OptiNose, Inc. (NASDAQ:OPTN) is a specialty pharmaceutical company dedicated to serving the needs of patients treated by ear, nose, and throat (ENT) and allergy specialists. The company's primary focus has been on the commercialization of XHANCE, a therapeutic that utilizes its proprietary Exhalation Delivery System (EDS) to deliver a topically-acting corticosteroid for the treatment of chronic rhinosinusitis with and without nasal polyps.
Business Overview and History
OptiNose was incorporated in Delaware in May 2010, with its predecessor entity, OptiNose AS, formed under the laws of Norway in September 2000. The company's founding mission was to develop and commercialize innovative products for patients treated by ENT and allergy specialists. In 2010, OptiNose AS became a wholly-owned subsidiary of the Company as part of an internal reorganization.
Since its inception, OptiNose'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 its first commercial product, XHANCE, in the US.
XHANCE, OptiNose's first commercial product, 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 company subsequently made XHANCE widely available through commercial channels in April 2018. In March 2024, the FDA approved XHANCE for 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.
The company's financial performance has been marked by a steady increase in XHANCE net product revenues, which reached $55.81 million for the nine months ended September 30, 2024, a 9% increase compared to the prior year period. This growth has been driven by improvements in average net revenue per prescription, which increased 45% to $285 for the nine-month period, primarily due to changes made to the company's co-pay assistance program.
In 2022, OptiNose's board of directors approved the liquidation of Optinose UK to simplify the corporate structure. Optinose UK was liquidated in July 2024. Additionally, in October 2023, Optinose AS was liquidated, further streamlining the company's operations.
However, OptiNose's operational and financial results have not been without challenges. In the third quarter of 2024, the company reported XHANCE net revenue of $20.4 million, which, while a 3% increase compared to the prior year period, fell short of the company's initial expectations. This was attributed to a slower than anticipated uptake of the new chronic sinusitis indication, as well as the company's efforts to focus on improving the quality of XHANCE insurance coverage and optimizing its new hub services and pharmacy network.
As a result, OptiNose has revised its full-year 2024 guidance for XHANCE net revenue to be between $75 million and $79 million, down from its previous range of $85 million to $90 million. The company has also increased its expected average net revenue per prescription for the full year to approximately $270, a 29% increase from 2023.
Operational Highlights and Strategies
Despite the initial challenges, OptiNose remains focused on executing its strategy to capitalize on the significant long-term opportunity presented by the chronic sinusitis market. The company's key operational highlights and strategies include:
Specialty Focus
OptiNose is targeting its commercial efforts primarily towards the ENT and allergy specialist audience, where it believes it can achieve peak annual net revenues of at least $300 million with its current specialty-focused field force.
Chronic Sinusitis Launch
The company has made a number of adjustments to its commercial strategy since the launch of the chronic sinusitis indication, including enhancing its call point messaging, modifying its prescriber targeting, and implementing a new hub services platform to improve patient access and prescription fulfillment.
Improving Insurance Coverage
OptiNose has been actively working to improve the quality of XHANCE insurance coverage, including the inclusion of the new chronic sinusitis indication and reducing utilization management barriers such as prior authorizations and step edits.
Exploring Primary Care Opportunities
While the company's current focus is on the specialty market, it is also actively exploring ways to engage in a commercial primary care partnership or adopt other approaches to access the large incremental opportunity in the primary care space.
Financials and Liquidity
As of September 30, 2024, OptiNose had $82.5 million in cash and cash equivalents. The company's financial performance has been characterized by recurring net losses since its inception, with an accumulated deficit of $741.56 million as of September 30, 2024.
In the most recent quarter, OptiNose reported revenue of $20,437,000, representing a 3% increase compared to the prior year quarter's revenue of $19,820,000. The company also reported a net income of $467,000 for the quarter. However, operating cash flow (OCF) and free cash flow (FCF) remained negative at -$8,833,000 and -$8,854,000, respectively.
The company's debt-to-equity ratio stands at -3.09, with $130,000,000 in principal amount of debt outstanding under the AR Note Purchase Agreement as of September 30, 2024, and negative stockholders' equity of $41,100,000. The current ratio is 0.79, and the quick ratio is 0.72, indicating potential liquidity challenges.
OptiNose's operations are primarily funded through the sale and issuance of stock and debt, as well as through sales of XHANCE. The company is subject to certain financial covenants under its AR Note Purchase Agreement, including minimum trailing twelve-month consolidated XHANCE net sales and royalties thresholds, as well as a requirement to maintain a minimum level of cash and cash equivalents.
The company believes that its existing cash and cash equivalents will be sufficient to fund its operations and debt service obligations for at least the next 12 months, provided it is able to maintain compliance with or obtain a waiver or modification of the financial covenants under the AR Note Purchase Agreement. However, OptiNose has acknowledged that there is substantial doubt about its ability to continue as a going concern, as it may not be able to maintain compliance with the financial covenants in the future.
In terms of guidance, OptiNose has revised its full-year 2024 XHANCE net revenue guidance to be between $75 million and $79 million, implying 6% to 11% growth compared to full-year 2023. The company expects XHANCE average net revenues per prescription to be approximately $270 for the full-year 2024, a 29% increase from 2023. Additionally, OptiNose has reduced its full-year 2024 operating expense guidance to $90 million to $93 million, down from the previous guidance of $95 million to $101 million.
XHANCE Business Update
In the third quarter of 2024, XHANCE generated $20.44 million in net product revenues, a slight increase from $19.82 million in the third quarter of 2023. The average net product revenues per XHANCE prescription were $320 in the third quarter of 2024, representing a 36% increase compared to $236 in the third quarter of 2023. This increase is attributed to changes in the co-pay assistance program and an increase in channel inventory associated with the addition of new pharmacies to the company's Hub network.
The total estimated number of XHANCE prescriptions in the third quarter of 2024 was 63,900, a 24% decrease compared to 84,100 prescriptions in the third quarter of 2023. This decrease was primarily driven by changes made to the co-pay assistance program, which were intended to reduce the number of prescriptions filled by patients in commercial insurance plans that either do not cover XHANCE or have high deductibles.
New XHANCE prescriptions in the third quarter of 2024 totaled 25,600, a 7% decrease compared to 27,400 new prescriptions in the third quarter of 2023. However, OptiNose believes an inflection in new prescriptions occurred in September 2024 and continued through October 2024, with the four-week moving average of weekly new prescriptions increasing by approximately 20-40% compared to the prior range.
The total estimated number of XHANCE refill prescriptions in the third quarter of 2024 was 38,200, a 32% decrease compared to 56,600 refill prescriptions in the third quarter of 2023. The total estimated number of physicians who had at least one patient fill a XHANCE prescription was 8,550 in the third quarter of 2024, a 1% increase compared to 8,430 physicians in the third quarter of 2023. However, the number of physicians who had more than 15 XHANCE prescriptions filled by their patients decreased by 22% to 1,060 in the third quarter of 2024, compared to 1,350 in the third quarter of 2023.
Market Access
As of September 30, 2024, OptiNose believes approximately 70% of insured lives were in a plan that covers XHANCE. However, payors generally impose restrictions on access to or usage of XHANCE, such as requiring prior authorizations or step-edits. Approximately half of commercial covered lives as of September 30, 2024, were in a plan that requires a prior authorization, and most of those prior authorizations request information regarding both prior use of standard-delivery nasal steroid and patient diagnosis for an indication for which XHANCE has been approved by the FDA.
Risks and Challenges
OptiNose faces several key risks and challenges that could impact its long-term success:
1. Maintaining Compliance with Debt Covenants: The company's ability to continue as a going concern is dependent on its ability to maintain compliance with the financial covenants under the AR Note Purchase Agreement, including minimum trailing twelve-month consolidated XHANCE net sales and royalties thresholds and minimum cash and cash equivalents requirements.
2. Slower than Expected Chronic Sinusitis Uptake: The initial uptake of XHANCE for the treatment of chronic sinusitis has been slower than the company's initial expectations, which has resulted in a reduction in its full-year 2024 revenue guidance.
3. Competitive Landscape: OptiNose faces competition from other topical and systemic treatments for chronic rhinosinusitis, as well as the potential for new therapies to enter the market.
4. Regulatory Risks: The company is subject to ongoing regulatory requirements, including the need to complete a pediatric study for XHANCE as mandated by the FDA, which could result in additional costs and delays.
5. Reliance on Third-Party Suppliers and Manufacturers: OptiNose relies on third-party suppliers and manufacturing partners for the production of XHANCE, which could expose the company to supply chain disruptions or quality control issues.
Conclusion
OptiNose is navigating a challenging period as it works to drive adoption of XHANCE for the treatment of chronic rhinosinusitis, both with and without nasal polyps. While the initial launch of the chronic sinusitis indication has been slower than expected, the company remains focused on executing its specialty-focused commercial strategy, improving insurance coverage, and exploring opportunities in the primary care market.
The company's long-term success will depend on its ability to maintain compliance with its debt covenants, continue driving adoption of XHANCE, and effectively manage the various risks and challenges it faces. Investors will be closely watching OptiNose's progress in the coming quarters as it works to capitalize on the significant opportunity presented by the chronic sinusitis market.