i) increase the number of authorized shares of the Company's common stock from 13,067,149 shares to 50,000,000, and (ii) effectuate a 2.8879-for-1 reclassification, or stock split, of the Company's common stock, to be effected prior to the effectiveness of the Company's registration statement on Form S-1 Unaudited Interim Consolidated Financial Statements (Continued)
(in connection with its IPO. The stock split was effected on October 10, 2017. Allthousands, except share and per share amounts in these unaudited interim consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the stock split.data)
Use of estimates
The preparation of the unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and reported amounts of expenses during the reporting period. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited interim consolidated financial statements, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined to be necessary.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivable. The Company generally invests its cash in deposits with high credit quality financial institutions. Additionally, the Company performs periodic evaluations of the relative credit standing of these financial institutions.
Customer and supplier concentration
The Company has exposure to credit risk in accounts receivable from sales of product. XHANCE is sold to wholesale pharmaceutical distributors and preferred pharmacy network (PPN) partners, who, in turn, sell XHANCE to pharmacies, hospitals and other customers. Five customers represented approximately 73% and 40% of the Company's accounts receivable at September 30, 2023 and 2022, respectively. Five customers represented approximately 50% and 31% of the Company's net product sales for the three months ended September 30, 2023 and 2022, respectively. Five customers represented approximately 40% and 29% of the Company's net product sales for the nine months ended September 30, 2023 and 2022, respectively.
The Company purchases XHANCE and its components from several third-party suppliers and manufacturing partners, certain of which are only available through a single source. Although the Company could obtain each of these components from alternative third-party suppliers, it would need to qualify and obtain FDA approval for another supplier as a source for each such component. The Company has initiated the process of qualifying an alternate third-party supplier for select components of XHANCE. Alternate third party suppliers of XHANCE components are subject to qualification and approval from the FDA.
Fair value of financial instruments
At September 30, 2017The Company measures certain assets and December 31, 2016,liabilities at fair value, which is defined as the Company's financial instruments included cashprice that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The FASB accounting guidance outlines a valuation framework and cash equivalents, grants receivable, accounts payablecreates a fair value hierarchy in order to increase the consistency and accrued expenses.comparability of fair value measurements and the related disclosures. In determining fair value, the Company uses quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. The carrying amounts reported infair value hierarchy is broken down into three levels based on the Company's financial statements for these instruments approximates their respective fair values becausesource of the short-term nature of these instruments. At September 30, 2017 and December 31, 2016, there were no financialinputs as follows:
•Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2 — Valuations based on observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, measured atquoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
•Level 3 — Valuations based on inputs that are unobservable and models that are significant to the overall fair value on a recurring basis.
The Company's financial instruments also included convertible debt at December 31, 2016 (Note 8).
Inventory
Prior to receiving FDA approval for XHANCE in September 2017, inventory purchases were expensed as incurred and recorded as a component of research and development expense. Subsequent to receiving FDA approval, inventories are stated at the lower of cost or market, net of reserves for excess and obsolete inventory. At September 30, 2017, inventory consisted of raw materials.
Deposits and other assets
Deposits and other assets consist primarily of payments made in advance to outsourced contract manufacturers and equipment suppliers, as well as a receivable due from the FDA at December 31, 2016 related to a Prescription Drug User Fee Act (PDUFA) New Drug Application fee that the FDA refunded to the Company in March 2017.
Throughout 2017 and 2016, the Company made upfront payments to outsourced plastic mold development manufacturers and equipment suppliers for molds and equipment that are expected to be used for the commercial production of XHANCE. The Company expects to receive this equipment in 2017. For equipment received prior to FDA approval, the Company recorded the cost associated with the equipment purchase as a component of research and development expense if there was no alternative future use of the equipment without FDA approval.

measurement.
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)

Conversely, deposits on equipment received afterAt September 30, 2023 and 2022, the September 18, 2017 FDA approvalCompany's financial instruments included cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and certain liability classified warrants. The carrying amounts reported in the Company's financial statements for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates their respective fair values because of XHANCE will be capitalized as fixed assets when the equipment is received and are therefore classified as long-term depositsshort-term nature of these instruments. In addition, at September 30, 2017.2023, the Company believed the carrying value of debt approximates fair value as the interest rates were reflective of the rate the Company could obtain on debt with similar terms and conditions. At September 30, 2023, there were no financial assets or liabilities measured at fair value on a recurring basis other than the liability classified warrants.
Deferred offering costs
In November 2022, the Company issued warrants in connection with a public offering. Pursuant to the terms of the warrant agreement, the Company could be required to settle the warrants in cash in the event of an acquisition of the Company and, as a result, the warrants are required to be measured at fair value and reported as liability in the consolidated balance sheet. The Company capitalizes certain legal, accountingrecorded the fair value of the warrants upon issuance using a Monte Carlo simulation and other third-party feesis required to revalue the warrants at each reporting date with any changes in fair value recorded on our statement of operations. The valuation of the warrants is considered under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated, at which time these costs are netted againstboth significant to the proceeds fromfair value measurement and unobservable. The change in the equity financing. Upon completing its IPO in October 2017, the Company reclassified all outstanding deferred offering costs and netted them against the proceeds from the IPO.
Net income (loss) per common share
For the nine month period ended September 30, 2016, the Company used the two-class method to compute net income (loss) per common share because the Company has issued securities (redeemable convertible preferred stock) that entitle the holder to participate in dividends and earningsfair value of the Company. Under this method, net incomeLevel 3 warrants liabilities is reduced byreflected in the amountstatement of any dividends earned and the accretion of redeemable convertible preferred stock to its redemption value during the period. The remaining earnings (undistributed earnings) are allocated to common stock and each series of redeemable convertible preferred stock to the extent that each preferred security may share in earnings as if all of the earningsoperations for the period had been distributed. The total earnings allocated to common stock is then divided by the number of outstanding shares to which the earnings are allocated to determine the earnings per share. The two-class method is not applicable during periods with a net loss, as the holders of the redeemable convertible preferred stock have no obligation to fund losses.
Diluted net income (loss) per common share is computed under the two-class method by using the weighted-average number of shares of common stock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options, warrants,three and convertible debt. In addition, the Company analyzes the potential dilutive effect of the outstanding redeemable convertible preferred stock and convertible debt under the "if-converted" method when calculating diluted earnings per share, in which it is assumed that the outstanding redeemable convertible preferred stock or convertible debt converts into common stock at the beginning of the period or when issued if later. The Company reports the more dilutive of the approaches (two class or "if-converted") as their diluted net income per share during the period.
For the three months ended September 30, 2017 and 2016 and for the nine months ended September 30, 20172023.
Net product revenues
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (ASC 606), which the Company adopted on January 1, 2018. The Company recognizes revenue from XHANCE sales at the point customers obtain control of the product, which generally occurs upon delivery. The transaction price that is recognized as revenue for products includes an estimate of variable consideration. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available. The components of the Company’s variable consideration include the following:
Provider Chargebacks and Discounts. Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These components of variable consideration are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable.
Trade Discounts and Allowances. The Company generally provides customers with discounts that include incentive fees which are explicitly stated in the Company’s contracts. These discounts are recorded as a reduction of revenue and accounts receivable in the period in which the Company reported a net loss, thererelated product revenue is no dilutive effect under either the two-class or "if-converted" method. For the nine months ended September 30, 2016,recognized.
Product Returns. Consistent with industry practice, the Company presented diluted net income per common share usinghas a product returns policy that provides customers a right of return for product purchased within a specified period prior to and subsequent to the two-class method, which was more dilutive thanproduct’s expiration date. The Company estimates the "if-converted" method.amount of its product that may be returned and presents this amount as a reduction of revenue in the period the related product revenue is recognized, in addition to establishing a liability. The Company considers several factors in the estimation process, including expiration dates of product shipped to customers, inventory levels within the distribution channel, product shelf life, prescription trends and other relevant factors.

Government Rebates. The Company is subject to discount obligations under state Medicaid programs and Medicare. Reserves related to these discount obligations are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. The Company’s liability for these rebates consists of estimates of claims for the current quarter and estimated future claims that will be made for product that has been recognized as revenue but remains in the distribution channel inventories at the end of the reporting period.
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)

Payor Rebates. The Company contracts with certain third-party payors, primarily health insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its products. These rebates are based on contractual percentages applied to the amount of product prescribed to patients who are covered by the plan or the organization with which it contracts. The Company estimates these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.
Patient Assistance. Other programs that the Company offers include voluntary co-pay patient assistance programs intended to provide financial assistance to eligible patients with prescription drug co-payments required by payors and coupon programs for cash payors. The following table sets forthcalculation of the computationcurrent liability for this assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel inventories at the end of each reporting period.
Distribution and Other Fees. The Company pays distribution and other fees to certain customers in connection with the sales of its products. The Company records distribution and other fees paid to its customers as a reduction of revenue, unless the payment is for a distinct good or service from the customer and the Company can reasonably estimate the fair value of the goods or services received. If both conditions are met, the Company records the consideration paid to the customer as an operating expense. These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale
Net income (loss) per common share
Basic net income (loss) per common share is determined by dividing net income (loss) applicable to common stockholders by the weighted average common shares outstanding during the period. For the three and nine months ended September 30, 2023 and 2022, the outstanding Common Stock options, Restricted Stock units, Common Stock warrants and shares to be issued under the Company's 2017 Employee Stock Purchase Plan have been excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, the weighted average shares used to calculate both basic and diluted net income (loss)loss per share forare the periods indicated:same.
 Three Months Ended
September 30,		 Nine Months Ended September 30,
 2017 2016 2017 2016
Basic net (loss) income per common share calculation:     
  
Net (loss) income attributable to common stockholders$(17,192) $(9,385) $(41,699) $18,365
Less: undistributed earnings to participating securities—
 —
 —
 (15,253)
Net (loss) income attributable to common stockholders — basic(17,192) (9,385) (41,699) 3,112
Weighted average common shares outstanding — basic4,067,717
 4,050,065
 4,067,717
 4,049,800
Net (loss) income per share of common stock — basic$(4.23) $(2.32) $(10.25) $0.77
Diluted net (loss) income per common share calculation:     
  
Net (loss) income attributable to common stockholders$(17,192) $(9,385) $(41,699) $18,365
Less: undistributed earnings to participating securities—
 —
 —
 (15,253)
Net (loss) income attributable to common stockholders — diluted(17,192) (9,385) (41,699) 3,112
Weighted average common shares outstanding — basic4,067,717
 4,050,065
 4,067,717
 4,049,800
Stock options—
 —
 —
 925,212
Weighted average common shares outstanding — diluted4,067,717
 4,050,065
 4,067,717
 4,975,012
Net (loss) income per share of common stock — diluted$(4.23) $(2.32) $(10.25) $0.63
Diluted net income (loss)loss per common share for the periods presented do not reflect the following potential common shares, as the effect would be antidilutive:
 September 30,
 20232022
Stock options10,153,661 9,581,947 
Restricted stock units2,012,552 1,871,021 
Common stock warrants32,768,000 2,500,000 
Employee stock purchase plan190,186 74,935 
Total45,124,399 14,027,903 
Income taxes
 Three Months Ended
September 30,		 Nine Months Ended September 30,
 2017 2016 2017 2016
Stock options4,583,133
 3,088,292
 4,583,148
 1,368,542
Common stock warrants1,890,489
 1,890,489
 1,890,489
 1,890,489
Convertible debt—
 639,129
 —
 639,129
Convertible preferred stock25,068,556
 19,855,772
 25,068,556
 19,855,772
Total31,542,178
 25,473,682
 31,542,193
 23,753,932
Recent accounting pronouncements
In February 2016,accordance with ASC 270, Interim Reporting, and ASC 740, Income Taxes, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issuedCompany is required at the updateend of each interim period to requiredetermine the recognitionbest estimate of lease assetsits annual effective tax rate and liabilitiesthen apply that rate in providing for income taxes on a current year-to-date (interim period) basis. For the balance sheetnine months ended September 30, 2023 and 2022, the Company recorded no tax expense or benefit due to the expected current year loss and its historical losses. As of lessees. The standard willSeptember 30, 2023 and December 31, 2022, the Company concluded that a full valuation allowance would be effectivenecessary for fiscal years beginning after December 15, 2018, including interim periods within such fiscal years. The ASU requires a modified retrospective transition method with the option to elect a packageall of practical expedients. Early adoption is permitted.its net deferred tax assets. The Company is currently evaluatinghad no amounts recorded for uncertain tax positions, interest or penalties in the potential impact of the adoption of this standardaccompanying consolidated financial statements.

4. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on its results of operations, financial position and cash flows and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which will replace numerous requirements in US GAAP, including industry-specific requirements. This guidance provides a five-step model to be applied to all contracts with customers, with an underlying principle that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The new standard also defines accounting for certain costs related to origination and fulfillment of contracts with customers, including whether such costs should be capitalized. This statement requires extensive quantitative and qualitative disclosures covering the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including disclosures on significant judgments made when applying the guidance and assets recognized from costs incurred to obtain or fulfill a contract. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. An entity can elect to apply the guidance under one of the following two methods: (i) retrospectively to each prior reporting period presented — referred to as the full retrospective method

Recurring Basis
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)

The Company applies the guidance in ASC 820, Fair Value Measurements, to account for financial assets and liabilities measured on a recurring basis. Fair value is measured as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.
The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The guidance requires that fair value measurements be classified and disclosed in one of the following 3 categories:
Level l: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or (ii) retrospectively withliabilities;
Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the cumulative effectfull te1m of initially applying the standard recognizedasset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period. There were no transfers between Level I, 2 and 3 during the three months ended September 30, 2023.
The table below presents the liabilities (in thousands) measured and recorded in the financial statements at fair value on a recurring basis at September 30, 2023 categorized by the level of inputs used in the valuation of each liability.
September 30, 2023
TotalLevel 1Level 2Level 3
Liabilities
Warrant Liability$14,300 $— $— $14,300 
Total Liabilities$14,300 $— $— $14,300 
December 31, 2022
Liabilities
Warrant Liability$21,490 $— $— $21,490 
Total Liabilities$21,490 $— $— $21,490 
Changes in Level 3 Liabilities Measured at Fair Value on a Recurring Basis
Warrant Liability
The reconciliation of the Company's warrant liability measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows (in thousands):
Warrant Liability
Balance, December 31, 2022$21,490 
Warrants issued— 
Change in fair value of liability(7,190)
Balance, September 30, 2023$14,300 
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
Assumptions Used in Determining Fair Value of Liability-Classified Warrants
The Company issued warrants to purchase 30,268,000 shares of Common Stock at a public offering price of $0.01 per warrant (the Warrants). Each Warrant has an exercise price of $2.565 per share of Common Stock and is exercisable until the expiration date, which is the fifth anniversary of the date of initial applicationissuance (November 23, 2027). After such date, any unexercised Warrants will expire and have no further value. If the Company issues or sells, or is deemed pursuant to the terms of the Warrants to have issued or sold, any shares of Common Stock (which includes, among other things, options and securities convertible into shares of Common Stock), excluding certain issuances defined in retained earnings — referredthe Warrants as "excluded issuances, for a price per share less than the exercise price of the Warrants in effect immediately prior to such issuance or sale or deemed issuance or sale (such event, a dilutive issuance), then immediately after such dilutive issuance the exercise price then in effect of the Warrants shall be reduced to the price of the shares of Common Stock issued or sold or deemed to be issued or sold in the dilutive issuance in the manner set forth in the Warrant.
A holder of Warrants will not have the right to exercise any portion of a Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or on election of such holder, prior to the issuance of any Warrants, 9.99%) of the number of shares of Common Stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the modified retrospective method.terms of the Warrants; provided, however, such holder may increase or decrease such percentage to any other percentage not in excess of 19.00%, provided that any increase in such percentage shall not be effective until 61 days after such notice is delivered to the Company.
Pursuant to the terms of the Warrant, the Company could be required to settle the Warrants in cash in the event of a "fundamental transaction" as defined in the Warrant (which includes, among other things, an acquisition of the Company) and, as a result, the Warrants are required to be measured at fair value and reported as liability in the consolidated balance sheet.
The Company has assessedutilizes a Monte Carlo simulation valuation model which incorporates assumptions as to the impact that ASU 2014-09 will have on its financial statementsstock price volatility, the expected life of the warrants, a risk-free interest rate, as well as timing and related disclosures. To date,probability of equity financing. The Company values the Company has derived its revenues from a single licensing agreementwarrant liability at each reporting period, with Avanir (the AVP-825 License Agreement). The consideration the Company has received to date includes an upfront payment, research and development funding and development milestone payments. Additionally, the Company is eligible to receive sales milestone payments and royaltieschanges in fair value recognized in the future once product sales exceed a certain threshold.consolidated statements of operations. The Company analyzed the performance obligations under the AVP-825 License Agreement, and the consideration received to date and that the Company may receive in the future, as part of its analysisestimated fair value of the impact of ASU 2014-09 on this arrangement. The Companywarrant liability is substantially complete with its initial assessment of the AVP-825 License Agreement,determined using Level 3 inputs.The inputs and currently does not expect the adoption of the ASU to have a material impact on its financial statements but is expected to result in expanded footnote disclosures. The Company will continue to monitor additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may impact our current conclusion.values were as follows:
The Company will continue to assess any other customer arrangements that the Company enters into prior to the adoption date, confirming its method of adoption, determining the impact the new accounting standard will have on its financial statements and related disclosures and updating, as needed, its business processes, systems and controls required to comply with ASU 2014-09 upon its effective date of January 1, 2018. The Company will make updates to its quarterly and year-end disclosures, with a focus on implementation status updates related to the impact ASU 2014-09 will have on its financial statements and related footnotes.
September 30, 2023December 31, 2022
Stock price$1.23 $1.85 
Strike price$2.57 $2.57 
Expected volatility57.5 %45.0 %
Risk-free interest rate4.6 %3.8 %
Expected dividend yield— %— %
Expected life (years)4.104.90
Fair value per warrant$0.47 $0.71 
The Company plans to adopt the new standard effective January 1, 2018 using the modified retrospective approach.
5. Inventory
4. Deposits and Other Assets
Deposits and other assetsInventory consisted of the following:
September 30, 2023December 31, 2022
Raw materials$2,114 $1,691 
Work-in-process3,345 5,010 
Finished goods2,584 2,742 
  Total inventory$8,043 $9,443 
Inventories are stated at the lower of cost or net realizable value, as determined on a first-in, first-out, basis.
16
 September 30,
2017		 December 31, 2016
Short-term 
  
Receivable due from the FDA$—
 $2,038
Deposits on equipment—
 1,201
Other438
 255
Total short-term deposits and other assets$438
 $3,494
Long-term 
  
Deposits on equipment$1,081
 $499
Other16
 54
Total long-term deposits and other assets1,097
 553
 $1,535
 $4,047

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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)



5.6. Property and Equipment
Property and equipment, net, consisted of:
 September 30,
2017		 December 31,
2016
Computer equipment and software$403
 $293
Furniture and fixtures120
 121
Machinery and equipment1,348
 255
Leasehold improvements28
 28
 1,899
 697
Less: accumulated depreciation(466) (374)
 $1,433
 $323
of the following:
 September 30, 2023December 31, 2022
Computer equipment and software$1,425 $1,203 
Furniture and fixtures366 366 
Machinery and equipment3,144 3,067 
Leasehold improvements609 609 
Construction in process115 115 
5,659 5,360 
Less: accumulated depreciation(4,777)(4,565)
$882 $795 
Depreciation expense was $37$102 and $17$144 for the three months ended September 30, 20172023 and 20162022, respectively. Depreciation expense was $281 and was $104 and $56$399 for nine months ended September 30, 2017 and 2016, respectively.
6. Accrued Expenses
Accrued expenses consisted of:
 September 30,
2017		 December 31,
2016
Research and development expenses724
 736
Selling, general and administrative expenses1,888
 290
Bonus expense2,625
 1,390
Other369
 125
 $5,606
 $2,541
7. AVP-825 License Agreement
In July 2013, the Company's wholly owned subsidiary, OptiNose AS, entered into the AVP-825 License Agreement with Avanir for the exclusive right to sell AVP-825 (now marketed as Onzetra® Xsail®), a product combining a low-dose powder form of sumatriptan with the Company's EDS technology platform, for the acute treatment of migraines in adults and any follow-on products under development that consist of a formulation that contains triptans as the sole active ingredient. Through December 31, 2016, under the terms of the AVP-825 License Agreement, the Company received aggregate cash payments of $70,000 in connection with the initial signing and the achievement of certain development milestones. Under the terms of the License Agreement, the Company is eligible to receive up to $50,000 upon the achievement of sales milestones as well as tiered low double-digit royalty payments on net sales in the US, Canada and Mexico after such cumulative sales exceed a certain threshold.
In conjunction with the AVP-825 License Agreement, the Company recognized $47,500 as licensing revenue during the nine months ended September 30, 2016. The revenue2023 and 2022, respectively. In addition, depreciation expense of $608 was charged to inventory as of September 30, 2023, which represents depreciation expense related to equipment involved in the achievementmanufacturing process.
7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of:
 September 30, 2023December 31, 2022
Accrued expenses:
   Selling, general and administrative expenses$3,914 $3,799 
   Research and development expenses619 1,298 
   Payroll expenses5,798 7,888 
   Product revenue allowances15,556 27,993 
   Other2,144 1,915 
      Total accrued expenses28,031 42,893 
Other current liabilities:
   Lease liability1,131 1,971 
      Total other current liabilities1,131 1,971 
      Total accrued expenses and other current liabilities$29,162 $44,864 

8. Debt
On September 12, 2019 (the Closing Date), the Company 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 the FDA approval milestoneCompany with $130,000 in January 2016. The Company did not recognize any licensing revenue duringdebt financing, of which $80,000 of senior secured notes (the Pharmakon Senior Secured Notes) was issued on the three monthsClosing Date, $30,000 was issued on February 13, 2020 after achieving the $9,000 consolidated XHANCE net sales and royalties threshold for the quarter ended December 31, 2019 and $20,000 was issued on December 1, 2020 after achieving the $14,500 consolidated XHANCE net sales and royalties threshold for the quarter ended September 30, 20172020.
On November 23, 2022, the Company amended and 2016 or duringrestated the nine months endedNote Purchase Agreement, initially entered into on September 30, 2017.

12, 2019 and amended through November 9, 2022, among the Company, its subsidiaries, OptiNose US, Inc., OptiNose AS and OptiNose UK, Ltd. and BioPharma Credit PLC, as collateral agent, and the purchasers party thereto from time to time (the A&R Note Purchase Agreement). Pursuant to the A&R Note Purchase Agreement, certain modifications to the affirmative and negative covenants, events of default and other provisions were made, including, without limitation, (i) the requirement for the Company to deliver quarterly and annual financial statements that, commencing with the Company's consolidated financial statements for the year ending December 31, 2023 and subject to certain exceptions, are not subject to a “going concern” statement (the Going
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)



Concern Covenant) and (ii) the removal of certain exceptions to the negative covenants which previously permitted the Company to enter into certain transactions without the consent of the holders of the Pharmakon Senior Secured Notes, including permitted acquisitions, swap contracts, convertible bonds and revolving credit facilities. The financial covenants requiring the Company to achieve minimum trailing twelve-month consolidated XHANCE net product sales and royalties were amended to be pushed back to March 31, 2024.
8. Convertible
The A&R Note Purchase Agreement extended the maturity date of the Pharmakon Senior Secured Notes
At from September 12, 2024 to June 30, 2027 (New Maturity Date), extended the interest-only period from September 2023 to September 2025, after which principal repayments will commence starting on September 30, 20172025 and December 31, 2016,will be made in eight equal quarterly installments of principal and interest through the Company's convertible notes payable, net, balance wasNew Maturity Date. As part of the A&R Note Purchase Agreement the Pharmakon Senior Secured Notes now bear an amended interest rate through the New Maturity Date equal to the 3-month Secured Overnight Financing Rate (subject to a 2.50% floor), determined as follows:
 September 30,
2017		 December 31,
2016
Face amount$—
 $15,000
Front end fees—
 (75)
Debt issuance costs—
 (44)
Back end fees—
 375
Convertible notes payable, net$—
 $15,256
Onof the date that is two business days prior to the commencement of each quarter, plus 8.50% per annum, which interest rate shall be increased by an additional 3.00% per annum upon the occurrence and during the continuation of any event of default. The Effective Interest Rate as of September 30, 2015,2023 is 13.62%.

In conjunction with the A&R Note Purchase Agreement, a modification was made to the “make-whole” premium payment due in connection with any principal prepayments (whether mandatory or voluntary) made prior to the 3-year anniversary of the date of the A&R Note Purchase Agreement. On any such prepayment date, the Company will be required to pay a make-whole premium in the amount of (i) for any prepayment date occurring up until and including the 18-month anniversary of the date of the A&R Note Purchase Agreement, the foregone interest from such prepayment date through the 18-month anniversary of such prepayment date; and (ii) for any prepayment after the 18-month anniversary of the date of the A&R Note Purchase Agreement, the foregone interest from such prepayment date through the 3-year anniversary of the date of the A&R Note Purchase Agreement; provided, however, that in no event shall the amount of all make-whole premium payments exceed $24,000 in the aggregate.

As an inducement for the holders of the Pharmakon Senior Secured Notes to enter into the A&R Note Purchase Agreement, the Company is required to pay the holders of the Pharmakon Senior Secured Notes an amendment fee of $3,900 (representing 3.00% of the outstanding principal balance of such notes) due on the New Maturity Date or the earlier repayment of the Pharmakon Senior Secured Notes, which amendment fee shall be (i) reduced to $1,300 in the event that the Company repays the Pharmakon Senior Secured Notes in full prior to the one-year anniversary of the date of the A&R Note Purchase Agreement and (ii) reduced to $2,600 in the event that the Company repays the Pharmakon Senior Secured Notes in full on or after the one-year anniversary of the date of the A&R Note Purchase Agreement and prior to second anniversary of the date of the A&R Note Purchase Agreement. Additionally, the $1,300 fee payable under the Fourth Amendment to the Note Purchase Agreement that the Company entered into a Senior Secured Convertible Note Purchase Agreement (Notes) with various existing stockholders. The Notes providedon November 9, 2022 will be credited against the Company with up to $30,000 in capital available in two separate tranches. The first tranche of $15,000 closed on September 30, 2015. The second tranche of up to $15,000 was available to the Company until March 30, 2017 but was never drawn. The Notes bore an annual interest rate of 17% and were scheduled to mature on September 30, 2020 if not otherwise converted to Series C-2 shares. The Notes also bore front-end fees of $450, which were paid at issuance, and back end fees of $450 plus interest that was to be paid at maturity. The Notes could be repaid at any time in $100 increments, did not contain any prepayment penalties and were secured by assets of the Company. and OptiNose US, Inc. At the option of the majority purchaser of the Notes after March 30, 2017, or prior to March 30, 2017 if an event of default occurred or was continuing under the Notes, all note principal along with any accrued interest and back end fees thereon, could be converted into Series C-2 shares of preferred stock at a conversion price based upon a Company valuation equal to the lower of fair market value or $300,000.
As of December 31, 2016, the fair value of the Notes was $21,814, which was estimated based on the as converted value of the Notes as of that date.
On March 24, 2017,amendment fee payable in connection with the Series D Financing,A&R Note Purchase Agreement.
The Pharmakon Senior Secured Notes are secured by a pledge of substantially all of the Notesassets of the Company and associated accrued interestthe Guarantors and back end fees thereon totaling $19,527 convertedthe A&R Note Purchase Agreement contains affirmative and negative covenants customary for financings of this type, including limitations on the Company’s and its subsidiaries’ ability, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, repay junior indebtedness, incur a material adverse change and enter into 687,474 sharesaffiliate transactions, in each case, subject to certain exceptions. In addition, the A&R Note Purchase Agreement contains financial covenants requiring the Company to maintain certain minimum trailing twelve-month consolidated XHANCE net sales and royalties, tested on a quarterly basis, and to have at least $30,000 of Series C-2 preferred stockcash and cash equivalents at a per share conversion priceall times. The A&R Note Purchase Agreement also includes events of approximately $28.40.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.
The Company recorded $885 in interest expense duringbelieves that it is probable that it will not achieve the three months ended September 30, 2016trailing twelve-month minimum consolidated XHANCE net sales and $885 and $2,632 during the nine months ended September 30, 2017 and 2016, respectively, in conjunctionroyalties thresholds that it is required to achieve commencing with the Notes. Total coupon interest on the Notes and back end fees was $743 and $2,275 during the nine months ended September 30, 2017 and 2016, respectively. The front-end fees of $450 were recorded as debt discount at issuance and were amortized to interest expense over the 18 month loan conversion period. During the three months ended September 30, 2016 and for the nine month periods ended September 30, 2017 and 2016,period ending March 31, 2024. Additionally, without additional capital, the Company recorded a totalbelieves that it is probable that it will not be able to maintain at least $30,000 of $75, $75,cash and $225cash equivalents for at least twelve-months following the filing of interest expense, respectively, related to the front end fees. Additionally, back end fees of $450 are also being amortized to interest expense over the 18 month loan conversion period of which $95, $90, and $285 has been recorded as interest expense and as an increase in the carrying amount of the Notes during the three months ended September 30, 2016 and the nine months ended September 30, 2017 and 2016, respectively. The Company also incurred $265 in debt issuance costs during the year ended December 31, 2015 which are also being amortized to interest expense over the 18 month loan conversion period.
9. Redeemable Convertible Preferred Stock
During the nine months ended September 30, 2017,this Form 10-Q. In addition, the Company sold 1,117,578 shares of Series D Preferred Stock at a per share purchase price of $32.85, resulting in gross proceedsbelieves that it is unlikely that it will be able to the Company of $36,712 (the Series D Financing). In connectionmaintain compliance with the Series D Financing,Going Concern Covenant in 2024. As a result, in accordance with FASB Accounting Standards Codification 470, the Company's existing convertible notes and associated accrued interest and back end fees thereon totaling $19,527 converted into 687,474 shares of Series C-2 Preferred Stock at a per share conversion price of approximately $28.40 (Note 8).

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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)



In conjunction with the Series D financing, the number of authorized shares of common stock was increased from 10,624,486 to 13,067,149Company has classified all outstanding principal and the numberpayment of authorized sharesadditional fees upon maturity as a current liability in the accompanying consolidated balance sheet as of preferred stock was increased from 6,875,514 to 8,932,851, of which 1,369,863 shares were designated as Series D shares and 687,474 shares were designated as Series C-2 shares. Also, the redemption date for all classes of the Company's preferred stock was extended to March 24, 2020 and the terms upon which all classes of Preferred Stock would mandatorily convert into common stock in connection with an underwritten public offering were revised to align with the terms of the Series C-2 preferred stock.
Upon consummation of the IPO, in October 2017, all of the outstanding shares of the Company's redeemable convertible preferred stock were converted into an aggregate of 25,068,556 shares of common stock.
10. Stock-based Compensation31, 2023.
The Company issues stock-based awards pursuant to its 2010 Stock Incentive Plan, as amended (Plan).recorded interest expense of $4,940 and $4,207 during the three months ended September 30, 2023 and 2022, respectively. The Company recorded interest expense of $14,436 and $12,365 during the nine months ended September 30, 2023 and 2022, respectively. Interest expense included total coupon interest and the amortization of debt issuance costs.
The Pharmakon debt balance is comprised of the following:
September 30, 2023December 31, 2022
Face amount$130,000 $130,000 
Front end fees(555)(666)
Debt issuance costs(5,612)(6,739)
Back end fees5,980 5,980 
Debt, net$129,813 $128,575 

9. Employee Benefit Plans
For US employees, the Company maintains a defined contribution 401(k) retirement plan. As of September 30, 2017, 4,728,5202023, $100 was recorded in accrued liabilities related to the Company match. The Company's contributions are made in cash.
The Company also maintains a severance benefit plan for employees that is governed by the Employee Retirement Income Security Act of 1974. The severance benefit plan provides severance benefits to eligible employees who are involuntarily terminated from their jobs for reasons other than cause, disability, or death.
10. Stockholders' Equity
As of September 30, 2023, the Company had the following warrants outstanding to purchase shares of the Company's common stock were authorizedCommon Stock:
Number of SharesClassificationExercise Price Per ShareExpiration Date
2,500,000Equity$1.60November 15, 2024
30,268,000Liability$2.565November 23, 2027


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OptiNose, Inc.
Notes to be issued under the Plan,Unaudited Interim Consolidated Financial Statements
(in thousands, except share and 101,090 shares were reserved for future issuance under the Plan. The amount, terms of grants, and exercisability provisions are determined and set by the Company's board of directors. The Company measures employee stock-based awards at grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the award.per share data)

11. Stock-based awards issued to non-employees are revalued until the award vests. Compensation
The Company recorded stock-based compensation expense related to stock options and shares issued under the Company's 2010 Stock Incentive Plan and 2017 Employee Stock Purchase Plan (2017 Plan) in the following expense categories of its accompanying consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Cost of product sales$9 $10 $27 $30 
Research and development129 219 410 648 
General and administrative1,067 1,721 3,793 6,716 
$1,205 $1,950 $4,230 $7,394 
In addition, stock-based compensation expense of $87 was capitalized to inventory as of September 30, 2023, which represents the stock-based compensation expense incurred related to employees involved in the manufacturing process of finished goods and samples.
Stock Options
The Company issues stock-based awards pursuant to its 2010 Stock Incentive Plan. Effective as of October 12, 2017, the Company's 2010 Stock Incentive Plan was amended and 2016:
 Three Months Ended
September 30,		Nine Months Ended September 30,
 2017 20162017 2016
Research and development$411
 $25
$919
 $323
General and administrative360
 9
881
 216
 $771
 $34
$1,800
 $539
Service-basedrestated (A&R Plan). The Company has issued service-based, performance-based, and market-based stock options
Options issued under the Plan that generally have a contractual life of up to 10 years and may be exercisable in cash or as otherwise determined by the Company's board of directors.directors or committee thereof. Vesting generally occurs over a period of not greater than four years. Performance-based options may vest upon the achievement of certain milestones. As of September 30, 2023, all of the performance conditions related to performance-based stock options issued by the Company had been achieved. Market-based options may vest upon the achievement of certain market-based objectives relating to the trading price of the Company's Common Stock.
The following table summarizes the activity related to service-based stock option grants to employees and nonemployeesnon-employees for the nine months ended September 30, 2017:2023:
 SharesWeighted
average
exercise price
per share		Weighted
average
remaining
contractual life
Outstanding at December 31, 20229,364,070 $6.88 6.05
Granted2,287,677 1.65 
Exercised— — 
Expired(755,801)7.76 
Forfeited(742,285)2.53 
Outstanding at September 30, 202310,153,661 $5.96 5.68
Exercisable at September 30, 20235,868,254 $8.93 3.58
During the nine months ended September 30, 2023, stock options to purchase 2,287,677 shares of Common Stock were granted to employees and generally vest over four years. The stock options had an estimated weighted average grant date fair value of $1.14. The grant date fair value of each service-based and performance-based option grant was estimated at the time of grant using the Black-Scholes option-pricing model. The grant date fair value of each market-based stock option grant was estimated at the time of grant using a Monte Carlo simulation.
20
 Shares 
Weighted
average
exercise price
per share
 
Weighted
average
remaining
contractual life
Outstanding at December 31, 20161,894,083
 $3.09
 6.67
Granted524,147
 5.90
 
Exercised—
 —
 
Expired(2,887) 5.68
  
Forfeited(3,955) 3.05
 
Outstanding at September 30, 20172,411,388
 $3.70
 6.67
Exercisable at September 30, 20171,193,791
 $1.99
 4.09
Vested and expected to vest at September 30, 20172,411,388
 $3.70
 6.67

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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)



During the nine months endedThe aggregate intrinsic value of stock options outstanding and stock options exercisable, other than market-based stock options, as of September 30, 2017, the board of directors approved the grant of time-based options to purchase 524,147 shares of common stock to employees that generally vest over four years. The options had an estimated weighted average grant date fair value of $3.90. The grant date fair value of each option grant2023 was estimated at the time of grant using the Black-Scholes option-pricing model using the following weighted average assumptions:
Risk free interest rate2.01%
Expected term (in years)6.08
Expected volatility74.06%
Annual dividend yield0.00%
Fair value of common stock$3.90
$27 and $0, respectively. At September 30, 2017,2023, the unrecognized compensation cost related to unvested service-basedstock options, other than market-based stock options, expected to vest was $3,609.$4,030. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 3.432.69 years.
Performance-basedIncluded in the table above are 959,215 market-based options granted. These options generally become eligible to vest over four years, subject to the achievement of certain market-based objectives relating to the trading price of the Common Stock. Stock-based compensation for these awards is recognized over the derived service period of approximately 2 years. The grant date fair value of each stock option grant, as well as the derived service period for these awards, was estimated at the time of grant using a Monte Carlo simulation. During the nine months ended September 30, 2023, no market-based options vested upon the achievement of certain market-based objectives relating to the trading price of the Company's Common Stock.
Included in the table above are 905,500 options granted outside the A&R Plan. The grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq Listing Rule 5635(c)(4).
Restricted Stock Units
The Company has issued service-based and performance-based restricted stock options underunits (RSUs). Vesting generally occurs over a period not greater than four years. Vesting of the Plan which generally have a ten-year life from the date of grant and may vest uponperformance-based RSUs is subject to the achievement of certain milestones in connection with the Company's development programs. Additionally, the Company has issued options in excess of the fair market value of common shares on the issuance date that are only exercisable upon a change in control or upon or after an initial public offering. Compensation expense for performance-based stock options is only recognized when management determines it is probable that the awards will vest.
The following table summarizes the activity related to performance-based stock option grantsRSUs granted to employees and nonemployees for the nine months ended September 30, 2017:2023:
Shares
Balance at December 31, 20221,477,660 
Granted1,627,174 
Vested and settled(567,915)
Expired/forfeited/canceled(524,367)
Balance at September 30, 20232,012,552 
Expected to vest at September 30, 20232,012,552 
 Shares 
Weighted
average
exercise price
per share
 
Weighted
average
remaining
contractual life
Outstanding at December 31, 20162,171,760
 $9.59
 6.55
Granted—
 —
 
Exercised—
 —
 
Forfeited—
 —
 
Outstanding at September 30, 20172,171,760
 $9.59
 5.74
Exercisable at September 30, 20171,016,600
 $1.96
 4.08
During the nine months ended September 30, 2023, the Company granted 1,627,174 RSUs at a weighted-average grant date fair value of $1.86, all of which were service-based RSUs. No performance-based RSUs were granted in the nine months ended September 30, 2023. As of September 30, 2017, there2023, the milestone associated with the previously granted performance based-RSUs was $2,301achieved. At September 30, 2023, the recognized compensation cost related to vested performance-based RSUs was $1,820. At September 30, 2023, the unrecognized compensation cost related to unvested service-based RSUs expected to vest was $3,570, to be recognized over an estimated weighted-average amortization period of 2.83 years. The unrecognized compensation cost related to unvested performance-based stock options thatRSUs was $241, which will vest and be expensed whenrecognized over the occurrenceremaining service period.
Included in the table above are 60,000 RSUs granted outside the A&R Plan. The grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq Listing Rule 5635(c)(4).
2017 Employee Stock Purchase Plan
Under the 2017 Plan, shares of Common Stock may be purchased by eligible employees who elect to participate in the 2017 Plan at 85% of the performance condition is deemed probable.
lower of the fair market value of Common stock warrants
Stock on the first or last day of designated offering periods. The Company also has 1,890,489 common stock warrants outstanding with an exercise pricerecognized stock-based compensation expense related to the 2017 Plan of $8.16 per share that expire in 2020.
11. Related-party transactions
Debt$48 and equity transactions
All$53 during the three months ended September 30, 2023 and 2022, respectively. The Company recognized stock-based compensation expense related to the 2017 Plan of $125 and $215 during the Company's convertible debt (see Note 8) was with holders of the Company's convertible preferred stock.

nine months ended September 30, 2023 and 2022, respectively.
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)



12. Subsequent events
On September 19, 2017,The Company calculated the Company's board of directors adopted, and, on October 2, 2017, the Company's stockholders approved, the Amended and Restated 2010 Stock Incentive Plan (A&R Plan), which became effective October 12, 2017. The A&R Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, deferred stock units, performance shares, stock appreciation rights and other equity-based awards. The Company's employees, officers, directors and other persons are eligible to receive awards under the A&R Plan. In conjunction with the IPO and the adoption of the Amended and Restated 2010 Stock Incentive Plan in October 2017, the Company granted 1,599,881 stock options with a weighted average exercise price of $16.03 per share and a weighted average grant date fair value of $11.18 per share. In addition, in October 2017,each option grant and the Company recorded $1,642 in compensation expense pertaining to certain performance-based stock options that became exercisable upon consummation of the IPO.

On September 19, 2017, the Company's board of directors adopted, and, on October 2, 2017, the Company's stockholders approved,shares issued under the 2017 Employee Stock Purchase Plan which became effective on October 12, 2017. The 2017 ESPP authorized the issuancerespective dates of up to 144,395 sharesgrant using the following weighted average assumptions:
Nine Months Ended September 30,
20232022
Risk free interest rate0.05 %0.17 %
Expected term (in years)0.50.5
Expected volatility68.13 %88.13 %
Annual dividend yield0.00 %0.00 %

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Table of the Company's common stock pursuant to purchase rights granted to its employees or to employees of any of its participating affiliates. Contents

In October 2017, the Company sold 8,625,000 shares of common stock through its initial public offering at a price of $16.00 per share for total gross proceeds of $138,000 and net proceeds of $125,540 after deducting underwriting discounts and commissions of approximately $9,660 and estimated offering expenses of approximately $2,800 payable by the Company. Upon consummation of the IPO, all of the outstanding shares of the Company's redeemable convertible preferred stock were converted into an aggregate of 25,068,556 shares of common stock.

In November 2017, the Company entered into an agreement with a contract sales organization for the recruitment, deployment and management of a contract sales force to market XHANCE in the United States. Subject to certain limited exceptions, the Company may not terminate this agreement until after the first anniversary of the deployment of the sales force. The Company estimates the expenses related to the non-cancellable services during this period to be approximately $15,500. Thereafter, the Company may terminate the agreement subject to potential early termination fees ranging from $100 to $700.


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, 2017,2022, filed with the Securities and Exchange Commission (SEC) on March 7, 2023. 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 deliverSystem™ (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 (commonly referred to 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 conventional INS. Additionally, we believe the current INS. We also believe that payors will respond favorablypractice of postoperative INS use could support XHANCE’s adoption as a maintenance therapy to XHANCE's clinical, cost, and quality-of-care profile, as compared to current and potential future costly drug therapy and surgical treatment options.improve outcomes following sinus surgery.
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. We expectpatients 18 years of age or older. XHANCE was made widely available through commercial channels in April 2018. In January 2023, the indication statement for XHANCE was changed from “for the treatment of nasal polyps” to launch“for the treatment of chronic rhinosinusitis with nasal polyps”. This modification was the result of a change in FDA labeling terminology and was not based on new XHANCE in the second quarter of 2018 with a dedicated contract sales force targeting a specialty prescriber base comprised of approximately 15,000 ENTclinical trial data.
In March and allergy physicians in the United States. We plan to initiate additionalJune 2022, we announced positive top line results from our two Phase 3b clinical trials (ReOpen1 and ReOpen2) of XHANCE in the second half of 2018 to seekfor a follow-on indication for the treatment of chronic sinusitis to broadensinusitis. The results of ReOpen1 and ReOpen2 are summarized in our market opportunity. XHANCE is the second commercial product that we have developed utilizing our EDS. Our first commercial product (now marketed as Onzetra® Xsail®), indicatedForm 10-K for the acuteyear ended December 31, 2022, filed with the Securities and Exchange Commission on March 7, 2023. In February 2023, we submitted a prior approval efficacy supplement (sNDA) to support the approval of a new indication for XHANCE for the treatment of migraineschronic rhinosinusitis in adults, was licensed in 2013patients 18 years of age or older. The FDA accepted the sNDA for review and assigned a Prescription Drug User Fee Act (PDUFA) goal date of December 16, 2023. If the sNDA is approved, XHANCE has the potential to Avanir Pharmaceuticals, Inc., or Avanir, and wasbe the first drug therapy approved by the FDA in January 2016.
XHANCE Pre-Commercialization Activities Update
In preparation for the commercial launch of XHANCE, we trained and deployed through a contract sales organization (CSO) a field team of approximately 85 contract clinical nurse educators (CNEs). The objectives of the CNE team prior to the deployment of our contract sales force are to introduce Optinose as 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 of XHANCE for the treatment of chronic sinusitis.
As a result of the FDA's evolving view on the terminology to be applied to what was historically labeled “chronic sinusitis” and “nasal polyps”, it is uncertain whether the ReOpen1 and ReOpen2 clinical trials that we conducted for XHANCE will, if approved, result in an additional indication using the language “for the treatment of chronic sinusitis”, “for the treatment of chronic rhinosinusitis”, “for the treatment of chronic rhinosinusitis without nasal polyps”, or other similar language. It is our view that these variations in terminology are synonymous from a promotional perspective and that all are distinct from XHANCE's current indication. In this Quarterly Report on Form 10-Q, we use the terms "chronic sinusitis" and "chronic rhinosinusitis without nasal polyps" as being synonymous.
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 inventory and prescription data as well as data from PPN partners, the total estimated number of XHANCE prescriptions in the third quarter of 2023 was 84,100, which represents a 6% decrease for prescriptions when compared to estimated third quarter 2022 prescriptions of 89,900. In first quarter and second quarter 2023 we updated the methodology used to estimate XHANCE prescriptions. For reference, under the methodology used in 2022 we estimated prescriptions of 86,600 in the third quarter of 2022. The INS prescription market decreased 1% from third quarter 2022 to third quarter 2023 based on third-party prescription data.
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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 were flat from the fourth quarter of 2021 to the first quarter of 2022, increased 7% from the first quarter of 2022 to the second quarter of 2022, decreased 7% from the second quarter of 2022 to the third quarter of 2022, increased 4% from the third quarter of 2022 to the fourth quarter of 2022, increased 1% from the fourth quarter of 2022 to the first quarter of 2023, increased 3% from the first quarter of 2023 to the second quarter of 2023, and decreased 9% from the second quarter of 2023 to the third quarter of 2023.
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.
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.
Previously we tracked the market share of XHANCE within our current target audience 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. We calculated market share as the proportion of XHANCE prescriptions to the number of prescriptions written for other INS within our current target physician audience. However, 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. Due to the limitations of this denominator, which also does not include prescriptions for the several biologic products that are indicated to treat chronic rhinosinusitis with nasal polyps, in adults,and the FDA requiredfact that we conductnow have five years of historical XHANCE prescription data, we have stopped tracking market share but will continue to track year-over-year prescription growth.
•XHANCE New Prescriptions and Refill Prescriptions. The underlying disease that we are treating is chronic and, as a randomized, double-blind, placebo controlled clinical study in childrenresult, 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 inventory and adolescents with nasal polyposis to assessprescription data as well as data from PPN partners, the safety, efficacy, and pharmacokineticstotal estimated number of XHANCE new prescriptions in this population.the third quarter of 2023 was 27,400, which represents a 4% decrease for new prescriptions when compared to estimated third quarter 2022 new prescriptions of 28,600. In first quarter 2023 we updated the methodology used to estimate XHANCE new prescriptions. For reference, under the prior methodology we estimated new prescriptions of 28,000 in the third quarter of 2022. Based on third-party prescription data, the INS market for new prescriptions increased 1% from the third quarter of 2022 to the third quarter of 2023 and decreased 11% from the second quarter of 2023 to the third quarter of 2023.
We track refill prescriptions and provide patient co-pay assistance to support refill programs that are administered by our PPN partners. Based on third-party inventory and prescription data as well as data from PPN partners, the total estimated number of XHANCE refill prescriptions in the third quarter of 2023 was 56,600, which represents a 8% decrease for refill prescriptions when compared to estimated third quarter 2022 refill prescriptions of 61,300. In first quarter and second quarter 2023 we updated the methodology used to estimate XHANCE refill prescriptions. For reference, under the prior methodology we estimated refill prescriptions of 58,600 in the third 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 inventory and 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 third quarter of 2023 was 8,427, which represents a 5% increase when compared to the estimated 8,056 physicians who had at least one patient fill a prescription for XHANCE in the third quarter of 2022. In addition, the total estimated number of physicians who had at least one patient fill a prescription for XHANCE was 8,313 in the fourth quarter of 2022, 8,545 in the first quarter of 2023, and 8,624 in the second quarter of 2023. In first quarter 2023 we updated the methodology used to estimate XHANCE prescriptions and as a consequence updated our estimate for the number of physicians who had at least one patient fill a prescription for XHANCE. For reference, under the prior methodology we estimated the number of physicians who had at least one patient fill a prescription for XHANCE was 7,892 in the third quarter of 2022.
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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 third quarter of 2023 was 1,346, which represents a 9% decrease when compared to the estimated 1,485 physicians who had more than 15 XHANCE prescriptions filled by their patients in the third quarter of 2022. In addition, the total estimated number of physicians who had more than 15 XHANCE prescriptions filled by their patients was 1,509 in the fourth quarter of 2022, 1,391 in the first quarter of 2023, and 1,428 in the second quarter of 2023. In first quarter 2023 we updated the methodology used to estimate XHANCE prescriptions and as a consequence updated our estimate for the number of physicians who had more than 15 XHANCE prescriptions filled by their patients. For reference, under the prior methodology we estimated the number of physicians who had more than 15 XHANCE prescriptions filled by their patients was 1,491 in the third 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 $236 in the third quarter of 2023 which represents a 6% increase when compared to the $223 average XHANCE net product revenues per prescription in the third quarter of 2022. The FDA originally indicatedincrease in average net product revenues per prescription is primarily the study wasresult of increased shipments and an increase in the price paid for individual units of XHANCE. In first quarter and second quarter 2023 we updated the methodology used to be conductedestimate XHANCE prescriptions. For reference under the prior methodology we estimated net product revenues per prescription of $232 for the third quarter of 2022.
During the second half of 2023 we modified our co-pay assistance program to reduce the amount co-pay assistance available to patients that do not have coverage for XHANCE or have high out-of-pocket costs. These changes were intended to increase average net revenue per prescription by decreasing the amount we pay in childrenco-pay assistance for these prescriptions and adolescents 6decreasing the number of these prescriptions that are filled because they have limited profitability to 17 years of age. On October 302017,us due to their high reliance on our co-pay assistance program. In the FDA notified us that in responsefuture we may make additional changes to our co-pay assistance program designed to increase average net revenue per prescription.
•Market Access. We believe that as of September 30, 2023 approximately 80% of commercially insured lives were in plans that covered XHANCE. 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 FDA-approved indication prior to becoming eligible for coverage for XHANCE. Further, we believe that approximately half of the commercially covered lives as of September 30, 2023 are in a plan that requires a prior authorization and most of those prior authorizations request information regarding prior use of INS and patient diagnosis for an FDA-approved indication. In some cases, patients do not meet the payors' utilization management criteria, or providers may not complete the burdensome 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 will not gain access to XHANCE treatment. We believe increasing rates of enforcement of the utilization management criteria had a negative effect on XHANCE prescription volume growth in 2022 and could have a negative effect on prescription volume in the future. These requirements include physician attestation to a diagnosis of nasal polyps which can be a hurdle for some physicians in our target audience because it had modified the required age range to 12 to 17 years of age.is not a diagnosis they make commonly.



Financial Operations Overview
The following discussion sets forth certain components of our consolidated statements of operations as well as factors that impact those items.

LicensingNet product revenues
To date,Sales of XHANCE generated $19.8 million and $20.1 million in net product revenues for the three months ended September 30, 2023 and 2022, respectively, and $51.1 million and $55.4 million for the nine months ended September 30, 2023 and 2022. In accordance with GAAP, we havedetermine net product revenues for XHANCE, with
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specific assumptions for variable consideration components including but not generated any revenueslimited to trade discounts and allowances, co-pay assistance programs and payor rebates.
Based on available XHANCE prescription data purchased from product sales. Substantially allthird parties and data from our PPN partners, who collectively dispensed more than 80% of our revenuetotal prescriptions (TRxs) in the period, our average XHANCE net product revenues per prescription were $236 in the third quarter of 2023 which represents a 6% increase compared to date has been derived from the AVP-825 License Agreement. $223 average XHANCE net product revenues per prescription in the third quarter of 2022. The increase in average net product revenues per prescription is primarily the result of increased shipments and an increase in the price paid for individual units of XHANCE.
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 expectnecessarily reflect a change in the price that is paid for an individual unit of XHANCE, including but not limited to generate significant product revenue unlessordering patterns and untilinventory levels for our wholesale customers and PPN partners, patient utilization rates of our co-pay assistance and other 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 us and the third parties that we commercialize XHANCErely upon to provide certain prescription and inventory data which may lead to revisions of historical estimates of prescription volumes and our othercalculated average net product candidates.revenues per prescription.
We expect full year 2023 net product revenues will be between $66.0 to $70.0 million. Previously, we expected full year 2023 net product revenues will be between $64.0 to $70.0 million. In July 2013,December 2022, we throughreduced our wholly owned subsidiary, OptiNose AS, entered into the AVP-825 License Agreement undernumber of territory managers from approximately 90 to approximately 77 as part of actions intended to reduce total operating expenses for full year 2023 by approximately $30.0 million compared to 2022, of which we granted an exclusive licenseapproximately half is related to Avanir to further developsales and commercialize AVP-825 (now marketed as Onzetra Xsail). Under the termsmarketing. In addition, our expectation of the AVP-825 License Agreement, we have receivedfull year 2023 net product revenues between $66.0 and $70.0 million in aggregate licensingdoes not assume net product revenues attributable to date in connectiona potential launch of XHANCE as a treatment for patients with the initial signing 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 eligiblechronic sinusitis. The year-over-year decrease to receive upnet product revenues is attributable to an additional $50.0 million uponexpected increase in gross-to-net deductions and an expected decrease in units shipped. The expected increase in gross-to-net deductions includes increased rebates, co-pay assistance and changes in business mix. For the achievementfull year 2023, we believe average net product revenues per prescription will be approximately $200. The expected year-over-year decrease in net product revenues is also a byproduct of annualour previously communicated intent to prioritize our capital resources for a potential launch of XHANCE for the treatment of chronic sinusitis.

Costs of product sales milestones
Costs of product sales includes the cost of inventory sold, which includes direct and tiered low double-digit royalty payments onceindirect manufacturing and if net sales of the product exceed a specified cumulative threshold. We do not expect to generate any additional revenue from the AVP-825 License Agreement in the near term.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:
▪personnel expenses, including salaries, benefits and stock-based compensation expense;
▪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;
▪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;
▪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 filings with the FDA;
▪costs incurred to maintain, expand and protect our patent portfolio; and
▪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 Exhalation Delivery System;
▪expenses related to the continued development of our product portfolio;
▪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;
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▪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 planAssuming we do not need to incur research and development expenses for the foreseeable future as we expectconduct additional studies to continue the developmentsupport an FDA approval 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 preclinicalwe do not undertake new development programs, we expect significantly lower research and clinical development and given the preliminary nature of our clinical trial design for XHANCE for a follow-on indication for the treatment of chronic sinusitis and the FDA-mandated pediatric studies for XHANCE, and the early stage of our other product candidates, we are unable to estimate with any certainty the costs we will incur and the timelines we will requireexpenses in our continued development efforts.2023.
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 related expenses consist of market researchinclude our sales team and other pre-commercialsupporting promotional materials, digital promotion, peer-to-peer education, congresses / conventions, samples, and marketing activities such as direct-to-patient / direct-to-consumer initiatives. Additionally, sales and marketing-related expenses include fees paid to prepareour PPN partners for the anticipated commercialization of XHANCE,services unrelated to traditional distribution functions, such as well as salariespatient services fees, data fees, benefit claims adjudication 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.program management fees.
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 A&R Note Purchase Agreement.
Other (income) expense
Other (income) expense consists primarily of grantunrealized gains and other income as a result of government cost reimbursements for research and development activities over a contractually defined period,losses on our warrant liability, as well as foreign currency (income) losses due to exchange rate fluctuations on transactions denominated in a currency other than our functional currency.
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Consolidated Results of Operations
Comparison of three months ended September 30, 20172023 and 20162022
The following table sets forth our selected consolidated statements of operations data for the periods indicated (in thousands):
 Three Months Ended September 30,
 20232022
Revenues:
Net product revenues$19,823 $20,078 
   Total revenues19,823 20,078 
Costs and expenses:  
Cost of product sales2,225 2,125 
Research and development1,281 3,267 
Selling, general and administrative18,011 25,486 
Total operating expenses21,517 30,878 
Loss from operations(1,694)(10,800)
Other (income) expense: 
Interest expense4,395 4,159 
Other (income) expense3,205 (5)
Total other (income) expense7,600 4,154 
Net loss$(9,294)$(14,954)
Net product revenues
 Three Months Ended September 30,
 2017 2016
Licensing revenues$—
 $—
Operating expenses: 
  
Research and development6,641
 3,868
Selling, general and administrative6,553
 1,761
Total operating expenses13,194
 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 $19.8 million and $20.1 million for the three months ended September 30, 2023and 2022, respectively. Revenue decrease is attributable primarily to a a decrease in units sold to customers during the three months ended September 30, 20172023. The year-over-year decrease in net product revenues is consistent with our previously communicated intent to prioritize our capital resources for a potential launch of XHANCE for the treatment of chronic sinusitis.
Cost of product sales
Cost of product sales related to XHANCE were $2.2 million and 2016.$2.1 million for the three months ended September 30, 2023 and 2022, respectively. The increase of $0.1 million can be attributed to an increase in the cost to produce XHANCE in 2023.
Research and development expense
Research and development expenses were $6.6expense was $1.3 million and $3.9$3.3 million for the three months ended September 30, 20172023 and 2016,2022, respectively. The $2.7$2.0 million increase wasdecrease is 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.
▪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;
▪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;
▪a $0.4 million increase in stock-based compensation expense;

▪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:
▪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
▪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 $18.0 million and $1.8$25.5 million for the three months ended September 30, 20172023 and 2016,2022, respectively. The $4.8$7.5 million increasedecrease was due primarily to:
▪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;
▪a $1.0 million increase in administrative and consultancy expenses as a result of our preparations to become a public company;
▪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$4.7 million increasedecrease in stock-based compensation expense.sales, marketing and administrative costs as well as a $2.8 million decrease in payroll and related costs.
Interest (income) expense, net
Interest (income) expense, net, was $(61,000)$4.4 million and $0.8$4.2 million for the three months ended September 30, 20172023 and 2016, respectively. Interest2022, respectively, which was primarily comprised of interest expense foron the three months ended September 30, 2016 was related primarily to our convertible notes. The convertible notes were converted to shares of preferred stock in March 2017.Pharmakon Senior Secured Notes during both periods.

Other (income) expense, net
In November 2022, we issued warrants in connection with a public offering. These warrants are required to be measured at fair value and reported as a liability in the consolidated balance sheet. We recorded the fair value of the warrants upon issuance using a Monte Carlo simulation and are required to revalue the warrants at each reporting date with any changes in fair value recorded on our statement of operations. The valuation of the warrants
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is considered under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are both significant to the fair value measurement and unobservable. The change in the fair value of the Level 3 warrants liabilities is reflected in the statement of operations for the quarter ended September 30, 2023.
Other income, net,(income) expense was $(65,000) and $0.4$3.2 million for the three months ended September 30, 20172023 and 2016,represents the unrealized gain on the fair value of warrants.
Comparison of nine months ended September 30, 2023 and 2022
 Nine Months Ended September 30,
 20232022
Revenues:
Net product revenues$51,122 $55,420 
   Total revenues51,122 55,420 
Costs and expenses:  
Cost of product sales6,502 6,282 
Research and development4,017 12,339 
Selling, general and administrative60,839 84,339 
Total operating expenses71,358 102,960 
Loss from operations(20,236)(47,540)
Other (income) expense: 
Interest expense12,462 12,147 
Other income(7,182)(3)
Total other (income) expense5,280 12,144 
Net loss$(25,516)$(59,684)
Net product revenues
Net product revenues related to sales of XHANCE were $51.1 million and $55.4 million for the nine months ended September 30, 2023and 2022, respectively. The income in both periods wasRevenue decrease is attributable primarily to grant eligible research and development expenses incurred by OptiNose AS,a decrease in units sold to customers as well as a decrease in our Norwegian subsidiary.
Comparison ofaverage net revenue per prescription during the nine months ended September 30, 2017 and 2016
2023. The following table sets forthyear-over-year decrease in net product revenues is consistent with our selected consolidated statementspreviously communicated intent to prioritize our capital resources for a potential launch of operations dataXHANCE for the periods indicated (in thousands):treatment of chronic sinusitis.
Cost of product sales
 Nine Months Ended September 30,
 2017 2016
Licensing revenues$—
 $47,500
Operating expenses: 
  
Research and development15,620
 12,241
Selling, general and administrative13,214
 5,057
Total operating expenses28,834
 17,298
Income (loss) from operations(28,834) 30,202
Other (income) expense: 
  
Interest (income) expense706
 2,523
Other (income) expense(189) (522)
Total other (income) expense517
 2,001
Net (loss) income$(29,351) $28,201

Licensing Revenues
Revenue was $47.5Cost of product sales related to XHANCE were $6.5 million and $6.3 million for the nine months ended September 30, 20162023 and was attributable2022, respectively. The increase of $0.2 million can be attributed to an increase in the achievement of a development milestone under the terms of the AVP-825 License Agreement as a result of FDA approval of Onzetra Xsailcost to produce XHANCE in January 2016. There were no licensing revenues during the nine months ended September 30, 2017.2023.
Research and development expense
Research and development expenses were $15.6expense was $4.0 million and $12.2$12.3 million for the nine months ended September 30, 20172023 and 2016,2022, respectively. The $3.4$8.3 million increase wasdecrease is 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.
▪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;
▪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;
▪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;
▪a $0.6 million increase in stock-based compensation expense; and
▪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:
▪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
▪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 $60.8 million and $5.1$84.3 million for the nine months ended September 30, 20172023 and 2016,2022, respectively. The $8.1$23.5 million increasedecrease was due primarily to:to a $12.2 million decrease in sales, marketing and other administrative costs and an $11.3 million decrease in payroll and related costs.
▪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;
▪a $1.7 million increase in administrative and consultancy expenses as a result of our preparations to become a public company;
▪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
▪a $0.7 million increase in stock-based compensation expense.
Interest (income) expense, net
Interest (income) expense, net, was $0.7$12.5 million and $2.5$12.1 million for the nine months ended September 30, 20172023 and 2016, respectively. The $1.8 million decrease2022, respectively, which was due primarily tocomprised of interest expense on the conversionPharmakon Senior Secured Notes during both periods.

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Table of convertible notes to shares of preferred stock in March 2017.Contents
Other (income) expense, net
In November 2022, we issued warrants in connection with a public offering. These warrants are required to be measured at fair value and reported as a liability in the consolidated balance sheet. We recorded the fair value of the warrants upon issuance using a Monte Carlo simulation and are required to revalue the warrants at each reporting date with any changes in fair value recorded on our statement of operations. The valuation of the warrants is considered under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are both significant to the fair value measurement and unobservable. The change in the fair value of the Level 3 warrants liabilities is reflected in the statement of operations for the quarter ended September 30, 2023.
Other income net, was $0.2 million and $0.5$7.2 million for the nine months ended September 30, 20172023 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.

represents the unrealized gain on the fair value of warrants.
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 hadincurred net incomelosses of $28.2$25.5 million and $59.7 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 million for the nine months ended September 30, 20172023 and net losses of $13.1 million and $6.1 million for the three months ended September 30, 2017 and 2016,2022, respectively. As of September 30, 2017,2023, we had an accumulated deficit of $191.1$710.4 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 September 30, 2023, we had $66.8 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
 
Net cash used in investing activities (1,210) (43) 
Net cash provided by financing activities 35,713
 —
 
Effects of exchange rates on cash and cash equivalents (18) 46
 
Net (decrease) increase in cash and cash equivalents $12,613
 $27,659
 
 Nine Months Ended September 30,
 20232022
Net cash used in operating activities$(27,440)$(49,971)
Net cash used in investing activities(255)(60)
Net cash provided by financing activities296 649 
Effects of exchange rates on cash and cash equivalents— (12)
Net decrease in cash, cash equivalents and restricted cash$(27,399)$(49,394)
Operating activities
Cash provided by (used in)used in operating activities decreased by $49.5$22.6 million, from $27.6$50.0 million for the nine months ended September 30, 20162022 to $(21.9)$27.4 million for the nine months ended September 30, 2017.2023. The decrease in cash provided byused in operating activities was attributable primarily to thea decrease in net income generated from the $47.5 million of licensing revenue earnedloss and a decrease in connection with the achievement ofaccounts receivable due to increased collections, partially offset by a development milestone under the terms of the AVP-825 License Agreement resulting from FDA approval of Onzetra Xsaildecrease in January 2016. No revenue was generated from the AVP-825 License Agreement duringaccrued expenses for the nine months ended September 30, 2017.2023.
Investing activities
Cash used in investing activities increased $1.2 million from $43,000 for the nine months ended September 30, 20162022 to $1.2 million for the nine months ended September 30, 2017. The2023 due to an increase was related toin equipment and software purchases of equipment in connection with our preparation forduring the commercial launch of XHANCE.nine months ended September 30, 2023.
Financing activities
Cash provided by financing activities increased to $35.7 million fordecreased from the nine months ended September 30, 2017 from $0 for2022 to the nine months ended September 30, 2016. During 2017, we received $35.7 million2023 due to a decrease in net proceeds from the saleissuance of common stock under our employee stock purchase plan.
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Projected 2023 operating expenses
We expect that our total GAAP operating expenses, consisting of selling, general & administrative expenses and research & development expenses, for 2023 will be between $88.0 million and $93.0 million of which approximately $6.0 million is expected to be stock-based compensation expense. As a result, our total operating expenses (consisting of selling, general & administrative expenses and research & development expenses) excluding approximately $6 million of expected stock-based compensation expense are expected to be between $82.0 million and $87.0 million. The $88.0 million to $93.0 million range is approximately a $30.0 million reduction compared to 2022, of which approximately half is related to reductions in sales and marketing. The decrease in selling, general, & administrative expenses from 2022 to 2023 is anticipated as the result of actions taken to reduce near-term employee-related and third party expenses while preserving necessary capabilities to launch XHANCE, if approved, as a treatment for patients with chronic sinusitis. In addition, the completion in 2022 of our Series D Preferred Stock.clinical trial program in pursuit of a follow-on indication for XHANCE for the treatment of chronic sinusitis is the primary driver of an expected decrease in research & development expenses.
Future Funding Requirementsfunding requirements
We expect to continue to incur significant expenses in connection with our ongoing activities, particularly as we:
▪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;
▪maintain 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 funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
▪
▪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 chronic rhinosinusitis with nasal polyps and, if approved, chronic sinusitis including, among other things, continued patient and physician adoption of XHANCE and our ability to complete maintain adequate insurance coverage and reimbursement for XHANCE for its current indication and any future indication;
▪the clinical developmentoutcome, timing and cost of the FDA regulatory approval process of XHANCE for chronic sinusitis, including the potential for the FDA to require that we perform additional studies and clinical trials;
▪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 plans for XHANCE, including the outcome, timing and cost of studies mandated under the Pediatric Research Equity Act, and activities in pursuit of a follow-on indication for the treatment of chronic sinusitis,sinusitis;
▪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,
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▪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 covenants (including the requirement for us to achieve certain minimum trailing twelve-month consolidated XHANCE net sales and royalties thresholds and the requirement for us to maintain at least $30.0 million of cash and cash equivalents at all times), and the other provisions under the A&R 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 covenants or other provisions.
As of September 30, 2023, we had $66.8 million in cash and cash equivalents. We will likely require additional capital in the near term in order to maintain compliance with the financial covenants and other terms under the A&R Note Purchase Agreement and to supportmeet the developmentdebt service obligations under our outstanding Pharmakon Senior Secured Notes, and to continue to fund our operations.

Our continuation as a going concern is dependent on our ability to maintain compliance with our covenants under the A&R Note Purchase Agreement, including minimum trailing twelve-month consolidated XHANCE net sales and royalties we are required to achieve commencing with the trailing twelve months ending March 31, 2024, and our ability to generate sufficient cash flows from operations to meet our obligations and/or obtain additional capital through equity or debt financings, partnerships, collaborations, or other sources, as may be required. The A&R Note Purchase Agreement includes events of default, in certain cases subject to customary periods to cure, following which Pharmakon may accelerate all amounts outstanding pursuant to the A&R Note Purchase Agreement. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

We believe it is probable that we will not achieve the trailing twelve-month minimum consolidated XHANCE net sales and royalties thresholds under the A&R Note Purchase Agreement for the initial period ending March 31, 2024, which will constitute a default under the A&R Note Purchase Agreement if we are unable to obtain a modification or waiver of such minimum consolidated XHANCE net sales and royalties threshold.
The A&R Note Purchase Agreement also requires us to maintain at all times a minimum of $30.0 million of cash and cash equivalents. We believe that it is probable that our existing cash and cash equivalents will not be adequate to fund our operations and maintain at least $30.0 million of cash and cash equivalents as required under the A&R Note Purchase Agreement for at least twelve-months following the filing of this Form 10-Q, which will also constitute a default of the liquidity financial covenant under the A&R Note Purchase Agreement if we are unable to obtain additional capital or obtain a waiver or modification to this liquidity covenant prior to falling below such $30.0 million threshold.
Further, the A&R Note Purchase Agreement includes a requirement that commencing with the report and opinion on the consolidated financial statements commencing with the year ending December 31, 2023 and that all of our other product candidates. Additional funds maysubsequent quarterly and annual financial statements, not be available onsubject to any statement as to “going concern” (subject to certain exceptions). We have concluded that it is unlikely that we will be able comply with these provisions in 2024. Failure to comply with these provisions would also constitute an event of default under the A&R Note Purchase Agreement.
In the event of any of the foregoing defaults, the holders of the Pharmakon Senior Secured Notes may elect to accelerate the repayment of all unpaid principal, accrued interest and other amounts due, which may require us to delay or curtail our operations until additional funding is received. These factors raise substantial doubt about our ability to continue as a timely basis, on favorablegoing concern. The terms of the A&R Note Purchase Agreement and the Pharmakon Senior Secured Notes, including applicable covenants, are described in Note 8. In the event we are able to maintain compliance with the financial and other covenants and terms of the A&R Note Purchase Agreement or at all,obtain a waiver to or modification of such covenants, we believe our existing cash and such funds, if raised, may notcash equivalents will be sufficient to enable us to continue to implement our long-term business strategy. If we cannot expandfund our operations and debt service obligations for approximately the next 12 months.

We will likely require additional capital in the future secured through equity or otherwise capitalize ondebt financings, partnerships, collaborations, or other sources in order to meet our business opportunities because we lack sufficientdebt service obligations, including repayment, under the Pharmakon Senior Secured Notes, and to carry out our planned development and commercial activities. If additional capital our business, financial condition and results of operations could be materially adversely affected andis not obtained when required, we may need to delay or curtail our operations until suchadditional funding is received.

Additionally, we may never become profitable, or if we do, we may not be able to sustain profitability on a recurring basis.
Off-balance sheet arrangements
32
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 regulations
Table of the SEC.Contents
Contractual obligations 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 organization for the recruitment, deployment and management of a contract 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 this period to be approximately $15.5 million. Thereafter, we may terminate the agreement subject to potential early termination fees ranging from $0.1 million to $0.7 million.

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, 2022, as filed with the SEC pursuant to Rule 424(b) under the Securities Acton March 7, 2023, 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,Principal 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 officerPrincipal 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.

September 30, 2023.
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 September 30, 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)



PART II
ITEM 1. LEGAL PROCEEDINGS
From time 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.

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. There have been no material changes to the risk factors disclosed in our prospectus.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Issuances of Unregistered Securities
On August 7, 2017, we granted stock options to purchase a total of 160,278 shares of common stock at an exercise price of $7.25 per share to nine employees pursuant to our 2010 Stock Incentive Plan, or the 2010 Plan. On September 12, 2017, we granted a stock option to purchase 28,879 shares 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 registration under the Securities Act in reliance on Rule 701 as offers and sales of securities under written compensatory benefit plans and contracts relating to compensation in compliance with Rule 701. Each of the recipients of securities 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 shares of our common stock were sold at a price to the public of $16.00 per share, for aggregate gross proceeds of $138.0 million. As of the date of filing this report, the offering has terminated, and all of the securities registered pursuant to the offering were sold prior to termination. Jefferies and Piper Jaffray acted as lead joint book-running managers in the IPO, and BMO Capital Markets and RBC Capital Markets acted as joint book-running managers in 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 balance of the funds totaling approximately $125.5 million shall be used in a manner consistent with the use of proceeds from the IPO as described in the Prospectus under “Use of Proceeds.”
The foregoing expenses are a reasonable estimate of the expenses incurred by us in the offering and do not represent the exact amount of expenses incurred. All 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.
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

None.


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
3.2
10.13.3 
10.231.1 
*
10.3
Manufacturing Services Agreement, dated as of August 31, 2017, by and among OptiNose US, Inc., OptiNose UK Ltd. and OptiNose AS and Ximedica, LLC (incorporated by reference to Exhibit 10.16 to the Company’s Registration Statement on Form S-1 (File No. 333-220515), as filed with the SEC on September 18, 2017).
31.1
*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act.
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.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

OPTINOSE, INC.
Date:November 27, 20179, 2023By:/s/ KEITH A. GOLDANANTHONY J. KRICK
Name:Name:Keith A. GoldanAnthony J. Krick
Title:Title:Vice President, Finance & Chief FinancialAccounting Officer
(Principal Financial and Accounting Officer)



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