optn-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


			☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


			☐			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

OPTINOSE, INC.

(Exact name of registrant as specified in its charter)


Delaware			42-1771610
(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 class

Trading symbol(s)

Name of each exchange on which registered

Common stock, par value $0.001 per share

OPTN

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer ☐	Accelerated filer	☐
Non-accelerated filer ☒	Smaller reporting company	☒
	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes ☐ No ☒

The number of shares of the registrant's common stock outstanding at August 1, 2023 was 112,223,317 shares.

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	NOTE REGARDING FORWARD-LOOKING STATEMENTS	1
	PART I — FINANCIAL INFORMATION

Item 1.		4
	Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	4
	Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022	5
	Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2023 and 2022	6
	Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the three and six months ended June 30, 2023 and 2022	7
	Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022	8
	Notes to Unaudited Interim Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Qualitative and Quantitative Disclosure About Market Risk	32
Item 4.	Controls and Procedures	32
	PART II — OTHER INFORMATION	33






Item 6.	Exhibits	33
	Signatures	35

_________________________

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

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements relating to:

▪the potential uses for and advantages of XHANCE®, the Exhalation Delivery System™ (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 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 $64.0 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

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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 annual report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (SEC), and in particular, the risks and uncertainties discussed therein under the caption “Risk Factors”. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. As a result, you should not place undue reliance on forward-looking statements.

Additionally, the forward-looking statements contained in this Form 10-Q represent our views only as of the date of this Form 10-Q (or any earlier date indicated in such statement). While we may update certain forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if new information becomes available in the future. However, you are advised to consult any further disclosures we make on related subjects in the reports that we file with the SEC.

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

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MARKET, INDUSTRY AND OTHER DATA

This Form 10-Q contains estimates, projections, market research and other data generated by independent third parties, by third parties on our behalf and by us concerning 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)


	June 30, 2023		December 31, 2022
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	71,311	$	94,244
Accounts receivable, net	22,128		33,932
Inventory	7,732		9,443
Prepaid expenses and other current assets	2,439		2,865
Total current assets	103,610		140,484
Property and equipment, net	723		795
Other assets	1,735		2,943
Total assets	$	106,068	$	144,222
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable	$	6,482	$	5,291
Accrued expenses and other current liabilities	28,423		44,864
Short term debt, net	129,394		128,575
Total current liabilities	164,299		178,730
Warrant liability	11,100		21,490
Other liabilities	329		626
Total liabilities	175,728		200,846
Stockholders' deficit:
Common stock, $0.001 par value; 350,000,000 shares authorized at June 30, 2023 and 200,000,000 shares authorized at December 31, 2022; 112,091,764 and 111,492,791 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	112		111
Additional paid-in capital	631,426		628,242
Accumulated deficit	(701,114)		(684,893)
Accumulated other comprehensive loss	(84)		(84)
Total stockholders' deficit	(69,660)		(56,624)
Total liabilities and stockholders' deficit	$	106,068	$	144,222

See accompanying notes to unaudited interim consolidated financial statements

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OptiNose, Inc.

Consolidated Statements of Operations

For the Six Months Ended June 30, 2023 and 2022

(in thousands, except share and per share data)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues:
Net product revenues	$	19,454	$	20,582	$	31,299	$	35,342

Total revenues	19,454		20,582		31,299		35,342
Costs and expenses:
Cost of product sales	2,571		2,143		4,277		4,157
Research and development	951		4,270		2,736		9,072
Selling, general and administrative	20,104		29,514		42,828		58,853
Total operating expenses	23,626		35,927		49,841		72,082
Loss from operations	(4,172)		(15,345)		(18,542)		(36,740)
Other (income) expense:
Unrealized gain on fair value of warrants	(10,900)		—		(10,390)		—
Interest income	(725)		(36)		(1,429)		(170)
Interest expense	4,824		4,086		9,496		8,159
Foreign currency (gains) loss	3		2		5		1
Net (loss) income	$	2,626	$	(19,397)	$	(16,224)	$	(44,730)

Less: undistributed earnings to participating shareholders	$	(53)	$	—	$	—	$	—
Net (loss) income - basic	$	2,573	$	(19,397)	$	(16,224)	$	(44,730)
Net income (loss) per share of common stock - basic	$	0.02	$	(0.23)	$	(0.15)	$	(0.54)
Weighted average common shares outstanding - basic	111,979,778		82,740,096		111,877,669		82,594,786

Net (loss) income	$	2,626	$	(19,397)	$	(16,224)	$	(44,730)
Less: undistributed earnings to participating shareholders	$	(53)	$	—	$	—	$	—
Net (loss) income - diluted	$	2,573	$	(19,397)	$	(16,224)	$	(44,730)
Net income (loss) per share of common stock - diluted	$	0.02	$	(0.23)	$	(0.15)	$	(0.54)
Weighted average common shares outstanding - diluted	112,042,097		82,740,096		111,877,669		82,594,786

See accompanying notes to unaudited interim consolidated financial statements

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OptiNose, Inc.

Consolidated Statements of Comprehensive Income (Loss)

For the Six Months Ended June 30, 2023 and 2022

(in thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30
	2023		2022		2023		2022
Net income (loss)	$	2,626	$	(19,397)	$	(16,224)	$	(44,730)
Other comprehensive income (loss):
Foreign currency translation adjustment	—		(2)		—		(3)
Comprehensive income (loss)	$	2,626	$	(19,399)	$	(16,224)	$	(44,733)

See accompanying notes to unaudited interim consolidated financial statements

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OptiNose, Inc.

Consolidated Statements of Changes in Stockholders' Deficit

(in thousands, except share data)

(unaudited)


Six Months Ended June 30, 2023
	Stockholders' Equity (Deficit)
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity (Deficit)
	Shares	Amount
Balance at December 31, 2022	111,492,791	$	111	$	628,242	$	(684,893)	$	(84)	$	(56,624)
Stock compensation expense	—	—		1,520		—		—		1,520
Vesting of restricted stock units	343,406	1		—		—		—		1
Issuance of common stock under employee stock purchase plan	119,727	—		164		—		—		164
Foreign currency translation adjustment	—	—		—		—		—		—
Net loss	—	—		—		(18,847)		—		(18,847)
Balance at March 31, 2023	111,955,924	$	112	$	629,927	$	(703,740)	$	(84)	$	(73,785)
Stock compensation expense	—	—		1,499		—		—		1,499
Vesting of restricted stock units	135,840	—		—		—		—		—
Foreign currency translation adjustment	—	—		—		—		—		—
Net income	—	—		—		2,626		—		2,626
Balance at June 30, 2023	112,091,764	$	112	$	631,426	$	(701,114)	$	(84)	$	(69,660)


Six Months Ended June 30, 2022
	Stockholders' Equity (Deficit)
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity (Deficit)
	Shares	Amount
Balance at December 31, 2021	82,238,900	$	82	$	588,288	$	(610,061)	$	(81)	$	(21,772)
Stock compensation expense	—	—		1,998		—		—		1,998
Vesting of restricted stock units	262,942	—		—		—		—		—
Issuance of common stock under employee stock purchase plan	179,206	1		249		—		—		250
Foreign currency translation adjustment	—	—		—		—		(1)		(1)
Net loss	—	—		—		(25,333)		—		(25,333)
Balance at March 31, 2022	82,681,048	$	83	$	590,535	$	(635,394)	$	(82)	$	(44,858)
Stock compensation expense	—	—		3,474		—		—		3,474
Vesting of restricted stock units and exercise of options	363,318	—		—		—		—		—
Foreign currency translation adjustment	—	—		—		—		(2)		(2)
Net loss	—	—		—		(19,397)		—		(19,397)
Balance at June 30, 2022	83,044,366	$	83	$	594,009	$	(654,791)	$	(84)	$	(60,783)

See accompanying notes to unaudited interim consolidated financial statements

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OptiNose, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2023 and 2022

(in thousands)

(Unaudited)


	Six Months Ended June 30,
	2023		2022
Operating activities:
Net income (loss)	$	(16,224)	$	(44,730)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	179		256
Stock-based compensation	3,024		5,444
Change in fair value of warrant liability	(10,390)		—
Amortization of debt discount and issuance costs	825		1,065
Changes in operating assets and liabilities:
Accounts receivable	11,804		9,683
Prepaid expenses and other assets	1,856		446
Inventory	1,672		950
Accounts payable	1,191		1,810
Accrued expenses and other liabilities	(16,953)		(7,397)
Cash used in operating activities	(23,016)		(32,473)
Investing activities:
Purchases of property and equipment	(79)		(50)
Cash used in investing activities	(79)		(50)
Financing activities:
Cash paid for financing costs	(3)		27
Proceeds from issuance of common stock under employee stock purchase plan	164		249
Cash provided by financing activities	161		276
Effects of exchange rate changes on cash and cash equivalents	—		3
Net decrease in cash, cash equivalents and restricted cash	(22,934)		(32,244)
Cash, cash equivalents and restricted cash at beginning of period	94,244		110,515
Cash, cash equivalents and restricted cash at end of period	$	71,311	$	78,271
Supplemental disclosure of cash flow information:
Cash paid for interest	8,656		7,066
Supplemental disclosure of noncash activities:
Fixed asset purchases within accounts payable and accrued expenses	$	—	$	18

Recognition of right-of-use assets and lease liabilities	$	221	$	287

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. 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 commercial product, XHANCE® (fluticasone propionate) nasal spray, 93 microgram (mcg), is a therapeutic utilizing the Company's proprietary Exhalation Delivery System (EDS) that delivers a topically-acting corticosteroid for the treatment of chronic rhinosinusitis 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 2017 for the treatment of nasal polyps in patients 18 years of age or older. XHANCE was made widely available through commercial channels in April 2018. 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 clinical 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 rhinosinusitis.

2. Liquidity

Since inception, the Company's operations have focused on organization and staffing, business planning, raising capital, establishing an intellectual property portfolio, conducting preclinical studies and clinical trials, pursuing regulatory approvals and commercializing XHANCE in the US. As of June 30, 2023, the Company had cash and cash equivalents of $71,311 and a working capital deficiency of $60,689.

The Company is subject to a number of risks similar to other life sciences companies, including successful discovery, development and commercialization of its products and product candidates, raising additional capital, the development by its competitors of new technological innovations, protection of proprietary technology and market acceptance of the Company's products. The Company has incurred recurring net losses every quarter since inception through Q1 2023. In Q2 2023, the Company generated net income of $2,626 driven by a unrealized gain on the fair value of warrants. The Company has accumulated a deficit of $701,114 as of June 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 June 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 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.

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

(in thousands, except share and per share data)

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 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.” 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.” 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 declare an event of default under the A&R Note Purchase Agreement and 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 the A&R Note Purchase Agreement 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 June 30, 2023 and its results of operations for the three and six months ended June 30, 2023 and 2022 and cash flows for the six months ended June 30, 2023 and 2022. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 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, 2022 contained in the Company’s annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 7, 2023.

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(in thousands, except share and per share 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 64% and 40% of the Company's accounts receivable at June 30, 2023 and 2022, respectively. Five customers represented approximately 42% and 26% of the Company's net product sales for the three months ended June 30, 2023 and 2022, respectively. Five customers represented approximately 34% and 29% of the Company's net product sales for the six months ended June 30, 2023 and 2022, respectively.

The Company purchases XHANCE and its components from several third-party suppliers and manufacturing partners, certain of which are available through a single source. Although the Company could obtain each of these components from alternative third-party suppliers, it would need to qualify and obtain FDA approval for another supplier as a source for each such component. The Company has initiated the process of qualifying an alternate third-party supplier for select components of XHANCE. Alternate third party suppliers of XHANCE components are subject to qualification and approval from the FDA.

Fair value of financial instruments

The Company measures certain assets and liabilities at fair value, which is defined as the price 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 creates a fair value hierarchy in order to increase the consistency and 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 fair value hierarchy is broken down into three levels based on the source of the inputs 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, quoted 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 measurement.

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(in thousands, except share and per share data)

At June 30, 2023 and 2022, the Company'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 the short-term nature of these instruments. In addition, at June 30, 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 June 30, 2023, there were no financial assets or liabilities measured at fair value on a recurring basis other than the liability classified warrants.

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 recorded the fair value of the warrants upon issuance using a Monte Carlo simulation and is 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 three months ended June 30, 2023.

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 related product revenue is recognized.

Product Returns. Consistent with industry practice, the Company has a product returns policy that provides customers a right of return for product purchased within a specified period prior to and subsequent to the product’s expiration date. The Company estimates the amount of its product that may be returned and presents this amount as a reduction of revenue in the period the related product revenue is recognized, in addition to establishing a liability. The Company considers several factors in the estimation process, including expiration dates of product shipped to customers, inventory levels within the distribution channel, product shelf life, prescription trends and other relevant factors.

Government Rebates. The Company is subject to discount obligations under state Medicaid programs and Medicare. Reserves related to these discount obligations are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. The Company’s liability for these rebates consists of estimates of claims for the current quarter and estimated future claims that will be made for product that has been recognized as revenue but remains in the distribution channel inventories at the end of the reporting period.

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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 calculation of the current liability for this assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel inventories at the end of each reporting period.

Distribution and Other Fees. The Company pays distribution and other fees to certain customers in connection with the sales of its products. The Company records distribution and other fees paid to its customers as a reduction of revenue, unless the payment is for a distinct good or service from the customer and the Company can reasonably estimate the fair value of the goods or services received. If both conditions are met, the Company records the consideration paid to the customer as an operating expense. These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.

Net income (loss) per common share

Basic net income (loss) per share of common stock is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during each period, without consideration for potential dilutive shares of common stock. Diluted net loss per share of common stock is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and if-converted method, as applicable. Basic and diluted net income (loss) per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities, which include restricted stock units.

Under the two-class method, net income (loss) is allocated to common stock and each restricted stock unit to the extent that each restricted stock unit may share in earnings as if all of the earnings 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 restricted stock units have no obligation to fund losses.

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated:

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(in thousands, except share and per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Basic net income (loss) per common share calculation:
Net income (loss) attributable to common stockholders	2,626		(19,397)		(16,224)		(44,730)
Less: undistributed earnings to participating shareholders	(53)		—		—		—
Net income (loss) attributable to common stockholders – basic	2,573		(19,397)		(16,224)		(44,730)
Weighted-average shares of common stock outstanding – basic	111,979,778		82,740,096		111,877,669		82,594,786
Net income (loss) per share of common stock - basic	$	0.02	$	(0.23)	$	(0.15)	$	(0.54)

Diluted net income (loss) per common share calculation:
Net income (loss) attributable to common stockholders – diluted	2,573		(19,397)		(16,224)		(44,730)
Weighted-average shares of common stock outstanding - basic	111,979,778		82,740,096		111,877,669		82,594,786
Stock options	1,212		—		—		—
Restricted stock units	29,399		—		—		—
Employee stock purchase plan	31,708		—		—		—
Weighted-average shares of common stock outstanding - diluted	112,042,097		82,740,096		111,877,669		82,594,786
Net income (loss) per share of common stock - diluted	$	0.02	$	(0.23)	$	(0.15)	$	(0.54)

Diluted net loss per common share for the periods presented do not reflect the following potential common shares, as the effect would be antidilutive:


	June 30,
	2023	2022
Stock options	10,634,934	10,462,195
Restricted stock units	2,429,266	2,785,746
Common stock warrants	32,768,000	2,500,000
Total	45,832,200	15,747,941

Income taxes

In accordance with ASC 270, Interim Reporting, and ASC 740, Income Taxes, the Company is required at the end of each interim period to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. For the six months ended June 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 June 30, 2023 and December 31, 2022, the Company concluded that a full valuation allowance would be necessary for all of its net deferred tax assets. The Company had no amounts recorded for uncertain tax positions, interest or penalties in the accompanying consolidated financial statements.

4. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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.

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(in thousands, except share and per share data)

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 liabilities;

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full te1m of the asset 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 June 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 June 30, 2023 categorized by the level of inputs used in the valuation of each liability.


	June 30, 2023
	Total		Level 1		Level 2		Level 3
Liabilities
Warrant Liability	$	11,100	$	—	$	—	$	11,100
Total Liabilities	$	11,100	$	—	$	—	$	11,100

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	(10,390)
Balance, June 30, 2023	$	11,100

Assumptions Used in Determining Fair Value of Liability-Classified Warrants

The Company utilizes a Monte Carlo simulation valuation model which incorporates assumptions as to the stock price volatility, the expected life of the warrants, a risk-free interest rate, as well as timing and probability of equity financing. The Company values the Warrant Liability at each reporting period, with changes in fair value recognized in the consolidated statements of operations. The estimated fair value of the warrant liability is determined using Level 3 inputs. The inputs and values were as follows:

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements (Continued)

(in thousands, except share and per share data)



	June 30, 2023			December 31, 2022
Stock price	$	1.23		$	1.85
Strike price	$	2.57		$	2.57
Expected volatility	45.0		%	45.0		%
Risk-free interest rate	4.2		%	3.8		%
Expected dividend yield	—		%	—		%
Expected life (years)	4.40			4.90
Fair value per warrant	$	0.37		$	0.71

5. Inventory

Inventory consisted of the following:


	June 30, 2023		December 31, 2022
Raw materials	$	1,927	$	1,691
Work-in-process	3,934		5,010
Finished goods	1,871		2,742
Total inventory	$	7,732	$	9,443

Inventories are stated at the lower of cost or net realizable value, as determined on a first-in, first-out, basis.

6. Property and Equipment

Property and equipment, net, consisted of the following:


	June 30, 2023		December 31, 2022
Computer equipment and software	$	1,190	$	1,203
Furniture and fixtures	366		366
Machinery and equipment	3,142		3,067
Leasehold improvements	609		609
Construction in process	115		115
	5,422		5,360
Less: accumulated depreciation	(4,699)		(4,565)
	$	723	$	795

Depreciation expense was $105 and $137 for the three months ended June 30, 2023 and 2022, respectively. Depreciation expense was $178 and $255 for the six months ended June 30, 2023 and 2022, respectively. In addition, depreciation expense of $629 and $4 was charged to inventory and prepaid expenses and other assets, respectively, as of June 30, 2023, which represents depreciation expense related to equipment involved in the manufacturing process.

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

(in thousands, except share and per share data)

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of:


	June 30, 2023		December 31, 2022
Accrued expenses:
Selling, general and administrative expenses	$	3,571	$	3,799
Research and development expenses	468		1,298
Payroll expenses	5,328		7,888
Product revenue allowances	16,249		27,993
Other	1,407		1,915
Total accrued expenses	27,023		42,893
Other current liabilities:
Lease liability	1,400		1,971
Total other current liabilities	1,400		1,971
Total accrued expenses and other current liabilities	$	28,423	$	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 Company with $130,000 in debt financing, of which $80,000 of senior secured notes (the Pharmakon Senior Secured Notes) was issued on the Closing Date, $30,000 was issued on February 13, 2020 after achieving the $9,000 consolidated XHANCE net sales and royalties threshold for the 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, 2020.

On November 23, 2022, the Company amended and restated the Note Purchase Agreement, initially entered into on September 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, are not subject to a “going concern” statement (the Going 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.

The A&R Note Purchase Agreement extended the maturity date of the Pharmakon Senior Secured Notes 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, 2025 and will be made in eight equal quarterly installments of principal and interest through the New 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 of 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 June 30, 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

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

(in thousands, except share and per share data)

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 on November 9, 2022 will be credited against the amendment fee payable in connection with the A&R Note Purchase Agreement.

The Pharmakon Senior Secured Notes are secured by a pledge of substantially all of the assets of the Company and the Guarantors and the 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 affiliate 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 cash and cash equivalents at all times. The A&R Note Purchase Agreement also includes events of default customary for financings of this type, in certain cases subject to customary periods to cure, following which BioPharma may accelerate all amounts outstanding under the Pharmakon Senior Secured Notes.

The Company believes that it is probable that it will not achieve the trailing twelve-month minimum consolidated XHANCE net sales and royalties thresholds that it is required to achieve commencing with the period ending March 31, 2024. Additionally, without additional capital, the Company believes that it is probable that it will not be able to maintain at least $30,000 of cash and cash equivalents for at least twelve-months following the filing of this Form 10-Q. In addition, the Company believes that it is unlikely that it will be able to maintain compliance with the Going Concern Covenant in 2024. As a result, in accordance with FASB Accounting Standards Codification 470, the Company has classified all outstanding principal and the payment of additional fees upon maturity as a current liability in the accompanying consolidated balance sheet as of March 31, 2023.

The Company recorded interest expense of $4,824 and $3,814 during the three months ended June 30, 2023 and 2022, respectively. The Company recorded interest expense of $9,496 and $7,888 during the six months ended June 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:



	June 30, 2023		December 31, 2022
Face amount	$	130,000	$	130,000
Front end fees	(593)		(666)
Debt issuance costs	(5,993)		(6,739)
Back end fees	5,980		5,980
Debt, net	$	129,394	$	128,575

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

(in thousands, except share and per share data)

9. Employee Benefit Plans

For US employees, the Company maintains a defined contribution 401(k) retirement plan. As of June 30, 2023, $83 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 June 30, 2023, the Company had the following warrants outstanding to purchase shares of Common Stock:

Number of Shares

Classification

Exercise Price Per Share

Expiration Date

2,500,000

Equity

$1.60

November 15, 2024

30,268,000

Liability

$2.565

November 23, 2027

11. Stock-based Compensation

The Company recorded stock-based compensation expense related to stock options and shares issued under the Company's 2010 Stock Incentive Plan and 2017 Employee Stock Purchase Plan (2017 Plan) in the following expense categories of its accompanying consolidated statements of operations for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of product sales	$	12	$	7	$	18	$	20
Research and development	126		233		281		429
General and administrative	1,365		3,204		2,726		4,995
	$	1,503	$	3,444	$	3,025	$	5,444

In addition, stock-based compensation expense of $86 and $1 was capitalized to inventory and prepaid expenses and other assets, respectively, as of June 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 restated (A&R Plan).The Company has issued service-based, performance-based, and market-based stock options that generally have a contractual life of up to 10 years and may be exercisable in cash or as otherwise determined by the Company's board of directors or committee thereof. Vesting generally occurs over a period of not greater than four years. Performance-based options may vest upon the achievement of certain milestones. As of June 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.

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

(in thousands, except share and per share data)

The following table summarizes the activity related to stock option grants to employees and non-employees for the six months ended June 30, 2023:


	Shares	Weighted average exercise price per share		Weighted average remaining contractual life
Outstanding at December 31, 2022	9,364,070	$	6.88	6.05
Granted	2,084,177	1.69
Exercised	—	—
Expired	(556,864)	7.83
Forfeited	(256,449)	2.50
Outstanding at June 30, 2023	10,634,934	$	7.03	6.42
Exercisable at June 30, 2023	5,909,489	$	9.04	4.64

During the six months ended June 30, 2023, stock options to purchase 2,084,177 shares of Common Stock were granted to employees and generally vest over four years. The stock options, including the market-based options, had an estimated weighted average grant date fair value of $1.16. 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.

The aggregate intrinsic value of stock options outstanding and stock options exercisable, other than market-based stock options, as of June 30, 2023 was $26 and $0, respectively. At June 30, 2023, the unrecognized compensation cost related to unvested stock options, other than market-based stock options, expected to vest was $4,975. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2.67 years.

Included 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 six months ended June 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 753,500 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 units (RSUs). Vesting generally occurs over a period not greater than four years. Vesting of the performance-based RSUs is subject to the achievement of certain milestones in connection with the Company's development programs.

The following table summarizes the activity related to RSUs granted to employees for the six months ended June 30, 2023:


			Shares
Balance at December 31, 2022			1,477,660
Granted			1,627,174
Vested and settled			(479,248)
Expired/forfeited/canceled			(196,320)
Balance at June 30, 2023			2,429,266
Expected to vest at June 30, 2023			2,429,266

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OptiNose, Inc.

Notes to Unaudited Interim Consolidated Financial Statements

(in thousands, except share and per share data)

During the six months ended June 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 six months ended June 30, 2023. As of June 30, 2023, the milestone associated with the previously granted performance based-RSUs was achieved. At June 30, 2023, the recognized compensation cost related to vested performance-based RSUs was $1,740. At June 30, 2023, the unrecognized compensation cost related to unvested service-based RSUs expected to vest was $4,927, to be recognized over an estimated weighted-average amortization period of 2.76 years. The unrecognized compensation cost related to unvested performance-based RSUs was $321, which will be recognized over the remaining service period.

Included in the table above are 60,000 RSUs granted outside the A&R Plan. The grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq Listing Rule 5635(c)(4).

2017 Employee Stock Purchase Plan

Under the 2017 Plan, shares of Common Stock may be purchased by eligible employees who elect to participate in the 2017 Plan at 85% of the lower of the fair market value of Common Stock on the first or last day of designated offering periods. The Company recognized stock-based compensation expense related to the 2017 Plan of $44 and $74 during the three months ended June 30, 2023 and 2022, respectively. The Company recognized stock-based compensation expense related to the 2017 Plan of $77 and $162 during the six months ended June 30, 2023 and 2022, respectively.

The Company calculated the fair value of each option grant and the shares issued under the 2017 Plan on the respective dates of grant using the following weighted average assumptions:


	Six Months Ended June 30,
	2023		2022
Risk free interest rate	0.05	%	0.22	%
Expected term (in years)	0.5		0.5
Expected volatility	71.43	%	88.56	%
Annual dividend yield	0.00	%	0.00	%

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this section in conjunction with our unaudited interim consolidated financial statements and related notes included in Part I. Item 1 of this Form 10-Q and our audited consolidated financial statements and related notes thereto and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 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 implied by such forward-looking statements. Please refer to the "Note Regarding Forward-Looking Statements" section of this Form 10-Q for additional information.

Company Overview

We are a specialty pharmaceutical company focused on the development and commercialization of products for patients treated by ear, nose and throat (ENT) and allergy specialists. Our first commercial product, XHANCE® (fluticasone propionate) nasal spray, 93 micrograms (mcg), is a therapeutic utilizing our proprietary Exhalation Delivery System (EDS) that delivers a topically-acting corticosteroid for the treatment of chronic rhinosinusitis with nasal polyps and, if approved, chronic rhinosinusitis without nasal polyps (commonly referred to as chronic sinusitis). Chronic rhinosinusitis is a serious nasal inflammatory disease that is treated using therapies, such as intranasal steroids (INS), which have significant limitations. We believe XHANCE has a differentiated clinical profile with the potential to become part of the standard of care for this disease because it is able to deliver medication to the primary site of inflammation high and deep in the nasal passages in regions not adequately reached by conventional INS. Additionally, we believe the current practice of postoperative INS use could support XHANCE’s adoption as a maintenance therapy to improve outcomes following sinus surgery.

In September 2017, the U.S. Food and Drug Administration (FDA) approved XHANCE for the treatment of nasal polyps in patients 18 years of age or older. XHANCE was made widely available through commercial channels in April 2018. 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”. This modification was the result of a change in FDA labeling terminology and was not based on new XHANCE clinical trial data.

In March and June 2022, we announced positive top line results from our two Phase 3b clinical trials (ReOpen1 and ReOpen2) of XHANCE for a follow-on indication for the treatment of chronic sinusitis. The results of ReOpen1 and ReOpen2 are summarized in our Form 10-K for the year 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 chronic rhinosinusitis. The FDA accepted the sNDA for review and assigned a Prescription Drug User Fee Act (PDUFA) target goal date of December 16, 2023. If the sNDA is approved, XHANCE has the potential to be the first drug therapy approved by the FDA 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 ReOpen 1 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 fro

SEC Form 10-Q filed by OptiNose Inc.