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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, 2021
 
 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

 https://cdn.kscope.io/92ec086be63c4cd90fe2ee79b5d5b3e0-optn-20210630_g1.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. 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 July 30, 2021 was 53,309,012 shares.



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_________________________

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® and XHANCE® 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 impact of, our plans regarding and the uncertainties caused by, the COVID-19 pandemic;
the potential uses for and advantages of XHANCE®, our product candidates and Exhalation Delivery System (EDS) devices and technologies;
planned product development activities, studies and clinical trials in pursuit of a follow-on indication for XHANCE for the treatment of chronic sinusitis;
the potential for XHANCE to be the first drug therapy approved by the U.S. Food and Drug Administration (FDA) for the treatment of chronic sinusitis;
the potential for XHANCE to be the standard of care for the treatment of chronic rhinosinusitis with and without nasal polyps;
potential for continued XHANCE prescription and net revenue growth and potential drivers of such growth;
potential for direct-to-consumer (DTC) advertising to be a future driver of XHANCE prescription growth;
the potential benefits of our patient affordability programs and their potential effect on XHANCE demand and financial results;
the potential for XHANCE prescriptions to be affected by the seasonality impact observed in the intranasal steroid (INS) market;
the potential 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;
our expectation that XHANCE net product revenues for the full year of 2021 will be at least $80.0 million;
our expectation that average net product revenues per prescription for the full year of 2021 will exceed $200 and the factors supporting such growth;
our expectation that our total GAAP operating expenses in 2021 will be between $137.0 million and $142.0 million and that our non-cash stock-based compensation expense will be approximately $10.0 million;
our expectation that top-line results will be available from the first of our two ongoing Phase 3b chronic sinusitis clinical trials in the first quarter of 2022 and that we expect to complete subject enrollment in the second clinical trial in the fourth quarter of 2021 with top-line results available in second quarter of 2022;
our belief that, based on the results of blinded interim analyses and our assumptions and estimates relating to the trial, the initial targeted statistical power will be achieved with the approximately 330 patients currently enrolled in our first chronic sinusitis trial;
our belief that existing cash and cash equivalents will be sufficient to maintain the minimum cash balance required under our debt facility and to fund our operations for at least the next twelve months from the filing date of this Form 10-Q;
our expectation that the research and development costs associated with the conduct of our current chronic sinusitis clinical trials will significantly decrease;
our ability to maintain sufficient inventory of XHANCE and for our manufacturers to timely supply XHANCE;
our development, timing of data and funding plans for OPN-019 and the potential benefits of OPN-019; and
the accuracy of our estimates regarding expenses, future revenue, capital requirements and need for additional financing;


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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,” “confident,” “intend,” “plan,” “anticipate,” “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, 2020, 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.
2

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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 markets for XHANCE, XHANCE market access, the INS market and prescription data. 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.


3

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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, 2021December 31, 2020
 (unaudited)
Assets  
Current assets:  
Cash and cash equivalents$93,916 $144,156 
Accounts receivable, net20,715 23,394 
Inventory13,303 9,042 
Prepaid expenses and other current assets4,660 4,060 
Total current assets132,594 180,652 
Property and equipment, net1,685 2,028 
Other assets5,236 6,133 
Total assets$139,515 $188,813 
Liabilities and stockholders' equity (deficit)  
Current liabilities:  
Accounts payable$3,471 $5,489 
Accrued expenses and other current liabilities43,327 46,683 
Total current liabilities46,798 52,172 
Long-term debt, net126,043 125,202 
Other liabilities3,747 4,651 
Total liabilities176,588 182,025 
Stockholders' equity (deficit):  
Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2021 and December 31, 2020; 53,285,133 and 52,945,865 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
53 53 
Additional paid-in capital540,277 534,585 
Accumulated deficit(577,320)(527,765)
Accumulated other comprehensive loss(83)(85)
Total stockholders' equity (deficit)(37,073)6,788 
Total liabilities and stockholders' equity (deficit)$139,515 $188,813 
See accompanying notes to unaudited interim consolidated financial statements
4

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OptiNose, Inc.
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2021 and 2020
(in thousands, except share and per share data)
(Unaudited) 
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Revenues:
Net product revenues$18,357 $10,272 $29,317 $17,334 
Licensing revenues  1,000  
      Total revenues18,357 10,272 30,317 17,334 
Costs and expenses:
  Cost of product sales2,425 1,700 4,165 3,056 
Research and development8,179 5,474 13,404 10,406 
Selling, general and administrative27,308 25,697 54,493 52,757 
Total operating expenses37,912 32,871 72,062 66,219 
Loss from operations(19,555)(22,599)(41,745)(48,885)
Other (income) expense:
Interest income(12)(33)(33)(365)
Interest expense4,012 3,293 7,888 6,156 
Foreign currency (gains) losses14 (7)22 32 
Gain on sale of equipment$(67)$ $(67)$ 
Net loss$(23,502)$(25,852)$(49,555)$(54,708)
Net loss per share of common stock, basic and diluted$(0.44)$(0.56)$(0.93)$(1.19)
Weighted average common shares outstanding, basic and diluted53,120,574 45,908,104 53,059,492 45,907,133 
See accompanying notes to unaudited interim consolidated financial statements

5

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OptiNose, Inc.
Consolidated Statements of Comprehensive Loss
For the Three and Six Months Ended June 30, 2021 and 2020
(in thousands)
(Unaudited) 
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2021202020212020
Net loss$(23,502)$(25,852)$(49,555)$(54,708)
Other comprehensive loss:
Foreign currency translation adjustment (5)2 (30)
Comprehensive loss$(23,502)$(25,857)$(49,553)$(54,738)
See accompanying notes to unaudited interim consolidated financial statements
6

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OptiNose, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
(in thousands, except share data)

Six Months Ended June 30, 2021
Stockholders' Equity (Deficit)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity (Deficit)
SharesAmount
Balance at December 31, 202052,945,865 $53 $534,585 $(527,765)$(85)$6,788 
Stock compensation expense— — 2,596 — — 2,596 
Vesting of restricted stock units166,709 — — — — — 
Foreign currency translation adjustment— — — — 2 2 
Net loss— — — (26,053)— (26,053)
Balance at March 31, 202153,112,574 $53 $537,181 $(553,818)$(83)$(16,667)
Stock compensation expense— — 2,729 — — 2,729 
Vesting of restricted stock units37,034 — — — — — 
Issuance of common stock under employee stock purchase plan135,525 — 367 — — 367 
Foreign currency translation adjustment— — — —   
Net loss— — — (23,502)— (23,502)
Balance at June 30, 202153,285,133 $53 $540,277 $(577,320)$(83)$(37,073)


Six Months Ended June 30, 2020
Stockholders' Equity (Deficit)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity (Deficit)
SharesAmount
Balance at December 31, 201945,906,162 45906162$46 $489,565 $(427,980)$(48)$61,583 
Stock compensation expense— — 2,429 — — 2,429 
Foreign currency translation adjustment— — — — (25)(25)
Net loss— — — (28,856)— (28,856)
Balance at March 31, 202045,906,162 $46 $491,994 $(456,836)$(73)$35,131 
Stock compensation expense— — 2,748 — — 2,748 
Exercise of common stock options15,806 — 71 — — 71 
Issuance of common stock under employee stock purchase plan70,305 — 516 — — 516 
Foreign currency translation adjustment— — — — (5)(5)
Net loss— — — (25,852)— (25,852)
Balance at June 30, 202045,992,273 $46 $495,329 $(482,688)$(78)$12,609 

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, 2021 and 2020
(in thousands)
(Unaudited) 
 Six Months Ended
June 30,
 20212020
Operating activities: 
Net loss $(49,555)$(54,708)
Adjustments to reconcile net loss to cash used in operating activities: 
Depreciation and amortization324 563 
Stock-based compensation5,343 5,232 
Amortization of debt discount and issuance costs861 570 
Gain on sale of property and equipment(67) 
Changes in operating assets and liabilities:  
Accounts receivable2,679 (453)
Grants and other receivables  
Prepaid expenses and other assets451 1,244 
Inventory(4,218)(2,620)
Accounts payable(1,900)253 
Accrued expenses and other liabilities(4,436)(1,599)
Cash used in operating activities(50,518)(51,518)
Investing activities:  
Purchases of property and equipment(115)(309)
Proceeds from sale of property and equipment105  
Cash used in investing activities(10)(309)
Financing activities:  
Proceeds from long-term debt 34,447 
Repayment of long-term debt (4,447)
Cash paid for financing costs(91)(637)
Proceeds from issuance of common stock under employee stock purchase plan367 516 
Proceeds from the exercise of stock options 71 
Cash provided by financing activities276 29,950 
Effects of exchange rate changes on cash and cash equivalents (9)
Net decrease in cash, cash equivalents and restricted cash(50,252)(21,886)
Cash, cash equivalents and restricted cash at beginning of period144,179 147,165 
Cash, cash equivalents and restricted cash at end of period$93,927 $125,279 
Supplemental disclosure of noncash activities:  
Fixed asset purchases within accounts payable and accrued expenses$23 $82 
Recognition of right-of-use assets$157 $742 
Recognition of lease liabilities$157 $742 
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, Ewing, New Jersey, and Oslo, Norway. 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.
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 mcg, is a therapeutic utilizing its proprietary Exhalation Delivery System (EDS) device that delivers a topically-acting corticosteroid for the treatment of chronic rhinosinusitis with nasal polyps and, if approved, chronic rhinosinusitis without nasal polyps (also 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.
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 most recently, commercializing XHANCE in the US. As of June 30, 2021, the Company had cash and cash equivalents of $93,916.
The Company will likely require additional capital in the future, secured through equity or debt financings, partnerships, collaborations, or other sources, in order to meet its debt service obligations, including repayment, under the Company's outstanding senior secured notes, and to carry out the Company's planned development and commercial activities. The terms of the outstanding senior secured notes, including applicable covenants, are described in Note 8. If additional capital is not secured when required, the Company may need to delay or curtail its operations until additional 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 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.
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, 2021 and its results of operations for the three and six months ended June 30, 2021 and 2020 and cash flows for the six months ended June 30, 2021 and 2020. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020 contained in the Company’s annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 3, 2021.
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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
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 44% of the Company's accounts receivable at June 30, 2021 and five customers represented approximately 31% of the Company's net product sales for the three and six months ended June 30, 2021.
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.
Fair value of financial instruments
At June 30, 2021 and December 31, 2020, the Company's financial instruments included cash and cash equivalents, accounts receivable, grants receivable, accounts payable and accrued expenses. The carrying amounts reported in the Company's financial statements for these instruments approximate their respective fair values because of the short-term nature of these instruments. In addition, the Company believes that at June 30, 2021, the carrying value of long-term debt approximated fair value as the interest rates are reflective of the rate the Company could obtain on debt with similar terms and conditions. At June 30, 2021 and December 31, 2020, there were no financial assets or liabilities measured at fair value on a recurring basis.
Restricted cash
As of June 30, 2021 and December 31, 2020, the restricted cash balance included in prepaid expenses and other assets was $11 and $23, respectively.
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:
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
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.
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.
Licensing revenues
The Company has license agreements with Inexia Limited (Inexia) and Currax Pharmaceuticals LLC (Currax). These license agreements provide for exclusive licensed rights to certain intellectual property, a non-refundable up-front payment, potential milestone payment(s) and potential royalty payment(s). The Company analyzed the performance obligations under the license agreements, the consideration received to date and the consideration the Company could receive in the future as part of its analysis related to ASC 606. The Company recognized $1,000 as licensing revenue from Currax during the six months ended June 30, 2021 and is not eligible to receive any further payments under the Currax license agreement other than reimbursement for certain expenses.
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
Net income (loss) per common share
Basic net income (loss) per common share is determined by dividing net income (loss) applicable to Company common stock (Common Stock) holders by the weighted average common shares outstanding during the period. For the three and six months ended June 30, 2021 and 2020, the outstanding Common Stock options, 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 loss per share are the same.
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,
 20212020
Stock options7,980,424 8,385,831 
Restricted stock units2,198,766 1,274,354 
Common stock warrants810,357 2,677,188 
Total10,989,547 12,337,373 
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 three and six months ended June 30, 2021 and 2020, the Company recorded no tax expense or benefit due to the expected current year loss and its historical losses. As of June 30, 2021 and December 31, 2020, 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.
Recent accounting pronouncements
In July 2021, the FASB issued ASU No. 2021-05, Leases (Topic 842): Lessors—Certain leases with variable payments. ASU No. 2021-05 is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its results of operations, financial position and cash flows and related disclosures.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU No. 2021-04 requires that issuers clarify and reduce diversity in accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its results of operations, financial position and cash flows and related disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminated certain exceptions and changed guidance on other matters. The exceptions relate to the allocation of income taxes in separate company financial statements, tax accounting for equity method investments and accounting for income taxes when the interim period year-to-date loss exceeds the anticipated full year loss. Changes relate to the accounting for franchise taxes that are income-based and non-income-based, determining if a step up in tax basis is part of a business combination or if it is a separate transaction, when enacted tax law changes should be included in the annual effective tax rate computation, and the
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
allocation of taxes in separate company financial statements to a legal entity that is not subject to income tax. The Company has adopted ASU 2019-12 in the first quarter of 2021, and there was no significant impact.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-03, in conjunction with ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022 for companies deemed to be smaller reporting companies as of November 15, 2019, with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its results of operations, financial position and cash flows and related disclosures.
4. Inventory
Inventory consisted of the following:
June 30, 2021December 31, 2020
Raw materials$3,336 $2,669 
Work-in-process3,500 2,676 
Finished goods6,467 3,697 
  Total inventory$13,303 $9,042 
Inventories are stated at the lower of cost or net realizable value, as determined on a first-in, first-out, basis.
5. Property and Equipment
Property and equipment, net, consisted of the following:
 June 30, 2021December 31, 2020
Computer equipment and software$1,144 $1,128 
Furniture and fixtures366 366 
Machinery and equipment3,266 3,440 
Leasehold improvements609 609 
Construction in process216 271 
5,601 5,814 
Less: accumulated depreciation(3,916)(3,786)
$1,685 $2,028 
Depreciation expense was $119 and $254 for the three months ended June 30, 2021 and 2020, respectively. Depreciation expense was $323 and $562 for the six months ended June 30, 2021 and 2020, respectively. In addition, depreciation expense of $520 and $16 was charged to inventory and prepaid expenses and other assets, respectively, as of June 30, 2021, 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)

6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of:
 June 30, 2021December 31, 2020
Accrued expenses:
   Selling, general and administrative expenses$7,678 $7,385 
   Research and development expenses6,862 5,202 
   Payroll expenses5,694 9,063 
   Product revenue allowances18,339 20,917 
   Other2,630 2,008 
      Total accrued expenses41,203 44,575 
Other current liabilities:
   Lease liability2,124 2,108 
      Total other current liabilities2,124 2,108 
      Total accrued expenses and other current liabilities$43,327 $46,683 

7. Licensing Revenue
Currax License Agreement
On September 25, 2019, OptiNose AS entered into a license agreement (the Currax License Agreement) with Currax pursuant to which the Company granted Currax a license to certain intellectual property for the commercialization of Onzetra Xsail® in the US, Canada and Mexico.
Under the terms of the Currax License Agreement, Currax paid the Company an upfront payment of $3,730, which was recognized as license revenue during the year ended December 31, 2019. On December 29, 2020, the Company received an additional $750 upon the expiration of the escrow that was established for a limited period to cover potential indemnification obligations. In addition, in January 2021 the Company received a $1,000 milestone payment in connection with the achievement of a specified regulatory milestone. The Company does not expect to receive any further payments from Currax under the terms of the Currax License Agreement other than reimbursement for certain expenses.
8. Long-term Debt
On September 12, 2019 (the Closing Date), the Company entered into a Note Purchase Agreement (the Pharmakon Senior Secured Notes) with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of the BioPharma Credit funds (BioPharma). The Pharmakon Senior Secured Notes provide the Company with $130,000 in debt financing, of which $80,000 was issued on the Closing Date, $30,000 was issued on February 13, 2020 (the First Delayed Draw Notes) after achieving the $9,000 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 XHANCE net sales and royalties threshold for the quarter ended September 30, 2020.
On August 13, 2020, the Company entered into a letter agreement (the Pharmakon Letter Agreement) to the Pharmakon Senior Secured Notes. The Pharmakon Letter Agreement provided the Company with the option to issue an additional $20,000 of Pharmakon Senior Secured Notes, subject to the Company achieving XHANCE net sales and royalties for the quarter ended June 30, 2021 of at least $26,000 and certain other conditions. As consideration for the Pharmakon Letter Agreement, the Company issued 44,643 shares of Common Stock to Pharmakon. The aggregate fair value of $250 was recorded as debt issuance costs and is being amortized to interest expense over the term of the Pharmakon Senior Notes. As of June 30, 2021, the Company is no longer eligible for the $20,000 additional Pharmakon Senior Secured Notes as the requisite conditions were not satisfied.
On March 2, 2021, the Company entered into an amendment to the Pharmakon Senior Secured Notes. The amendment revised certain minimum trailing twelve-month consolidated XHANCE net sales and royalties the
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

Company is required to achieve. As consideration for the amendment, the Company will pay an amendment fee of $1,300 upon the earlier of the prepayment of the Pharmakon Senior Secured Notes and the Maturity Date (defined below). The amendment fee was recorded as debt issuance costs and is being amortized to interest expense over the term of the Pharmakon Senior Secured Notes.
The Pharmakon Senior Secured Notes bear interest at a fixed per annum rate of 10.75% and are scheduled to mature on September 12, 2024 (the Maturity Date). The Company is required to make quarterly interest payments until the Maturity Date. The Company is also required to make principal payments, which are payable in eight equal quarterly installments beginning on December 15, 2022 and continuing until the Maturity Date; provided that the Company may, at its election, postpone any such principal payment until the Maturity Date if, as of the applicable payment date, certain trailing four-quarter consolidated XHANCE net sales and royalties thresholds have been achieved.
In conjunction with the Pharmakon Senior Secured Notes, the Company paid an upfront fee of $1,125 on the Closing Date and issued warrants to purchase an aggregate of 810,357 shares of Common Stock at an exercise price equal to $6.72 per share, which expire on September 12, 2022. The upfront fees were recorded as debt discount at issuance and are being amortized to interest expense over the five year term of the loan. The Company also incurred $6,514 in debt issuance costs, including $2,404 related to the fair value of the warrants which are also being amortized to interest expense over the term of the Pharmakon Senior Secured Notes.
The Company is required to repay the Pharmakon Senior Secured Notes in full upon the occurrence of a change of control (as defined in the Note Purchase Agreement). In addition, the Company may make voluntary prepayments in whole or in part. All mandatory and voluntary prepayments are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs prior to the third anniversary of the Closing Date, an amount equal to 2% of the principal prepaid, (ii) if prepayment occurs on or after the third anniversary of the Closing Date but prior to the fourth anniversary of the Closing Date, an amount equal to 1% of the principal prepaid, and (iii) if prepayment occurs on or after the fourth anniversary of the Closing Date, no prepayment premium is required. The Company is also required to pay a "make-whole" amount in respect of any principal payments (whether mandatory or voluntary) made prior to the 30-month anniversary of the issuance of the applicable note, in an amount equal to the interest that would have accrued through the 30-month anniversary in respect of such note but for such principal payment.
The Pharmakon Senior Secured Notes are secured by a pledge of substantially all of the Company's assets and the 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 and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Pharmakon Senior Secured Notes contain financial covenants requiring the Company to maintain at all times certain minimum trailing twelve-month consolidated XHANCE net sales and royalties, tested on a quarterly basis, and at least $30,000 of cash and cash equivalents. As of June 30, 2021, the Company was in compliance with the covenants.
The Note Purchase Agreement also includes events of default customary for financings of this type, in certain cases subject to customary periods to cure, following which BioPharma may accelerate all amounts outstanding under the notes.
The Company recorded interest expense of $4,012 and $3,293 during the three months ended June 30, 2021 and 2020, respectively, and $7,888 and $6,156 during the six months ended June 30, 2021 and 2020, respectively. Interest expense included total coupon interest and the amortization of debt issuance costs.
The long-term debt balance is comprised of the following:
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

June 30, 2021December 31, 2020
Face amount$130,000 $130,000 
Front end fees(775)(855)
Debt issuance costs(4,482)(3,943)
Back end fees1,300  
Long-term debt, net$126,043 $125,202 

9. Employee Benefit Plans
For US employees, the Company maintains a defined contribution 401(k) retirement plan. As of June 30, 2021, approximately $118 was recorded in accrued liabilities related to the Company match. The Company's contributions are made in cash.
For Norway and UK employees, the Company maintains defined contribution pension plans which meet the statutory requirements of those jurisdictions. The Company incurred costs related to the pension plans of $1 and $5 for the three months ended June 30, 2021 and 2020, respectively, and $3 and $10 for the six months ended June 30, 2021 and 2020, respectively.
10. Stockholders' Equity
As of June 30, 2021, the Company had the following warrants outstanding to purchase shares of Common Stock:
Number of SharesExercise Price Per ShareExpiration Date
810,357 $6.72 September 12, 2022

11. Stock-based Compensation
The Company recorded stock-based compensation expense related to stock options and shares issued under the Company's 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, 2021 and 2020:
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
Cost of product sales$6 $34 $17 $88 
Research and development286 331 567 588 
General and administrative2,441 2,407 4,759 4,556 
$2,733 $2,772 $5,343 $5,232 
In addition, stock-based compensation expense of $90 and $2 was charged to inventory and prepaid expenses and other assets, respectively, during the six months ended June 30, 2021, which represents the total stock-based compensation expense incurred related to employees involved in the manufacturing process of finished goods and samples during the period.
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

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 and performance-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 in connection with the Company's development programs. Additionally, the Company has issued stock options in excess of the fair market value of Common Stock on the issuance date that were only exercisable upon a change in control or upon or after an initial public offering. As of June 30, 2021, all of the performance conditions related to performance-based stock options issued by the Company had been achieved.
The following table summarizes the activity related to stock option grants to employees and nonemployees for the six months ended June 30, 2021:
 SharesWeighted
average
exercise price
per share
Weighted
average
remaining
contractual life
Outstanding at December 31, 20206,852,733 $10.34 6.84
Granted1,542,696 3.52 
Exercised  
Expired(284,889)12.59 
Forfeited(130,116)6.46
Outstanding at June 30, 20217,980,424 $9.00 6.92
Exercisable at June 30, 20214,837,027 $11.17 5.66
Vested and expected to vest at June 30, 20217,980,424 $9.00 6.92
During the six months ended June 30, 2021, stock options to purchase 1,542,696 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 $2.29. During the six months ended June 30, 2020, stock options to purchase 1,259,331 shares of Common Stock were granted to employees that generally vest over four years. The stock options had an estimated weighted average grant date fair value of $3.44.
Included in the table above are 140,000 of 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).
The grant date fair value of each stock option grant was estimated at the time of grant using the Black-Scholes option-pricing model using the following weighted average assumptions:
Six Months Ended June 30,
20212020
Risk free interest rate1.00 %0.72 %
Expected term (in years)6.086.03
Expected volatility74.28 %68.64 %
Annual dividend yield0.00 %0.00 %
Fair value of common stock$3.52 $5.64 
At June 30, 2021, the unrecognized compensation cost related to unvested stock options expected to vest was $10,695. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2.29 years.
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

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, 2021:
 Shares
Balance at Outstanding at December 31, 20201,491,589 
Granted957,990 
Vested and settled(203,743)
Expired/ forfeited/ canceled(47,070)
Balance at Outstanding at June 30, 20212,198,766 
Expected to vest at June 30, 20212,198,766 
In March 2021, the Company granted 957,990 RSUs at a grant date fair value of $3.51, all of which were service-based RSUs. No performance-based RSUs were granted in 2021. As of June 30, 2021, the milestones associated with previously granted performance based-RSUs were not probable of achievement, and accordingly, no stock based compensation expense has been recognized for these awards. At June 30, 2021, the unrecognized compensation cost related to unvested service-based RSUs expected to vest was $6,064, to be recognized over an estimated weighted-average amortization period of 2.54 years. The unrecognized compensation cost related to unvested performance-based RSUs was $3,095, which will be recognized commencing in the period in which the performance condition is deemed probable of achievement 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 of $91 and $137 during the three months ended June 30, 2021 and 2020, respectively, and $199 and $287 during the six months ended June 30, 2021 and 2020, respectively, related to the 2017 Plan.
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,
20212020
Risk free interest rate0.09 %1.57 %
Expected term (in years)0.50.5
Expected volatility86.88 %79.59 %
Annual dividend yield0.00 %0.00 %

12. Subsequent events
On August 11, 2021, the Company entered into an Open Market Sale AgreementSM (the Sale Agreement) with Jefferies LLC, as sales agent (Jefferies), under which the Company may issue and sell its Common Stock from time to time for an aggregate sales price of up to $50,000 through Jefferies (the Shares).
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

The Company has agreed to pay Jefferies a commission rate of up to 3.0% of the gross proceeds of any Shares sold through Jefferies as sales agent under the Sale Agreement, and has provided Jefferies with customary indemnification rights.
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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, 2020, filed with the Securities and Exchange Commission (SEC) on March 3, 2021. 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) device that delivers a topically-acting corticosteroid for the treatment of chronic rhinosinusitis with nasal polyps and, if approved, chronic rhinosinusitis without nasal polyps (also 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.
In September 2017, the United States 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.
Business Updates in Response to the COVID-19 Pandemic
The COVID-19 pandemic has caused business and economic disruption, and the duration and impact of that disruption is uncertain at this time.
In mid-March 2020, we transitioned to a full-time, virtual work environment in which all employees, including sales representatives (whom we refer to as territory managers), were encouraged to work from their place of residence. Our decision was based on actions taken by federal, state and local governments to contain the spread of severe acute respiratory coronavirus 2 (SARS-CoV-2) and the related Coronavirus Disease 2019 (COVID-19), as well as the impact of “social distancing” efforts and various mitigation actions implemented by healthcare practices across the United States. Shortly after our transition to a full-time, virtual work environment, our territory managers began virtual details of XHANCE to target audience physicians.
We have been monitoring, and will continue to monitor, federal, state, and local government requirements and guidances. In certain instances, the various mitigation efforts have been updated to facilitate a return to a working environment with fewer restrictions. Where permitted by governmental requirements and the policies of physician offices, our territory managers began to return to in-person detailing of physicians in May and June 2020. Given the localized nature of the restrictions that are in place and the potential for restrictions to return, we have equipped our territory managers to operate in an environment that will include a mix of virtual and in-person physician detailing with dependencies on geography and time.
Federal, state and local government requirements and guidances have impacted virtually all of the physicians' offices in which our territory managers detail XHANCE. These impacts include reduced patient visits, temporary halt of territory managers' visits, restrictions imposed on territory managers' visits and temporary closings of physicians' offices.
Late in the first quarter of 2020 we began to observe an adverse impact of the COVID-19 pandemic on XHANCE prescription growth and, as a result XHANCE net revenue. Although XHANCE prescription (and in particular, new prescription growth) and XHANCE net revenue continue to be adversely impacted by the COVID-19 pandemic, the magnitude of the impact has slowly improved as federal, state and local government requirements and guidances have been updated to facilitate economic reopening. Based on
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third-party prescription data as well as data from Preferred Pharmacy Network (PPN) partners, XHANCE prescriptions increased 11% from first quarter 2020 to second quarter 2020, increased 11% from second quarter 2020 to third quarter 2020, increased 7% from third quarter 2020 to fourth quarter 2020, decreased 2% from fourth quarter 2020 to first quarter 2021, and increased 14% from first quarter 2021 to second quarter 2021. Although XHANCE prescriptions and XHANCE net revenue have grown during this COVID-19 period, the rate of growth was below our pre-pandemic expectations. Additionally, the duration and magnitude of the impact of the COVID-19 pandemic on XHANCE prescriptions and XHANCE net revenue are uncertain and may affect our ability to remain in compliance with our revenue covenants under our Pharmakon Note Purchase Agreement.
Due to the impacts of the COVID-19 pandemic, one of our contract manufacturers implemented a reduced work schedule and additional precautions which resulted in delays in the manufacture of XHANCE in second quarter 2020 but did not result in an interruption to commercial or clinical supply. We believe we are maintaining appropriate levels of finished product inventories in the event of future supply disruption; however, the duration and magnitude of a future negative impact from the COVID-19 pandemic could constrain our supply of XHANCE.
Previous guidance related to the expected timing of results from our two ongoing chronic sinusitis clinical trials indicated that top-line results from both trials would be available in the second half of 2021. Pauses in patient enrollment due to factors related to the COVID-19 pandemic have had, and may continue to have, varying effects in different geographies and over time have led to a change in our projected timeline for initial data availability and may lead to additional changes in the future. We completed enrollment in the first of our ongoing chronic sinusitis clinical trials in July 2021 and expect top-line results in the first quarter of 2022. We expect to complete enrollment of subjects in our second clinical trial for chronic sinusitis in the fourth quarter of 2021 and expect top-line results in the second quarter of 2022. For those subjects currently participating in these studies, procedures to facilitate ongoing treatment and capture of data during periods of in-person care restrictions have been put in place.
The full impact of the COVID-19 pandemic, including the potential for and emergence of different strains of the virus, on our business is still unknown, It is likely to continue to have adverse impacts on XHANCE prescription growth and XHANCE net revenues as result of fewer patients visiting physician offices and restrictions imposed by physicians' offices on territory manager visits, continued high unemployment adversely affecting demand and payor mix, and the availability and cost of capital for us to fund our business operations and service our debt. We will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to our operations as necessary.
XHANCE Business Update
We track and report metrics that we believe are an important part of assessing our progress in key strategic areas including:
XHANCE Prescriptions and Market Share. Based on third-party prescription data as well as data from PPN partners, the total estimated number of XHANCE prescriptions in the second quarter of 2021 was 82,900, which represents 33% growth for prescriptions when compared to estimated second quarter 2020 prescriptions of 62,500. The INS prescription market increased approximately 5% from second quarter 2020 to second quarter 2021 based on third-party prescription data. In addition, the total estimated number of XHANCE prescriptions was 69,000 in the third quarter of 2020, 73,900 in the fourth quarter of 2020, and 72,600 in the first quarter of 2021.
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. As the result of the COVID-19 pandemic, the market volume peak and subsequent declines did not follow the normal trends in 2020. Based on third-party prescription data, INS market prescriptions increased 7% from the fourth quarter of 2019 to the first quarter of 2020, decreased 16% from the first quarter of 2020 to the second quarter of 2020, decreased 6% from the second quarter of 2020 to the third quarter of 2020, increased 3% from the third quarter of 2020 to the fourth quarter of 2020, decreased 4% from fourth quarter 2020 to the first quarter of 2021, and increased 14% from the first quarter of 2021 to the second quarter of 2021.
Although the underlying disease that we are treating is chronic and causes symptoms year-round, we believe the variation in patient flow through the offices of relevant physician specialists, and seasonality in disease flare-ups, has an impact on the number of patients that present themselves and who are therefore
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available to receive a new prescription for XHANCE. Demand has historically been, and we expect will continue to be, impacted by the INS market seasonality and the seasonal variation in patient visits with their doctor, resulting in reduced XHANCE prescription demand in the third quarter.
Additionally, we believe that first quarter prescription demand and average net revenue per prescription for XHANCE is adversely impacted by the annual resetting of patient healthcare insurance plan deductibles and changes in individual patients' healthcare insurance coverage, both of which often occur in January.
We track the market share of XHANCE within our current target audience. For this purpose, we calculate market share as the proportion of XHANCE prescriptions to the number of prescriptions written for other INS within our current target audience of approximately 18,000 physicians. Our target physician audience includes all ENT and allergy specialist physicians who, based on third-party data, write intranasal steroid spray prescriptions. In addition, our current target audience includes specialty-like primary care physicians called on by our territory managers or kaléo sales representatives. Prior to the fourth quarter 2020 initiation of XHANCE co-promotion by kaléo, our target audience included approximately 10,000 physicians called on by Optinose sales territory managers.
We believe market share, in addition to XHANCE prescription volume, provides important information regarding XHANCE utilization because market share normalizes XHANCE prescriptions for market effects including the INS market seasonality, seasonal variation in patient visits with their doctor, annual deductible resets and annual changes in individual patient's healthcare insurance coverage referenced above. Based on third-party prescription data as well as data from PPN partners, we estimate XHANCE had a market share in our current target audience of 18,000 physicians of 4.4% in the second quarter of 2020, 4.9% in the third quarter of 2020, 5.1% in the fourth quarter of 2020, 5.4% in the first quarter of 2021, and 5.4% in the second quarter of 2021. Note that most of the INS prescriptions written within our target physician audience are for chronic sinusitis, allergic rhinitis and other conditions outside of our nasal polyp indication. Our target physician audience is subject to revision each quarter to account for changes such as revised sales target prioritization, and physician retirements. Changes to the target physician audience can contribute to some of the quarter over quarter change in market share.
XHANCE New Prescriptions and Refill Prescriptions. The underlying disease that we are treating is chronic and, as a result, many patients may fill multiple prescriptions per year. We monitor new prescriptions as they create the potential for future refill prescriptions. Based on third-party prescription data as well as data from PPN partners, the total estimated number of XHANCE new prescriptions in the second quarter of 2021 was 29,000, which represents 55% growth for new prescriptions when compared to estimated second quarter 2020 new prescriptions of 18,700. In addition, the total estimated number of XHANCE new prescriptions was 23,000 in the third quarter of 2020, 24,600 in the fourth quarter of 2020 and 25,900 in the first quarter of 2021. Based on third-party prescription data, the INS market for new prescriptions increased 19% from the second quarter of 2020 to the second quarter of 2021 and increased 19% from the first quarter of 2021 to the second quarter of 2021.
We track refill prescriptions and provide patient assistance to support refill programs that are administered by our PPN partners. Based on third-party prescription data as well as data from PPN partners, the total estimated number of XHANCE refill prescriptions in the second quarter of 2021 was 53,900, which represents 23% growth for refill prescriptions when compared to estimated second quarter 2020 refill prescriptions of 43,800. In addition, the total estimated number of XHANCE refill prescriptions was 46,100 in the third quarter of 2020, 49,300 in the fourth quarter of 2020, and 46,700 in the first quarter of 2021.
Prescribing Breadth and Depth. We track the number of physicians who prescribe XHANCE in a time period to evaluate the breadth of prescribing. Based on third-party prescription data as well as data from PPN partners, the total estimated number of physicians who had at least one patient fill a prescription for XHANCE in the second quarter of 2021 was 7,188, which represents 16% growth when compared to the estimated 6,209 physicians who had at least one patient fill a prescription for XHANCE in the second quarter of 2020. In addition, the total estimated number of physicians who had at least one patient fill a prescription for XHANCE was 6,443 in the third quarter of 2020, 6,708 in the fourth quarter of 2020, and 6,920 in the first quarter of 2021.
We also track the number of prescriptions filled by a prescribing physician's patients in a time period to evaluate depth of prescribing. Based on third-party prescription data as well as data from PPN partners, the total estimated number of physicians who had more than 15 XHANCE prescriptions filled by their patients in the second quarter of 2021 was 1,414, which represents 38% growth when compared to the estimated
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1,028 physicians who had more than 15 XHANCE prescriptions filled by their patients in the second quarter of 2020. In addition, the total estimated number of physicians who had more than 15 XHANCE prescriptions filled by their patients was 1,153 in the third quarter of 2020, 1,275 in the fourth quarter of 2020, and 1,285 in the first quarter of 2021.
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 $221 in the second quarter of 2021 which represents an approximately 35% increase when compared to the $164 average XHANCE net product revenues per prescription in the second quarter of 2020. In addition, average XHANCE net revenues per prescription were $224 in the third quarter of 2020, $211 in the fourth quarter of 2020, and $151 in the first quarter of 2021.
Sales, Marketing & Distribution
We have established a commercial infrastructure designed to drive adoption and sales of XHANCE with healthcare professionals who treat patients with nasal polyps. We believe that approximately 15,000 physicians treat an estimated 3.5 million chronic rhinosinusitis patients, an estimated 1.2 million of whom have chronic rhinosinusitis with nasal polyps.
Customer Model.  We have a sales force of approximately 100 territory managers who target over 10,000 ENTs, allergists and “specialty-like” primary care physicians, and we target additional physicians through digital and non-personal promotion in areas where we do and do not have territory managers. In addition, we initiated a co-promotion agreement with kaléo in October 2020 to promote XHANCE to an audience of up to 6,000 prescribers, about half of whom are outside of our current called-on universe. In the future we may increase the number of geographic territories as well as hire additional territory managers in order to increase the number of called-on target physicians and frequency of calls. Our sales team, and the sales team of our co-promotion partner, are equipped with educational materials demonstrating the benefit and safety profile XHANCE. We believe that in the long term, direct-to-consumer (DTC) advertising could be an effective way to increase XHANCE prescription growth.
XHANCE Co-Pay Savings Program. We believe our co-pay savings program provides an affordability solution for patients that physicians will support. This program provides patient co-pay assistance including a first prescription for as little as no out-of-pocket cost ($0 co-pay) to eligible commercially insured patients and low subsequent co-pays for refills ranging from $0 to $50 per XHANCE unit.
Market Access.  Based on currently available third-party data and our internal analyses as of June 30, 2021, we believe that greater than 75% of commercially insured lives are currently in a plan that covers XHANCE. However, payors may change coverage levels for XHANCE, positively or negatively, at any time. Additionally, payors generally impose restrictions on access to or usage of XHANCE, such as by requiring prior authorizations or "step-edits". For example, insurers may require that a patient first use a generic INS prior to becoming eligible for coverage for XHANCE. Some healthcare providers may not complete the administrative process required to demonstrate or document that the patients for whom XHANCE has been prescribed meet the payors’ utilization management criteria (i.e., prior authorizations or step-edits) and, as a result, patients may not gain access to XHANCE treatment. In our contract negotiations with payors we seek to balance patient access and affordability, breadth of coverage, payor utilization management and rebates levels. We have also contracted with the Centers for Medicare and Medicaid Services for coverage of certain government insured lives and continue to expand XHANCE market access for other government-insured populations.
Trade and Distribution We currently sell XHANCE primarily to Preferred Pharmacy Network (PPN) partners. We established this channel to offer patients the option of filling prescriptions through a network of preferred pharmacies that may be able to better serve the needs of patients through services including delivery of XHANCE by mail and performing certain patient services such as patient insurance benefit verification. We also sell XHANCE to wholesale pharmaceutical distributors, who, in turn, sell XHANCE to retail pharmacies, hospitals and other customers. We have contracted with a third-party logistics provider for key services related to logistics, warehousing and inventory management, and distribution. Further, our third-party logistics provider provides customer order fulfillment services and accounts receivable management.
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XHANCE Development
In addition to XHANCE’s existing indication for the treatment of nasal polyps, in order to broaden our U.S. market opportunity, we initiated a clinical trial program in pursuit of a follow-on indication for the treatment of chronic sinusitis. We believe XHANCE has the potential to be the first drug therapy approved by the FDA for the treatment of chronic sinusitis. We expect the program will be comprised of two Phase 3b clinical trials, the first of which was initiated in the fourth quarter of 2018 and completed enrollment of approximately 330 subjects in July of 2021, and the second of which was initiated in the second quarter of 2019 and is estimated to enroll approximately 399 subjects. Estimated enrollment for the second trial is subject to change for factors that may include interim analyses intended to inform the statistical powering.
In April 2021, we completed a previously planned, blinded interim analysis to assess the variance in one of the two co-primary endpoints (change in Composite Score of Nasal Symptoms from baseline to week 4) in our first clinical trial for chronic sinusitis The analysis was performed on blinded interim data from approximately half of the initial estimated enrollment of 378 patients. The result of this interim analysis was that the observed variance in this endpoint was lower than the variance assumed when we estimated sample size for statistical powering during the initial design of the trial.
In June 2021, we completed a previously planned, blinded interim analysis to assess the variance in the other co-primary endpoint (change in average percent opacification of volume by CT scan from baseline to week 24) in this trial. The analysis was performed on blinded interim data from approximately one-third of the initial estimated enrollment of 378 patients for whom 6-month CT scan data was available. The result of this interim analysis was that the observed variance in this endpoint was also lower than the variance assumed when we estimated sample size for statistical powering during the initial design of the study. Based on the results of these two interim analyses, and our assumptions and estimates relating to the trial, we anticipate that the initial targeted statistical power will be achieved with the approximately 330 patients currently enrolled in the trial. As a result, we have closed enrollment in the first CS trial and are now focusing all of our recruitment efforts on the second CS trial.

For clarity, both of these interim analyses were blinded to treatment group and therefore could not evaluate the magnitude of difference, if any, between treatment groups. Accordingly, these interim analyses were not designed to, and do not, provide evidence regarding possible superiority of active treatment over placebo or success of the trials.

With enrollment completed, we expect top-line results from the first of our two ongoing Phase 3b chronic sinusitis clinical trials in the first quarter of 2022. We expect to complete enrollment in the second clinical trial for chronic sinusitis in the fourth quarter of 2021 with top-line results available in the second quarter of 2022.

OPN-019 Development Update
In June 2020, we announced the initiation of development of a new product candidate, OPN-019, which combines our proprietary intranasal Exhalation Delivery System (EDS) device with an antiseptic.
Because components of the drug-device combination product candidate, including both the active drug and delivery device, are currently commercially available in the U.S., we anticipate that the development of OPN-019 may be streamlined and accelerated. Subsequent to a pre-Investigational New Drug (IND) submission we have engaged with the FDA regarding an IND and clinical development pathway.
We have performed in vitro testing against SARS-CoV-2 with a candidate formulation in which a 4-log reduction (a 99.99% reduction) in virus count was produced. In addition, we performed tests against other pathogens. For most pathogens tested, 3-log to 6-log reductions (99.9% to 99.9999% reductions) in virus count were observed.
In March 2021, we announced our plan to conduct a randomized, proof-of-concept trial in Mexico in subjects who have tested positive for SARS-CoV-2 infection, who were recently infected, and who have mild or no symptoms. In July 2021, we received approval from regulatory authorities in Mexico to proceed with this pilot trial. The trial drug was made available in Mexico in July 2021, and the trial is open for enrollment. The trial will evaluate both the magnitude and duration of viral load reduction after a single dose of OPN-019. Given the design of the study and the endpoints to be evaluated, we expect to have initial results shortly after each cohort completes enrollment.

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We expect to leverage the proof-of-concept clinical data to support our pursuit of grants, partnerships, and/or other sources of capital that will be necessary to fund future development.


Financial Operations Overview
The following discussion sets forth certain components of our consolidated statements of operations as well as factors that impact those items.
Net product revenues
Sales of XHANCE generated $18.4 million and $10.3 million in net product revenues for the three months ended June 30, 2021 and 2020, respectively, and $29.3 million and $17.3 million for the six months ended June 30, 2021 and 2020, respectively. In accordance with GAAP, we determine net product revenues for XHANCE, with specific assumptions for variable consideration components including but not limited to trade discounts and allowances, co-pay assistance programs and payor rebates.
Based on available XHANCE prescription data purchased from third parties and data from our PPN partners, who collectively dispensed more than 85% of our total prescriptions (TRxs) in the period, our average net product revenues per prescription for the second quarter of 2021 was approximately $221, an increase compared to average net product revenues per prescription of $151 in first quarter of 2021 and an increase compared to $164 in the second quarter of 2020.
The increase in average net product revenues per prescription from the first quarter of 2021 to the second quarter of 2021 is largely a consequence of reduced co-pay support under our assistance programs as the result of patients' meeting their out-of-pocket expense thresholds.
The increase in average net product revenues per prescription from the second quarter of 2020 to the second quarter of 2021 is driven largely by the absence of a one-time co-pay assistance program that was available to patients in the second quarter of 2020, as well as changes in 2021 to our co-pay assistance plan that were intended to increase revenues per prescription by reducing the rate of growth in prescription fills by commercially insured patients in plans that do not cover XHANCE, while sustaining growth in covered plans.
We calculate average net product revenues per prescription, one metric that we use to gauge the profitability of XHANCE, by dividing net product revenues for the quarter by the estimated number of XHANCE prescriptions dispensed during the quarter. As a result, average net product revenues per prescription is subject to variability. That variability is impacted by factors that do not necessarily reflect a change in the price that is paid for an individual unit of XHANCE, including but not limited to ordering patterns and inventory levels for our wholesale customers and PPN partners, patient utilization rates of affordability programs and the proportion of patients acquiring XHANCE through an insurance benefit. There is also the potential for variability that results from changes in estimation methodology by the third parties that we rely upon to provide prescription data which may lead to revisions of historical estimates of prescription volumes and our calculated average net product revenues per prescription.
We expect full year 2021 net product revenues to be at least $80.0 million. In addition, we expect that average net product revenues per prescription for the full year of 2021 will exceed $200. Factors supporting this expected growth include patients meeting their out-of-pocket expense thresholds, expected improvements in insurance coverage and continued strength in the proportion of prescription refills.
Licensing revenues
In September 2019, OptiNose AS, a wholly owned subsidiary of the Company, entered into the Currax License Agreement. Under the terms of the Currax License Agreement, Currax paid us a $3.7 million upfront payment in 2019, an additional $0.8 million in December 2020 upon expiration of the escrow that was established for a limited period to cover potential indemnification obligations, and an additional $1.0 million milestone payment in January 2021 upon the achievement of a specified regulatory milestone. We are not eligible to receive any further payments from Currax under the terms of the Currax License Agreement other than reimbursement for certain expenses.
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Costs of product sales
Costs of product sales includes the cost of inventory sold, which includes direct and indirect manufacturing and supply chain costs.
Research and development expense
Research and development expense consists primarily of expenses incurred to prepare for, initiate and conduct our planned clinical trials, ongoing research efforts of 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 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 our EDS devices;
expenses incurred under agreements with contract manufacturing organizations (CMOs), including manufacturing scale-up expenses prior to regulatory approval of products for commercial sale and the cost of acquiring and manufacturing preclinical study and clinical trial materials;
consultant fees and expenses associated with outsourced professional scientific development services;
expenses for regulatory activities, including filing fees paid to regulatory agencies and costs incurred to compile and respond to filings with the FDA prior to regulatory approval of products for commercial sale;
allocated expenses for facility costs, including rent, utilities, depreciation and maintenance.
We typically use our employee, consultant and infrastructure resources across our research and development programs. Although we track certain outsourced development costs by product candidate, we do not allocate personnel costs or other internal costs to specific product candidates.
We plan to incur research and development expenses as we continue the development of XHANCE for the treatment of chronic sinusitis and our other product candidates. Clinical trial costs associated with our chronic sinusitis program represent a substantial portion of our total research and development expenses. While we would expect to continue to incur regulatory and other development expenses after the conclusion of our chronic sinusitis clinical program, we expect the costs associated with the conduct of clinical trials to significantly decrease. Due to the inherently unpredictable nature of clinical development, compounded by the uncertainty introduced by the COVID-19 pandemic, the rate of subject enrollment, number of subjects required, and trial duration and outcome, there is uncertainty as to the exact timing of when we expect our research and development costs related to the clinical development of XHANCE to significantly decrease.
Selling, general and administrative expense
General 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 regulatory fees and professional fees for legal, patent, accounting and other consulting services.
Sales and marketing expenses include our sales team and supporting promotional materials, digital promotion, peer-to-peer education, congresses / conventions, samples, and marketing activities targeted towards health care providers, payors and patients/consumers, including initiatives and fees related to our co-promotion agreement with kaléo. Additionally, sales and marketing-related expenses include fees paid to our PPN partners for services unrelated to traditional distribution functions, such as data fees, benefit claims adjudication and other enhanced services performed as part of our PPN.
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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 our note purchase agreement (Pharmakon Senior Secured Notes) with Pharmakon Advisors, LP (Pharmakon).
Other (income) expense
Other (income) expense consists primarily of foreign currency (income) losses due to exchange rate fluctuations on transactions denominated in a currency other than our functional currency.
Consolidated Results of Operations
Comparison of three months ended June 30, 2021 and 2020
The following table sets forth our selected consolidated statements of operations data for the periods indicated (in thousands):
 Three Months Ended June 30,
 20212020
Revenues:
Net product revenues$18,357 $10,272 
Licensing revenues— — 
   Total revenues18,357 10,272 
Costs and expenses:  
Cost of product sales2,425 1,700 
Research and development8,179 5,474 
Selling, general and administrative27,308 25,697 
Total operating expenses37,912 32,871 
Loss from operations(19,555)(22,599)
Other (income) expense: 
Interest (income) expense4,000 3,260 
Other (income) expense(53)(7)
Total other (income) expense3,947 3,253 
Net loss$(23,502)$(25,852)
Net product revenues
Net product revenues related to sales of XHANCE were $18.4 million and $10.3 million for the three months ended June 30, 2021 and 2020, respectively. Revenue growth is attributable primarily to an increase in units sold to customers as a result of a greater number of XHANCE prescriptions dispensed during the three months ended June 30, 2021.
Cost of product sales
Cost of product sales related to XHANCE were $2.4 million and $1.7 million for the three months ended June 30, 2021 and 2020, respectively, with the increase attributed primarily to an increase in units sold to customers during the period.
Research and development expense
Research and development expense was $8.2 million and $5.5 million for the three months ended June 30, 2021 and 2020, respectively. The $2.7 million increase was attributable primarily to a $3.0 million increase in clinical expenses related to the conduct of our clinical trials of XHANCE for the treatment of chronic sinusitis. This increase was offset by a $0.3 million decrease in device development and personnel costs.
Selling, general and administrative expense
Selling, general and administrative expense was $27.3 million and $25.7 million for the three months ended June 30, 2021 and 2020, respectively. The $1.6 million increase was due primarily to:
a $0.5 million increase in marketing costs, including HCP marketing, speaker programs and training, print production and market research;
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a $0.5 million increase in legal fees primarily related to additional spend for patent and legal services; and
a $0.4 million increase in service fees paid to our PPN partners, the result of a greater number of XHANCE prescriptions dispensed by our PPN partners during the period.
Interest (income) expense, net
Interest (income) expense, net, was $4.0 million and $3.3 million for the three months ended June 30, 2021 and 2020, respectively, which was primarily comprised of interest expense on the Pharmakon Senior Secured Notes during both periods. The increase was related to increased principal balance of the Pharmakon Senior Secured Notes.
Comparison of six months ended June 30, 2021 and 2020
The following table sets forth our selected consolidated statements of operations data for the periods indicated (in thousands):
 Six Months Ended June 30,
 20212020
Revenues:
Net product revenues$29,317 $17,334 
Licensing revenues1,000 — 
   Total revenues30,317 17,334 
Costs and expenses:  
Cost of product sales4,165 3,056 
Research and development13,404 10,406 
Selling, general and administrative54,493 52,757 
Total operating expenses72,062 66,219 
Loss from operations(41,745)(48,885)
Other (income) expense: 
Interest (income) expense7,855 5,791 
Other (income) expense(45)32 
Total other (income) expense7,810 5,823 
Net loss$(49,555)$(54,708)
Net product revenues
Net product revenues related to sales of XHANCE were $29.3 million and $17.3 million for the six months ended June 30, 2021 and 2020, respectively. Revenue growth is attributable primarily to an increase in units sold to customers as a result of a greater number of XHANCE prescriptions dispensed during the six months ended June 30, 2021.
Licensing revenues
Licensing revenues were $1.0 million for the six months ended June 30, 2021 as a result of the milestone payment received under the terms of the Currax License Agreement. No licensing revenue was recognized during the six months ended June 30, 2020.
Cost of product sales
Cost of product sales related to XHANCE were $4.2 million and $3.1 million for the six months ended June 30, 2021 and 2020, respectively, with the increase attributed primarily to an increase in units sold to customers during the period.
Research and development expense
Research and development expense was $13.4 million and $10.4 million for the six months ended June 30, 2021 and 2020, respectively. The $3.0 million increase was attributable primarily to a $3.3 million increase in clinical expenses related to the conduct of our clinical trials of XHANCE for the treatment of chronic sinusitis. This increase was offset by a $0.3 million decrease in device development and personnel costs.
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Selling, general and administrative expense
Selling, general and administrative expense was $54.5 million and $52.8 million for the six months ended June 30, 2021 and 2020, respectively. The $1.7 million increase was due primarily to:
a $1.0 million increase in service fees paid to our PPN partners, as a result of a greater number of XHANCE prescriptions dispensed by our PPN partners during the period;
a $0.6 million increase in marketing and market research expenses;
a $0.4 million increase in office expenses and consulting; and
a $0.3 million increase in legal fees primarily related to additional spend for patent and legal services.
This increase was offset by a $0.6 million decrease in personnel expenses.
Interest (income) expense, net
Interest (income) expense, net, was $7.9 million and $5.8 million for the six months ended June 30, 2021 and 2020, respectively, which was primarily comprised of interest expense on the Pharmakon Senior Secured Notes during both periods. The increase was primarily related to increased principal balance of the Pharmakon Senior Secured Notes as well as a decrease in interest income earned on cash deposits.
Liquidity and Capital Resources
Since inception, we have incurred significant net losses and expect to continue to incur net losses for the foreseeable future. We incurred net losses of $49.6 million and $54.7 million for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, we had an accumulated deficit of $577.3 million. We have funded our operations primarily through the sale and issuance of stock and debt, as well as through licensing revenues. As of June 30, 2021, we had $93.9 million in cash and cash equivalents.
The following table shows a summary of our cash flows for the periods indicated (in thousands):
 Six Months Ended June 30,
 20212020
Net cash used in operating activities$(50,518)$(51,518)
Net cash used in investing activities(10)(309)
Net cash provided by financing activities276 29,950 
Effects of exchange rates on cash and cash equivalents— (9)
Net decrease in cash, cash equivalents and restricted cash$(50,252)$(21,886)
Operating activities
Cash used in operating activities decreased by $1.0 million, from $51.5 million for the six months ended June 30, 2020 to $50.5 million for the six months ended June 30, 2021. The decrease in cash used in operating activities was attributable to an increase in revenue, offset by an increase in expenses and net working capital. The increase in expenses was primarily attributable to an increase in clinical trial-related expenses in pursuit of a follow-on indication for XHANCE for the treatment of chronic sinusitis, and the increase in net working capital was due to an increase in inventory production and a decrease in accounts payable and accrued liabilities due to timing during the six months ended June 30, 2021.
Investing activities
Cash used in investing activities decreased by $0.3 million from the six months ended June 30, 2020 to the six months ended June 30, 2021. Purchases of equipment during the six months ended June 30, 2020 of $0.3 million decreased in the six months ended June 30, 2021 to $0.1 million, which was offset by $0.1 million of proceeds from the sale of manufacturing equipment.
Financing activities
Cash provided by financing activities was $0.3 million for the six months ended June 30, 2021. Cash provided by financing activities was $29.9 million for the six months ended June 30, 2020. Cash provided by financing activities for the six months ended June 30, 2020 was primarily driven by the receipt of $30.0 million from the issuance of the
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First Delayed Draw Notes under the Pharmakon Senior Secured Notes. Cash provided by financing activities for the six months ended June 30, 2021 was driven by proceeds from the issuance of common stock under the 2017 Plan.
Senior Secured Note Purchase Agreement
On September 12, 2019 (the Closing Date), we entered into the Note Purchase Agreement (the Pharmakon Senior Secured Notes) with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of the BioPharma Credit funds (BioPharma). The Pharmakon Senior Secured Notes provide us with $130.0 million in debt financing, of which $80.0 million was issued on the Closing Date, $30.0 million was issued on February 13, 2020 and $20.0 million was issued on December 1, 2020.

On August 13, 2020, we entered into a letter agreement (the Pharmakon Letter Agreement) to the Pharmakon Senior Secured Notes. The Pharmakon Letter Agreement provided us with the option to issue an additional $20.0 million of Pharmakon Senior Secured Notes, subject to us achieving XHANCE net sales and royalties for the quarter ended June 30, 2021 of at least $26.0 million and certain other conditions. As consideration for the Pharmakon Letter Agreement, we issued 44,643 shares of Common Stock to Pharmakon. The aggregate fair value of $250,000 was recorded as debt issuance costs and is being amortized to interest expense over the term of the Pharmakon Senior Secured Notes. As of June 30, 2021, we are no longer eligible for the $20.0 million additional Pharmakon Senior Secured Notes as the requisite conditions were not satisfied.
On March 2, 2021, we entered into an amendment to the Pharmakon Senior Secured Notes. The amendment revised certain minimum trailing twelve-month consolidated XHANCE net sales and royalties we are required to achieve. As consideration for the amendment, we will pay an amendment fee of $1.3 million upon the earlier of the prepayment of the Pharmakon Senior Secured Notes and September 12, 2024.
The Pharmakon Senior Secured Notes bear interest at a fixed per annum rate of 10.75% and are scheduled to mature on September 12, 2024 (the Maturity Date). We are required to make quarterly interest payments until the Maturity Date. We are also required to make principal payments, which are payable in eight equal quarterly installments beginning on December 15, 2022 and continuing until the Maturity Date; provided that we may, at our election, postpone any such principal payment until the Maturity Date if, as of the applicable payment date, certain trailing four-quarter consolidated XHANCE net sales and royalties thresholds have been achieved.
We are required to repay the Pharmakon Senior Secured Notes in full upon the occurrence of a change of control (as defined in the Note Purchase Agreement). In addition, we may make voluntary prepayments in whole or in part. All mandatory and voluntary prepayments are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs prior to the third anniversary of the Closing Date, an amount equal to 2% of the principal prepaid, (ii) if prepayment occurs on or after the third anniversary of the Closing Date but prior to the fourth anniversary of the Closing Date, an amount equal to 1% of the principal prepaid; and (iii) if prepayment occurs on or after the fourth anniversary of the Closing Date, no prepayment premium is required. We are also required to pay a "make-whole" amount in respect of any principal payments (whether mandatory or voluntary) made prior to the 30-month anniversary of the issuance of the applicable note, in an amount equal to the interest that would have accrued through the 30-month anniversary in respect of such note but for such principal payment.
The Pharmakon Senior Secured Notes are secured by a pledge of substantially all of our assets and the Note Purchase Agreement contains affirmative and negative covenants customary for financings of this type, including limitations on our and our subsidiaries’ ability, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, grant certain license rights to our products, technologies and other intellectual property rights; pay dividends and distributions, repay junior indebtedness and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Pharmakon Senior Secured Notes contain financial covenants requiring us to maintain at all times certain minimum trailing twelve-month consolidated XHANCE net sales and royalties, tested on a quarterly basis, and at least $30.0 million of cash and cash equivalents.
The Note Purchase Agreement also includes events of default customary for financings of this type, in certain cases subject to customary periods to cure, following which BioPharma may accelerate all amounts outstanding under the notes.
Projected 2021 operating expenses
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We expect that our total GAAP operating expenses (consisting of selling, general & administrative expenses and research & development expenses) for 2021 will be between $137.0 million and $142.0 million, of which approximately $10.0 million is expected to be non-cash stock-based compensation expense. As a result, total GAAP operating expenses, excluding non-cash stock-based compensation expense, are expected to be between $127.0 million and $132.0 million. An increase in expenses from 2020 to 2021 is anticipated due primarily to an increase in fees paid to our PPN partners associated with higher projected XHANCE prescription volumes and an increase in research and development expenses related to our clinical trial program in pursuit of a follow-on indication for XHANCE for the treatment of chronic sinusitis.
Future funding requirements
We expect to continue to incur significant expenses in connection with our ongoing activities, particularly as we:
maintain and expand our sales force and the commercial infrastructure to support the sales and marketing for XHANCE;
continue advertising and other promotional activities, including the kaléo co-promotion, to support the commercialization of XHANCE;
continue to provide co-pay and other patient affordability programs;
continue clinical development activities for XHANCE, including an FDA-mandated post-marketing pediatric study and clinical trials for a follow-on indication for the treatment of chronic sinusitis;
continue research and development activities for additional product candidates, including OPN-019;
continue to contract to manufacture XHANCE and our other product candidates;
maintain, expand and protect our patent portfolio;
service our debt obligations under the Pharmakon Senior Secured Notes issued in September 2019, February 2020 and December 2020;
maintain infrastructure necessary to operate as a publicly-traded, FDA-regulated 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:
duration and impact of COVID-19 pandemic on our business;
the success of our commercialization of XHANCE for the treatment of nasal polyps including, among other things, patient and physician acceptance of XHANCE and our ability to maintain adequate insurance coverage and reimbursement for XHANCE;
the cost of commercialization activities for XHANCE, including product manufacturing, distribution, marketing and sales;
net product revenues received from sales of XHANCE;
the costs and timing of expanding our sales force;
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 an FDA-mandated post-marketing pediatric study and clinical trials for the supplemental indication for the treatment of chronic sinusitis;
the outcome, timing and cost of the regulatory approval process of XHANCE for chronic sinusitis by the FDA, including the potential for the FDA to require that we perform more studies and clinical trials than those that we currently expect;
the costs involved in preparing, filing and prosecuting patent applications and annuity fees relating to issued patents;
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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, including OPN-019; and
the extent to which we in-license, acquire or otherwise partner in development or commercialization of other products, product candidates or technologies.
Although it is difficult to predict our future liquidity requirements, we will likely require additional capital in the future secured through equity or debt financings, partnerships, collaborations, or other sources in order to meet the debt service obligations under our outstanding Pharmakon Senior Secured Notes, including repayment, and to carry out our planned development and commercial activities. We believe that our existing cash and cash equivalents will be sufficient to maintain the minimum cash balance required under our debt facility and to fund our operations for at least twelve months from the filing date of this Quarterly Report on Form 10-Q. Additional capital, secured in the future through equity or debt financings, partnerships, collaborations, or other sources, may not be available on a timely basis, on favorable terms, or at all, and such capital, if raised, may not be sufficient to meet our debt service obligations, including repayment, or enable us to continue to implement our long-term business strategy. If additional capital is not secured when required, we may need to delay or curtail our operations until such funding is received. If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected and we may need to delay or curtail our operations until such funding is received. Additionally, we may fail to satisfy our debt covenants, may never become profitable, or if we do, may not be able to sustain profitability on a recurring basis.
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Contractual obligations and commitments
The following table summarizes our contractual obligations at June 30, 2021:
TotalLess than 1 year1-3 years3-5 yearsMore than 5 years
(in thousands)
Operating leases(1)
$3,200 $1,286 $1,914 $— $— 
Long-term debt(2)
164,966 14,169 132,825 17,972 — 
  Total$168,166 $15,455 $134,739 $17,972 $— 
(1) Reflects obligations pursuant to our office leases in Yardley, Pennsylvania, Ewing, New Jersey and Oslo, Norway and leases of certain other equipment.

(2) Reflects principal, interest obligations and exit fees pursuant to the Pharmakon Senior Secured Notes entered into on September 12, 2019 (the Closing Date). The Pharmakon Senior Secured Notes bear interest at 10.75% and are scheduled to mature on September 12, 2024 (the Maturity Date). We are required to make quarterly interest payments until the Maturity Date. Principal payments are payable in eight equal quarterly installments beginning on December 15, 2022 and continuing until the Maturity Date; provided that we may, at our election and upon achieving certain trailing four-quarter consolidated XHANCE net sales and royalties, postpone any such amortization payment until the Maturity Date. The Pharmakon Senior Secured Notes include events of default customary for financings of this type (including, among others, failure to comply with affirmative, negative and financial covenants), in certain cases subject to customary periods to cure, following which BioPharma may accelerate all amounts outstanding under the notes.

We are also party to a manufacturing services agreement with one of our suppliers pursuant to which we are obligated to purchase a minimum number of products per month or potentially be subject to a payment of $5,000 per week for any month in which we do not purchase such minimum number of products.
Critical accounting policies
The Critical Accounting Policies and Significant Judgments and Estimates included in our annual report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on March 3, 2021, have not materially changed.
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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.
JOBS Act
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. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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.
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was 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 Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a 15(e) and 15d 15(e) under the Exchange Act, as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II
ITEM 5. OTHER INFORMATION
On August 11, 2021, the Company entered into an Open Market Sale AgreementSM (the Sale Agreement) with Jefferies LLC, as sales agent (Jefferies), under which the Company may issue and sell its Common Stock from time to time for an aggregate sales price of up to $50.0 million through Jefferies (the Shares).
The offer and sales of the Shares, if any, will be made under the Company’s registration statement on Form S-3 to be filed with the SEC on the date hereof (the Registration Statement), the base prospectus contained therein, and a prospectus supplement related to the offering of the Shares, also contained therein. No sales may be made under the Registration Statement until it has been declared effective by the SEC. Upon the SEC’s declaration of such effectiveness, the delivery of an issuance notice and subject to the terms and conditions of the Sale Agreement, sales of the Shares, if any, under the Sale Agreement will be made by any method that is deemed to be an “at the market” offering as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended (the Securities Act), including but not limited to sales made directly on or through The Nasdaq Global Select Market or any other existing trading market for the Shares. The Company has no obligation to sell any of the Shares and may at any time suspend offers under the Sale Agreement or terminate the Sale Agreement in accordance with the terms thereof.
The Company has agreed to pay Jefferies a commission rate of up to 3.0% of the gross proceeds of any Shares sold through Jefferies as sales agent under the Sale Agreement. The Company has also provided Jefferies with customary indemnification rights.
The information set forth in this Item 5 shall not constitute an offer to sell or the solicitation of any offer to buy the Shares, nor shall there be an offer, solicitation or sale of the Shares in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state.
This description of the Sale Agreement is not complete and is qualified in its entirety by reference to the full text of the Sale Agreement, a copy of which is attached hereto as Exhibit 10.1 and incorporated by reference herein.
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.
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INDEX TO EXHIBITS
Exhibit
Number
 Exhibit Description
3.1 
3.2 
10.1 *
31.1 *
31.2 *
32.1 *
32.2 *
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.

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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:August 11, 2021 By: /s/ KEITH A. GOLDAN
    Name: Keith A. Goldan
    Title: Chief Financial Officer
(Principal Financial and Accounting Officer)


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Document
Execution Version

OPEN MARKET SALE AGREEMENTSM
August 11, 2021
JEFFERIES LLC
520 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
OptiNose, Inc., a Delaware corporation (the “Company”), proposes, subject to the terms and conditions stated herein, to issue and sell from time to time through Jefferies LLC, as sales agent and/or principal (the “Agent”), shares of the Company’s common stock, par value $0.001 per share (the “Common Shares”), on the terms set forth in this agreement (this “Agreement”).
Section 1.DEFINITIONS
(a)Certain Definitions. For purposes of this Agreement, capitalized terms used herein and not otherwise defined shall have the following respective meanings:
Affiliate” of a Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first- mentioned Person. The term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
Agency Period” means the period commencing on the date of this Agreement and expiring on the earliest to occur of (x) the date on which the Agent shall have placed the Maximum Program Amount pursuant to this Agreement and (y) the date this Agreement is terminated pursuant to Section 7.
Commission” means the U.S. Securities and Exchange Commission.
Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder.
Floor Price Limitation” means the minimum price set by the Company in the Issuance Notice below which the Agent shall not sell Shares during the applicable period set forth in the Issuance Notice, which may be adjusted by the Company at any time during the period set forth in the Issuance Notice by delivering written notice of such change to the Agent and which in no event shall be less than $1.00 without the prior written consent of the Agent, which may be withheld in the Agent’s sole discretion.
Issuance Amount” means the aggregate Sales Price of the Shares to be sold by the Agent pursuant to any Issuance Notice.
SM “Open Market Sale Agreement” is a service mark of Jefferies LLC


Issuance Notice” means a written notice delivered to the Agent by the Company in accordance with this Agreement in the form attached hereto as Exhibit A that is executed by its Chief Executive Officer, President, Chief Financial Officer or Chief Legal Officer.
Issuance Notice Date” means any Trading Day during the Agency Period that an Issuance Notice is delivered pursuant to Section 3(b)(i).
Issuance Price” means the Sales Price less the Selling Commission.
Maximum Program Amount” means Common Shares with an aggregate Sales Price of the least of (a) the number or dollar amount of Common Shares registered under the effective Registration Statement (defined below) pursuant to which the offering is being made, (b) the number of authorized but unissued Common Shares (less Common Shares issuable upon exercise, conversion or exchange of any outstanding securities of the Company or otherwise reserved from the Company’s authorized capital stock), (c) the number or dollar amount of Common Shares permitted to be sold under Form S-3 (including General Instruction I.B.6 thereof, if applicable), and (d) the number or dollar amount of Common Shares for which the Company has filed a Prospectus (defined below).
Person” means an individual or a corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, governmental authority or other entity of any kind.
Principal Market” means The Nasdaq Global Select Market or such other national securities exchange on which the Common Shares, including any Shares, are then listed.
Rule 462(b) Registration Statement” means any registration statement filed by the Company pursuant to Rule 462(b) under the Securities Act in connection with the offer and sale of the Shares.
Sales Price” means the actual sale execution price of each Share placed by the Agent pursuant to this Agreement.
Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder.
Selling Commission” means up to three percent (3.0%) of the gross proceeds of Shares sold pursuant to this Agreement, or as otherwise agreed between the Company and the Agent with respect to any Shares sold pursuant to this Agreement.
Settlement Date” means the second business day following each Trading Day during the period set forth in the Issuance Notice on which Shares are sold pursuant to this Agreement, when the Company shall deliver to the Agent the amount of Shares sold on such Trading Day and the Agent shall deliver to the Company the Issuance Price received on such sales.
Shares” shall mean the Company’s Common Shares issued or issuable pursuant to this Agreement.

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Trading Day” means any day on which the Principal Market is open for trading.
Section 2.REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, the Agent that as of (1) the date of this Agreement, (2) each Issuance Notice Date, (3) each Settlement Date, (4) each Triggering Event Date with respect to which the Company is required to deliver a certificate pursuant to Section 4(o) and (5) as of each Time of Sale (each of the times referenced above is referred to herein as a “Representation Date”), except as may be disclosed in the Registration Statement or the Prospectus (including any documents incorporated by reference therein and any supplements thereto) on or before a Representation Date:
(a)Registration Statement. The Company has prepared and filed or will file with the Commission a shelf registration statement on Form S-3 that contains a base prospectus (the “Base Prospectus”). Such registration statement registers the issuance and sale by the Company of the Shares under the Securities Act. The Company may file one or more additional registration statements on Form S-3 from time to time that will contain a base prospectus (in which case all references herein to the Base Prospectus shall be to the base prospectus in such additional registration statement) and related prospectus or prospectus supplement, if applicable, with respect to the Shares. Except where the context otherwise requires, such registration statement(s), including any information deemed to be a part thereof pursuant to Rule 430B under the Securities Act, including all financial statements, exhibits and schedules thereto and all documents incorporated or deemed to be incorporated therein by reference pursuant to Item 12 of Form S-3 under the Securities Act as from time to time amended or supplemented, is herein referred to as the “Registration Statement,” and the Base Prospectus constituting a part of such registration statement(s), together with any prospectus supplement filed with the Commission pursuant to Rule 424(b) under the Securities Act relating to a particular issuance of the Shares, including all documents incorporated or deemed to be incorporated therein by reference pursuant to Item 12 of Form S-3 under the Securities Act, in each case, as from time to time amended or supplemented, is referred to herein as the “Prospectus,” except that if any revised prospectus is provided to the Agent by the Company for use in connection with the offering of the Shares that is not required to be filed by the Company pursuant to Rule 424(b) under the Securities Act, the term “Prospectus” shall refer to such revised prospectus from and after the time it is first provided to the Agent for such use. The Registration Statement at the time it originally becomes effective is herein called the “Original Registration Statement.” As used in this Agreement, the terms “amendment” or “supplement” when applied to the Registration Statement or the Prospectus shall be deemed to include the filing by the Company with the Commission of any document under the Exchange Act after the date hereof that is or is deemed to be incorporated therein by reference.
All references in this Agreement to financial statements and schedules and other information which is “contained,” “included” or “stated” in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in or otherwise deemed under the Securities Act to be a part of or

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included in the Registration Statement or the Prospectus, as the case may be, as of any specified date; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include, without limitation, the filing of any document under the Exchange Act which is or is deemed to be incorporated by reference in or otherwise deemed under the Securities Act to be a part of or included in the Registration Statement or the Prospectus, as the case may be, as of any specified date. The Company’s obligations under this Agreement to furnish, provide or deliver or make available (and all other reference of like import) copies of any report or statement shall be deemed satisfied if the same is filed with or furnished to the Commission through its Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”).
At the time the Original Registration Statement was or will be declared effective and at the time the Company’s most recent annual report on Form 10-K was filed with the Commission, if later, the Company met the then-applicable requirements for use of Form S-3 under the Securities Act. During the Agency Period, each time the Company files an annual report on Form 10-K the Company will meet the then-applicable requirements for use of Form S-3 under the Securities Act.
(b)Compliance with Registration Requirements. The Original Registration Statement and any Rule 462(b) Registration Statement have been or will be declared effective by the Commission under the Securities Act prior to the issuance and sale of Shares pursuant to this Agreement. The Company has complied or will comply, to the Commission’s satisfaction, with all requests of the Commission for additional or supplemental information, if any. No stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated or threatened by the Commission.
The Prospectus when filed complied or will comply in all material respects with the Securities Act and, if filed with the Commission by electronic transmission pursuant to EDGAR, was or will be identical (except as may be permitted by Regulation S-T under the Securities Act) to the copy thereof delivered to the Agent for use in connection with the issuance and sale of the Shares. Each of the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendment thereto, at the time it became or becomes effective and at each Representation Date, complied and will comply in all material respects with the Securities Act and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. As of the date of this Agreement, the Prospectus and any Free Writing Prospectus (as defined below) considered together (collectively, the “Time of Sale Information”) did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Prospectus, as amended or supplemented, as of its date and at each Representation Date, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties set forth in the three immediately preceding sentences do not apply to statements in or omissions from the

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Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment thereto, or the Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information relating to the Agent furnished to the Company in writing by the Agent expressly for use therein, it being understood and agreed that the only such information furnished by the Agent to the Company consists of the information described in Section 6 below. There are no contracts or other documents required to be described in the Prospectus or to be filed as exhibits to the Registration Statement which have not been described or filed as required. The Registration Statement and the offer and sale of the Shares as contemplated hereby meet the requirements of Rule 415 under the Securities Act and comply in all material respects with said rule.
(c)Ineligible Issuer Status. The Company is not an “ineligible issuer” in connection with the offering of the Shares pursuant to Rules 164, 405 and 433 under the Securities Act. Any Free Writing Prospectus that the Company is required to file pursuant to Rule 433(d) under the Securities Act has been, or will be, filed with the Commission in accordance with the requirements of the Securities Act. Each Free Writing Prospectus that the Company has filed, or is required to file, pursuant to Rule 433(d) under the Securities Act or that was prepared by or on behalf of or used or referred to by the Company complies or will comply in all material respects with the requirements of Rule 433 under the Securities Act, including timely filing with the Commission or retention where required and legending, and each such Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the issuance and sale of the Shares did not, does not and will not include any information that conflicted, conflicts with or will conflict with the information contained in the Registration Statement or the Prospectus, including any document incorporated by reference therein. The representations and warranties set forth in the immediately preceding sentence do not apply to statements made in reliance upon and in conformity with information relating to the Agent furnished to the Company in writing by the Agent expressly for use therein, it being understood and agreed that the only such information consists of the information described in Section 6 below. Except for the Free Writing Prospectuses, if any, and electronic road shows, if any, furnished to the Agent before first use, the Company has not prepared, used or referred to, and will not, without the Agent’s prior consent, which consent shall not be unreasonably withheld, conditioned or delayed, prepare, use or refer to, any Free Writing Prospectus.
(d)Incorporated Documents. The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, at the time they were filed with the Commission, complied in all material respects with the requirements of the Exchange Act, as applicable, and, when read together with the other information in the Prospectus, do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(e)Exchange Act Compliance. The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, and any Free Writing Prospectus or amendment or supplement thereto complied and will comply in all material respects with the requirements of the Exchange Act, and, when

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read together with the other information in the Prospectus, at the time the Registration Statement and any amendments thereto become effective and at each Time of Sale (as defined below), as the case may be, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(f)This Agreement. This Agreement has been duly authorized, executed and delivered by the Company.
(g)Authorization of the Shares. The Shares have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered by the Company against payment therefor pursuant to this Agreement, will be validly issued, fully paid and nonassessable, and the issuance and sale of the Shares is not subject to any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase the Shares.
(h)No Applicable Registration or Other Similar Rights. There are no persons with registration or other similar rights to have any equity or debt securities registered for sale under the Registration Statement or included in the offering contemplated by this Agreement, except for such rights as have been duly satisfied or waived.
(i)No Material Adverse Change. Except as otherwise disclosed or incorporated by reference in the Registration Statement and the Prospectus, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus: (i) there has been no material adverse change, or any development that would reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business, properties, operations, assets, liabilities or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, considered as one entity (any such change being referred to herein as a “Material Adverse Change”); (ii) the Company and its subsidiaries, considered as one entity, have not incurred any material liability or obligation, indirect, direct or contingent, including without limitation any losses or interference with their business from fire, explosion, flood, earthquakes, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute or court or governmental action, order or decree, that are material, individually or in the aggregate, to the Company and its subsidiaries, considered as one entity, and have not entered into any transactions not in the ordinary course of business; and (iii) there has not been any material decrease in the capital stock or any material increase in any short-term or long-term indebtedness of the Company or its subsidiaries and there has been no dividend or distribution of any kind declared, paid or made by the Company or any repurchase or redemption by the Company or any of its subsidiaries of any class of capital stock.
(j)Independent Accountants. To the knowledge of the Company, Ernst & Young LLP, which has expressed its opinion with respect to the financial statements (which term as used in this Agreement includes the related notes thereto) filed with the Commission as a part of the Registration Statement and the Prospectus, is (i) an independent registered public accounting firm as required by the Securities Act, the Exchange Act and the rules of the Public Company

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Accounting Oversight Board (“PCAOB”), (ii) in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X under the Securities Act and (iii) a registered public accounting firm as defined by the PCAOB whose registration has not been suspended or revoked and who has not requested such registration to be withdrawn.
(k)Financial Statements. The financial statements filed with the Commission as a part of, or incorporated by reference into, the Registration Statement and the Prospectus present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of the dates indicated and the results of their operations, changes in stockholders’ equity and cash flows for the periods specified. Such financial statements have been prepared in conformity with generally accepted accounting principles as applied in the United States on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto. No other financial statements or supporting schedules are required to be included in the Registration Statement or the Prospectus. The interactive data in eXtensible Business Reporting Language incorporated by reference into the Registration Statement fairly presents the information called for in all material respects and has been prepared in accordance with the Commission’s rules and guidelines applicable thereto. All disclosures contained or incorporated by reference in the Registration Statement or the Prospectus and any free writing prospectus, that constitute non-GAAP financial measures (as defined by the rules and regulations under the Securities Act and the Exchange Act) comply, in all material respects, with Regulation G under the Exchange Act and Item 10 of Regulation S-K under the Securities Act, as applicable. To the Company’s knowledge, no person who has been suspended or barred from being associated with a registered public accounting firm, or who has failed to comply with any sanction pursuant to Rule 5300 promulgated by the PCAOB, has participated in or otherwise aided the preparation of, or audited, the financial statements, supporting schedules or other financial data filed with the Commission as a part of the Registration Statement and the Prospectus.
(l)Company’s Accounting System. The Company and each of its subsidiaries make and keep books and records that are accurate in all material respects and maintain a system of internal accounting controls designed to, and which the Company believes is sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles as applied in the United States and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and (v) the interactive data in eXtensible Business Reporting Language included or incorporated by reference into the Registration Statement and the Prospectus fairly presents the information called for in all material respects and is prepared in accordance with the Commission’s rules and guidelines applicable thereto.
(m)Disclosure Controls and Procedures; Deficiencies in or Changes to Internal Control Over Financial Reporting. The Company has established and maintains disclosure

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controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Exchange Act), which (i) are designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the Exchange Act are being prepared; (ii) have been evaluated by management of the Company for effectiveness as of the end of the Company’s most recent fiscal quarter; and (iii) are effective in all material respects to perform the functions for which they were established. Since the end of the Company’s most recent audited fiscal year, there have been no significant deficiencies or material weakness in the Company’s internal control over financial reporting (whether or not remediated) and there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company is not aware of any change in its internal control over financial reporting that has occurred during its most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
(n)