OptiNose Inc. (OPTN) is a specialty pharmaceutical company focused on developing and commercializing products for patients treated by ear, nose, and throat (ENT) and allergy specialists. The company’s lead product, XHANCE, is a therapeutic utilizing its proprietary Exhalation Delivery System (EDS) that delivers a topically-acting corticosteroid for the treatment of chronic rhinosinusitis with and without nasal polyps.
Business Overview and History
OptiNose was founded in 2010 and is headquartered in Yardley, Pennsylvania. The company’s predecessor entity, OptiNose AS, was formed under the laws of Norway in 2000. In 2010, OptiNose AS became a wholly-owned subsidiary of the company as part of an internal reorganization.
XHANCE was approved by the U.S. Food and Drug Administration (FDA) in September 2017 for the treatment of nasal polyps in patients 18 years of age or older. The product was made widely available through commercial channels in April 2018. In 2022, OptiNose faced challenges as it worked to expand the commercial opportunity for XHANCE. The company made changes to its co-pay assistance program and distribution strategy in an effort to improve profitability, including transitioning to a centralized “hub” model for prescription fulfillment.
Despite these efforts, OptiNose continued to face headwinds in 2023 as it worked to broaden the prescriber base for XHANCE beyond the initial nasal polyps indication. The company invested in sales and marketing to support the launch of XHANCE for the treatment of chronic rhinosinusitis, but initial uptake was slower than expected. In March 2024, the FDA expanded the approval of XHANCE to include the treatment of chronic rhinosinusitis without nasal polyps in patients 18 years of age and older, making it the first and only drug therapy approved by the FDA for this indication.
OptiNose operates in one main product segment – the development and commercialization of products for patients treated by ear, nose, and throat (ENT) and allergy specialists. The company is relaunching XHANCE to focus on the comparatively larger market opportunity created by the new indication for chronic rhinosinusitis without nasal polyps. OptiNose plans to continue focusing its commercial efforts primarily on the ENT and allergy specialist audience while seeking partnerships to extend the commercialization of XHANCE into primary care.
Financial Overview
For the nine months ended September 30, 2024, OptiNose reported net product revenues of $55.8 million, a 9% increase compared to the prior year period. The company’s average net revenue per XHANCE prescription for the nine-month period was $285, a 45% increase compared to the prior year period. This increase was driven largely by changes made to the company’s co-pay assistance program, which resulted in a reduction in the number and proportion of commercial prescriptions that were historically unprofitable.
OptiNose reported operating expenses of $72.5 million for the nine months ended September 30, 2024, an increase of approximately $2 million compared to the prior year period. The increase was primarily attributable to higher selling, general, and administrative expenses related to the launch of XHANCE for the treatment of chronic sinusitis.
For the full year of 2023, OptiNose reported revenue of $70.99 million and a net loss of $35.48 million. Operating cash flow for 2023 was negative $20.53 million, and free cash flow was negative $20.86 million.
In the third quarter of 2024, OptiNose reported revenue of $20.44 million, a 3.1% increase compared to the same period in 2023. The company achieved a net income of $467,000 for the quarter. However, operating cash flow remained negative at $8.83 million, and free cash flow was negative $8.85 million.
The year-over-year increase in net product revenues for the third quarter of 2024 is attributable primarily to revisions that the company made to its co-pay assistance program in the second half of 2023 and in January of 2024, which were intended to increase average net revenue per prescription. Additionally, part of the increase resulted from an increase in channel inventory associated in part with the onboarding of new pharmacies in the Hub network.
XHANCE prescription volumes in the third quarter of 2024 were 63,900, down 24% compared to 84,100 in the third quarter of 2023. This decrease was attributed to the changes in the co-pay assistance program. New XHANCE prescriptions totaled an estimated 25,600 in Q3 2024, down 7% from 27,400 in Q3 2023, while refill prescriptions were 38,200, down 32% from 56,600 in the prior year quarter.
As of September 30, 2024, OptiNose estimates that approximately 70% of insured lives have access to XHANCE, though many plans impose restrictions such as prior authorizations or step-edits. The approval of XHANCE for chronic sinusitis without polyps could help ease the prior authorization process for physicians.
Liquidity and Solvency
As of September 30, 2024, OptiNose had $82.5 million in cash and cash equivalents. The company’s total debt outstanding under the Pharmakon Senior Secured Notes was $130 million as of the same date. OptiNose had a negative stockholders’ equity of $86.61 million, resulting in a debt-to-equity ratio that cannot be calculated due to the negative equity position.
The company’s current ratio as of September 30, 2024, was 0.79, and its quick ratio was 0.72, indicating potential liquidity challenges in meeting short-term obligations.
OptiNose’s continuation as a going concern is dependent on its ability to maintain compliance with the financial covenants under its debt agreement, including minimum trailing twelve-month consolidated XHANCE net sales and royalties thresholds, as well as its ability to generate sufficient cash flows from operations to meet its debt service obligations and fund its operations. The company believes it is probable that it will not maintain compliance with the trailing twelve-month minimum consolidated XHANCE net sales and royalties thresholds for the entire one-year period after the filing of its latest 10-Q. If the company fails to achieve the minimum threshold and is unable to obtain a waiver or modification of the covenant, it could constitute an event of default under the debt agreement.
Risks and Challenges
OptiNose faces several risks and challenges, including: – Ability to maintain compliance with financial covenants under its debt agreement – Potential delays or setbacks in the commercialization of XHANCE, including slower-than-expected adoption or reimbursement challenges – Competition from other treatments for chronic rhinosinusitis, including off-label use of other nasal steroids – Reliance on third-party manufacturers and suppliers for the production of XHANCE – Potential adverse events or safety concerns associated with XHANCE – Ability to successfully develop and obtain regulatory approval for additional product candidates
Outlook and Guidance
OptiNose has revised its full-year 2024 guidance for XHANCE net revenues to be between $75 million and $79 million, down from its previous range of $85 million to $90 million. This new guidance implies 6% to 11% growth compared to the full-year 2023 XHANCE net revenue of approximately $71 million. The company expects average net revenue per XHANCE prescription for the full year to be approximately $270, an increase of 29% compared to $209 in 2023.
OptiNose’s full-year 2024 operating expense guidance has been revised to $90 million to $93 million, down from its previous range of $95 million to $101 million. The company expects approximately $6 million of this to be non-cash stock-based compensation expense.
The company believes its existing cash and cash equivalents will be sufficient to fund its operations and debt service obligations for at least the next 12 months, assuming it is able to maintain compliance with or obtain a waiver or modification of the financial and other covenants under its debt agreement.
Conclusion
OptiNose is navigating the launch of XHANCE for the treatment of chronic rhinosinusitis, both with and without nasal polyps. While the company has faced some initial challenges, it has made adjustments to its commercial strategy and is now seeing an inflection in new prescription demand. However, OptiNose’s ability to maintain compliance with its debt covenants and generate sufficient cash flow remains a key risk factor. Investors will need to closely monitor the company’s progress in executing its commercialization plan and managing its financial obligations.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.