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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, 2022
 
 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/fc5538cd1e349d3ce6409f094e88d0d3-optn-20220630_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 August 11, 2022 was 83,277,504 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®, XHANCE®, EDS® and EXHALATION DELIVERY SYSTEMTM are trademarks of ours in the United States. All other trademarks, trade names and service marks appearing in this Form 10-Q are the property of their respective owners. We do not intend our use or display of other companies' trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.


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NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements relating to:
the impact of, our plans regarding and the uncertainties caused by, the COVID-19 pandemic;
the potential uses for and advantages of XHANCE® and the Exhalation Delivery System (EDS) and related technologies;
our planned activities in pursuit of a follow-on indication for chronic sinusitis;
our plan to submit a supplemental new drug application for XHANCE to the U.S. Food and Drug Administration (FDA) by the end of 2022;
the potential for XHANCE to be the first product approved by the 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;
the potential for continued XHANCE prescription and net revenue growth and potential drivers of such growth;
the 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;
our ability to maintain sufficient inventory of XHANCE and for our manufacturers to timely supply XHANCE;
our expectation for XHANCE prescriptions to be impacted by the seasonality observed in the intranasal steroid (INS) market and the seasonal variation in patient visits with their doctor resulting in reduced XHANCE prescription demand in the third quarter;
our expectation for XHANCE prescriptions and average net revenue per prescription to be adversely impacted by the annual resetting of patient healthcare insurance plan deductibles and changes in individual patients' healthcare insurance coverage, both of which often occur in January;
our expectation that the research and development costs associated with the conduct of our chronic sinusitis program will significantly decrease;
our expectation that our GAAP operating expenses in 2022 will be between $129.0 million and $134.0 million and that our non-cash stock-based compensation expense will be approximately $9.0 million;
our expectation that XHANCE net product revenues for the full year of 2022 will be between $85.0 million and $92.0 million;
our expectation that the average net product revenue per prescription for XHANCE for the full year of 2022 will exceed $220;
our belief that our existing cash and cash equivalents will be sufficient to maintain the minimum cash balance required under the Note Purchase Agreement that we entered into with funds managed by Pharmakon Advisors,LP, the investment manager of the BioPharma Credit Funds (the Note Purchase Agreement) and to fund our operations for at least twelve months from the filing date of this Form 10-Q;

our ability to maintain compliance with the financial covenant to achieve certain minimum trailing twelve-month consolidated XHANCE net product sales and royalties and other provisions under the Note Purchase Agreement and the consequences of failing to do so;

our expectations and the accuracy of our estimates regarding our future expenses, revenue, capital requirements, potential sources of capital and consequences of failing to obtain additional capital;
1

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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,” “intend,” “plan,” “anticipate,” "target," “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” “scheduled” and similar expressions, although not all forward-looking statements contain these identifying words.
Forward-looking statements are based upon our current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other factors that could cause actual results to differ materially and adversely from those expressed or implied by such statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-Q and in our annual report on Form 10-K for the year ended December 31, 2021, 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.


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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, 2022December 31, 2021
 (unaudited)
Assets  
Current assets:  
Cash and cash equivalents$78,264 $110,502 
Accounts receivable, net25,766 35,449 
Inventory10,973 11,847 
Prepaid expenses and other current assets3,054 2,581 
Total current assets118,057 160,379 
Property and equipment, net1,063 1,347 
Other assets3,712 4,345 
Total assets$122,832 $166,071 
Liabilities and stockholders' deficit  
Current liabilities:  
Accounts payable$9,829 $8,013 
Accrued expenses and other current liabilities45,209 51,222 
Total current liabilities55,038 59,235 
Long-term debt, net127,483 126,418 
Other liabilities1,094 2,190 
Total liabilities183,615 187,843 
Stockholders' deficit:  
Common stock, $0.001 par value; 200,000,000 shares authorized at June 30, 2022 and December 31, 2021; 83,044,366 and 82,238,900 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
83 82 
Additional paid-in capital594,009 588,288 
Accumulated deficit(654,791)(610,061)
Accumulated other comprehensive loss(84)(81)
Total stockholders' deficit(60,783)(21,772)
Total liabilities and stockholders' deficit$122,832 $166,071 
See accompanying notes to unaudited interim consolidated financial statements
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OptiNose, Inc.
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2022 and 2021
(in thousands, except share and per share data)
(Unaudited)
 
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Revenues:
Net product revenues$20,582 $18,357 $35,342 $29,317 
Licensing revenues   1,000 
      Total revenues20,582 18,357 35,342 30,317 
Costs and expenses:
  Cost of product sales2,143 2,425 4,157 4,165 
Research and development4,270 8,179 9,072 13,404 
Selling, general and administrative29,514 27,308 58,853 54,493 
Total operating expenses35,927 37,912 72,082 72,062 
Loss from operations(15,345)(19,555)(36,740)(41,745)
Other (income) expense:
Interest income(36)(12)(170)(33)
Interest expense4,086 4,012 8,159 7,888 
Foreign currency (gains) losses2 14 1 22 
Gain on sale of equipment (67) (67)
Net loss$(19,397)$(23,502)$(44,730)$(49,555)
Net loss per share of common stock, basic and diluted$(0.23)$(0.44)$(0.54)$(0.93)
Weighted average common shares outstanding, basic and diluted82,740,096 53,120,574 82,594,786 53,059,492 
See accompanying notes to unaudited interim consolidated financial statements

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OptiNose, Inc.
Consolidated Statements of Comprehensive Loss
For the Three and Six Months Ended June 30, 2022 and 2021
(in thousands)
(Unaudited) 
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Net loss$(19,397)$(23,502)$(44,730)$(49,555)
Other comprehensive loss:
Foreign currency translation adjustment(2) (3)2 
Comprehensive loss$(19,399)$(23,502)$(44,733)$(49,553)
See accompanying notes to unaudited interim consolidated financial statements
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OptiNose, Inc.
Consolidated Statements of Changes in Stockholders' Deficit
(in thousands, except share data)
Six Months Ended June 30, 2022
Stockholders' Equity (Deficit)
Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity (Deficit)
SharesAmount
Balance at December 31, 202182,238,900 $82 $588,288 $(610,061)$(81)$(21,772)
Stock compensation expense— — 1,998 — — 1,998 
Vesting of restricted stock units262,942 — — — —  
Issuance of common stock under employee stock purchase plan179,206 1 249 — — 250 
Foreign currency translation adjustment— — — — (1)(1)
Net loss— — — (25,333)— (25,333)
Balance at March 31, 202282,681,048 $83 $590,535 $(635,394)$(82)$(44,858)
Stock compensation expense— — 3,474 — — 3,474 
Vesting of restricted stock units and exercise of options363,318 —  — —  
Foreign currency translation adjustment— — — — (2)(2)
Net loss— — — (19,397)— (19,397)
Balance at June 30, 202283,044,366 $83 $594,009 $(654,791)$(84)$(60,783)

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)

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, 2022 and 2021
(in thousands)
(Unaudited) 
 Six Months Ended
June 30,
 20222021
Operating activities: 
Net loss $(44,730)$(49,555)
Adjustments to reconcile net loss to cash used in operating activities: 
Depreciation and amortization256 324 
Stock-based compensation5,444 5,343 
Amortization of debt discount and issuance costs1,065 861 
Gain on sale of property and equipment (67)
Changes in operating assets and liabilities:  
Accounts receivable9,683 2,679 
Prepaid expenses and other assets446 451 
Inventory950 (4,218)
Accounts payable1,810 (1,900)
Accrued expenses and other liabilities(7,397)(4,436)
Cash used in operating activities(32,473)(50,518)
Investing activities:  
Purchases of property and equipment(50)(115)
Proceeds from sale of property and equipment 105 
Cash used in investing activities(50)(10)
Financing activities:  
Cash paid for financing costs27 (91)
Proceeds from issuance of common stock under employee stock purchase plan249 367 
Cash provided by financing activities276 276 
Effects of exchange rate changes on cash and cash equivalents3  
Net decrease in cash, cash equivalents and restricted cash(32,244)(50,252)
Cash, cash equivalents and restricted cash at beginning of period110,515 144,179 
Cash, cash equivalents and restricted cash at end of period$78,271 $93,927 
Supplemental disclosure of noncash activities:  
Fixed asset purchases within accounts payable and accrued expenses$18 $23 
Recognition of right-of-use assets$287 $157 
Recognition of lease liabilities$287 $157 
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. During 2022, the Company’s board of directors approved the liquidation of Optinose AS and Optinose UK in order to simplify corporate structure.

The Company is a specialty pharmaceutical company focused on the development and commercialization of products for patients treated by ear, nose and throat (ENT) and allergy specialists. The Company's first commercial product, XHANCE® (fluticasone propionate) nasal spray, 93 mcg, is a therapeutic utilizing its proprietary Exhalation Delivery System (EDS) that delivers a topically-acting corticosteroid for the treatment of chronic rhinosinusitis with nasal polyps and, if approved, chronic rhinosinusitis without nasal polyps (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, 2022, the Company had cash and cash equivalents of $78,264. For the six months ended June 30, 2022, the Company had a net loss of $44,730 and negative cash from operations of $32,473. As of June 30, 2022, the Company had an accumulated deficit of $654,791.
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 obtained 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, 2022 and its results of operations for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 2022 and 2021. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The unaudited interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
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, 2021 contained in the Company’s annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 8, 2022.
Use of estimates
The preparation of the unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and reported amounts of expenses during the reporting period. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the unaudited interim consolidated financial statements, actual results may materially vary from these estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the unaudited interim consolidated financial statements in the period they are determined to be necessary.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivable. The Company generally invests its cash in deposits with high credit quality financial institutions. Additionally, the Company performs periodic evaluations of the relative credit standing of these financial institutions.
Customer and supplier concentration
The Company has exposure to credit risk in accounts receivable from sales of product. XHANCE is sold to wholesale pharmaceutical distributors and preferred pharmacy network (PPN) partners, who, in turn, sell XHANCE to pharmacies, hospitals and other customers. Five customers represented approximately 40% of the Company's accounts receivable at June 30, 2022 and five customers represented approximately 26% and 29% of the Company's net product sales for the three and six months ended June 30, 2022.
The Company purchases XHANCE and its components from several third-party suppliers and manufacturing partners, certain of which are available through a single source. Although the Company could obtain each of these components from alternative third-party suppliers, it would need to qualify and obtain FDA approval for another supplier as a source for each such component. The Company has initiated the process of qualifying an alternate third-party supplier for select components of XHANCE. Alternate third party suppliers of XHANCE components are subject to qualification and approval from the FDA.
Fair value of financial instruments
At June 30, 2022 and December 31, 2021, 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, 2022, 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, 2022 and December 31, 2021, there were no financial assets or liabilities measured at fair value on a recurring basis.
Restricted cash
As of June 30, 2022 and December 31, 2021, the restricted cash balance included in prepaid expenses and other assets was $7 and $13, 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
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
sales at the point customers obtain control of the product, which generally occurs upon delivery. The transaction price that is recognized as revenue for products includes an estimate of variable consideration. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available. The components of the Company’s variable consideration include the following:
Provider Chargebacks and Discounts. Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to customers who directly purchase the product from the Company. Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers. These components of variable consideration are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable.
Trade Discounts and Allowances. The Company generally provides customers with discounts that include incentive fees which are explicitly stated in the Company’s contracts. These discounts are recorded as a reduction of revenue and accounts receivable in the period in which the related product revenue is recognized.
Product Returns. Consistent with industry practice, the Company has a product returns policy that provides customers a right of return for product purchased within a specified period prior to and subsequent to the product’s expiration date. The Company estimates the amount of its product that may be returned and presents this amount as a reduction of revenue in the period the related product revenue is recognized, in addition to establishing a liability. The Company considers several factors in the estimation process, including expiration dates of product shipped to customers, inventory levels within the distribution channel, product shelf life, prescription trends and other relevant factors.
Government Rebates. The Company is subject to discount obligations under state Medicaid programs and Medicare. Reserves related to these discount obligations are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability. The Company’s liability for these rebates consists of estimates of claims for the current quarter and estimated future claims that will be made for product that has been recognized as revenue but remains in the distribution channel inventories at the end of the reporting period.
Payor Rebates. The Company contracts with certain third-party payors, primarily health insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its products. These rebates are based on contractual percentages applied to the amount of product prescribed to patients who are covered by the plan or the organization with which it contracts. The Company estimates these rebates and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability.
Patient Assistance. Other programs that the Company offers include voluntary co-pay patient assistance programs intended to provide financial assistance to eligible patients with prescription drug co-payments required by payors and coupon programs for cash payors. The calculation of the current liability for this assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product that has been recognized as revenue but remains in the distribution channel inventories at the end of each reporting period.
Distribution and Other Fees. The Company pays distribution and other fees to certain customers in connection with the sales of its products. The Company records distribution and other fees paid to its customers as a reduction of revenue, unless the payment is for a distinct good or service from the customer and the Company can reasonably estimate the fair value of the goods or services received. If both conditions are met, the Company records the consideration paid to the customer as an operating expense. These costs are typically known at the time of sale, resulting in minimal adjustments subsequent to the period of sale.
Licensing revenues
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements (Continued)
(in thousands, except share and per share data)
The Company has license agreements with Centessa Pharmaceuticals (Centessa) 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 is not eligible to receive any further payments under the Currax license agreement other than reimbursement for certain expenses. The Company does not expect to any receive license revenues under the Centessa agreement in the near term.
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, 2022 and 2021, the outstanding Common Stock options, Restricted Stock units, Common Stock warrants and shares to be issued under the Company's 2017 Employee Stock Purchase Plan have been excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Therefore, the weighted average shares used to calculate both basic and diluted net 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,
 20222021
Stock options10,235,914 7,980,424 
Restricted stock units2,201,683 2,198,766 
Common stock warrants2,500,000 810,357 
Employee stock purchase plan208,138  
Total15,145,735 10,989,547 
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, 2022 and 2021, the Company recorded no tax expense or benefit due to the expected current year loss and its historical losses. As of June 30, 2022 and December 31, 2021, the Company concluded that a full valuation allowance would be necessary for all of its net deferred tax assets. The Company had no amounts recorded for uncertain tax positions, interest or penalties in the accompanying consolidated financial statements.


4. Inventory
Inventory consisted of the following:
June 30, 2022December 31, 2021
Raw materials$2,508 $3,504 
Work-in-process5,989 4,816 
Finished goods2,476 3,527 
  Total inventory$10,973 $11,847 
Inventories are stated at the lower of cost or net realizable value, as determined on a first-in, first-out, basis.
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

5. Property and Equipment
Property and equipment, net, consisted of the following:
 June 30, 2022December 31, 2021
Computer equipment and software$1,199 $1,173 
Furniture and fixtures366 366 
Machinery and equipment3,061 3,367 
Leasehold improvements609 609 
Construction in process115 115 
5,350 5,630 
Less: accumulated depreciation(4,287)(4,283)
$1,063 $1,347 
Depreciation expense was $137 and $119 for the three months ended June 30, 2022 and 2021, respectively. Depreciation expense was $255 and $323 for the six months ended June 30, 2022 and 2021, respectively. In addition, depreciation expense of $651 and $10 was charged to inventory and prepaid expenses and other assets, respectively, as of June 30, 2022, which represents depreciation expense related to equipment involved in the manufacturing process.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of:
 June 30, 2022December 31, 2021
Accrued expenses:
   Selling, general and administrative expenses$7,016 $6,124 
   Research and development expenses3,086 6,857 
   Payroll expenses7,332 7,569 
   Product revenue allowances23,126 26,521 
   Other2,293 2,057 
      Total accrued expenses42,853 49,128 
Other current liabilities:
   Lease liability2,356 2,094 
      Total other current liabilities2,356 2,094 
      Total accrued expenses and other current liabilities$45,209 $51,222 

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 is no longer 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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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

8. Long-term Debt
On September 12, 2019 (the Closing Date), the Company entered into a Note Purchase Agreement with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of BioPharma Credit Funds (BioPharma). The Note Purchase Agreement provided the Issuer with $130,000 in debt financing, of which $80,000 of Pharmakon Senior Secured Notes was issued on the Closing Date, $30,000 was issued on February 13, 2020 after achieving the $9,000 consolidated XHANCE net sales and royalties threshold for the quarter ended December 31, 2019 and $20,000 was issued on December 1, 2020 after achieving the $14,500 consolidated XHANCE net sales and royalties threshold for the quarter ended September 30, 2020.
The Pharmakon Senior Secured Notes bear interest at a fixed rate of 10.75% per annum and are scheduled to mature on September 12, 2024 (the Maturity Date). Principal repayments will commence on September 15, 2023, with five equal quarterly installments of principal and interest through the Maturity Date.
The Issuer 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 Issuer 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 prepayments (whether mandatory or voluntary) made prior to the 30-month anniversary of the closing of the Company's underwritten public offering on November 18, 2021, 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 prepayment, provided that in the case of any prepayment made prior to the 15-month anniversary, the Company will not be required to pay a "make-whole" amount in excess of an amount equal to the interest that would have accrued through the 15-month anniversary but for such principal prepayment.
The Pharmakon Senior Secured Notes are secured by a pledge of substantially all of the assets of the Issuer and the Guarantors 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 Note Purchase Agreement contains 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, 2022, 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 Pharmakon Senior Secured Notes.
The Company recorded interest expense of $4,086 and $4,012 during the three months ended June 30, 2022 and 2021, respectively, and $8,159 and $7,888 during the six months ended June 30, 2022 and 2021, respectively. Interest expense included total coupon interest and the amortization of debt issuance costs.
The long-term debt balance is comprised of the following:
June 30, 2022December 31, 2021
Face amount$130,000 $130,000 
Front end fees(559)(717)
Debt issuance costs(3,258)(4,165)
Back end fees1,300 1,300 
Long-term debt, net$127,483 $126,418 
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)


9. Employee Benefit Plans
For US employees, the Company maintains a defined contribution 401(k) retirement plan. As of June 30, 2022, $91 was recorded in accrued liabilities related to the Company match. The Company's contributions are made in cash.
For foreign employees, the Company maintains a defined contribution pension plan which meets the statutory requirements of the jurisdiction. The Company incurred costs related to the pension plan of $2 and $1 for the three months ended June 30, 2022 and 2021, respectively, and $3 and $3 for the six months ended June 30, 2022 and 2021, respectively.

10. Stockholders' Equity
Common stock warrants
On November 18, 2021, in conjunction with the Second Amendment to the Note Purchase Agreement (the Second Amendment), the Company issued warrants to purchase an aggregate of 2,500,000 shares of Common Stock at an exercise price of $1.60 and fair value of $2,009. Upon execution of the Second Amendment, warrants previously issued of 810,357 at a share price of $6.72 which were set to expire on September 12, 2022, were cancelled.
As of June 30, 2022, the Company had the following warrants outstanding to purchase shares of Common Stock:
Number of SharesExercise Price Per ShareExpiration Date
2,500,000$1.60November 18, 2024


11. Stock-based Compensation
The Company recorded stock-based compensation expense related to stock options and shares issued under the Company's 2010 Stock Incentive Plan and 2017 Employee Stock Purchase Plan (2017 Plan) in the following expense categories of its accompanying consolidated statements of operations for the three and six months ended June 30, 2022 and 2021:
Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Cost of product sales$7 $6 $20 $17 
Research and development233 286 429 567 
General and administrative3,204 2,441 4,995 4,759 
$3,444 $2,733 $5,444 $5,343 
In addition, stock-based compensation expense of $85 and $1 was charged to inventory and prepaid expenses and other assets, respectively, during the six months ended June 30, 2022, 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, performance-based, and market-based stock options that generally have a contractual life of up to 10 years and may be exercisable in cash or as otherwise determined by the Company's board of directors or committee thereof. Vesting generally occurs over a period of not greater than four years. Performance-based options may vest upon the achievement of certain milestones. As of June 30, 2022, all of the performance conditions related to performance-based stock options issued by the Company had been achieved. Market-based options may vest upon the achievement of certain market-based objectives relating to the trading price of the Common Stock.
The following table summarizes the activity related to stock option grants to employees and non-employees for the six months ended June 30, 2022:
 SharesWeighted
average
exercise price
per share
Weighted
average
remaining
contractual life
Outstanding at December 31, 20217,958,781 $8.87 6.50
Granted2,902,370 1.88 
Exercised(67,125)1.63 
Expired(135,983)8.89 
Forfeited(422,129)3.86
Outstanding at June 30, 202210,235,914 $7.65 6.62
Exercisable at June 30, 20225,819,746 $10.37 5.26
Vested and expected to vest at June 30, 20229,342,884 $7.65 6.62
During the six months ended June 30, 2022, stock options to purchase 2,902,370 shares of Common Stock were granted to employees and generally vest over four years. Included in the total stock options granted were market-based options to purchase 959,215 shares of Common Stock. The stock options, including the market-based options, had an estimated weighted average grant date fair value of $1.19. During the six months ended June 30, 2021, stock options to purchase 1,542,696 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 $2.29.
The grant date fair value of each stock option grant, other than market-based stock option grants, 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,
20222021
Risk free interest rate1.82 %1.00 %
Expected term (in years)6.086.08
Expected volatility72.67 %74.28 %
Annual dividend yield0.00 %0.00 %
Fair value of common stock$1.90 $3.52 
At June 30, 2022, the unrecognized compensation cost related to unvested stock options, other than market-based stock options, expected to vest was $6,655. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2.28 years.
During the six months ended June 30, 2022, market-based options to purchase 959,215 shares of Common Stock were granted to employees and generally become eligible to vest over four years, subject to the achievement of certain market-based objectives relating to the trading price of the Common Stock. Stock based compensation for these awards is recognized over the derived service period of approximately 2 years. The grant date fair value of
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

each stock option grant, as well as the derived service period for these awards, was estimated at the time of grant using a Monte Carlo simulation based on the following assumptions:
Six Months Ended
June 30,
2022
Risk free rates of return1.70 %
Expected volatility75.00 %
Annual dividend yield %
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, 2022:
 Shares
Outstanding at December 31, 20211,959,358 
Granted1,105,246 
Vested and settled(598,775)
Expired/forfeited/canceled(264,146)
Outstanding at June 30, 20222,201,683 
Expected to vest at June 30, 20222,201,683 
During the six months ended June 30, 2022, the Company granted 1,105,246 RSUs at a grant date fair value of $1.85, all of which were service-based RSUs. No performance-based RSUs were granted in 2022. As of June 30, 2022, one of the milestones associated with the previously granted performance based-RSUs was achieved. As a result 248,830 RSUs vested on June 15, 2022 and stock based compensation expense of $1,346 was recognized for these awards. At June 30, 2022, the unrecognized compensation cost related to unvested service-based RSUs expected to vest was $5,041, to be recognized over an estimated weighted-average amortization period of 2.63 years. The unrecognized compensation cost related to unvested performance-based RSUs was $1,749, which will be recognized over the remaining service period.
Included in the table above are 60,000 RSUs granted outside the A&R Plan. The grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq Listing Rule 5635(c)(4).
2017 Employee Stock Purchase Plan
Under the 2017 Plan, shares of Common Stock may be purchased by eligible employees who elect to participate in the 2017 Plan at 85% of the lower of the fair market value of Common Stock on the first or last day of designated offering periods. The Company recognized stock-based compensation expense of $74 and $91 during the three months ended June 30, 2022 and 2021, respectively, and $162 and $199 during the six months ended June 30, 2022 and 2021, respectively, related to the 2017 Plan.
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OptiNose, Inc.
Notes to Unaudited Interim Consolidated Financial Statements
(in thousands, except share and per share data)

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,
20222021
Risk free interest rate0.22 %0.09 %
Expected term (in years)0.50.5
Expected volatility88.56 %86.88 %
Annual dividend yield0.00 %0.00 %

15. Subsequent Events
On August 10, 2022, the Company entered into a Third Amendment to the Note Purchase Agreement (the Third Amendment). The Third Amendment reduced the minimum consolidated XHANCE net sales and royalties required to be achieved under the Note Purchase Agreement for the trailing twelve-month period ending December 31, 2022 from $90,000 to $85,000 in exchange for a $780 fee due on the repayment of the Pharmakon Senior Secured Notes.

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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, 2021, filed with the Securities and Exchange Commission (SEC) on March 8, 2022. In addition to historical information, some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in or implied by such forward-looking statements. Please refer to the "Note Regarding Forward-Looking Statements" section of this Form 10-Q for additional information.
Company Overview
We are a specialty pharmaceutical company focused on the development and commercialization of products for patients treated by ear, nose and throat (ENT) and allergy specialists. Our first commercial product, XHANCE® (fluticasone propionate) nasal spray, 93 micrograms (mcg), is a therapeutic utilizing our proprietary Exhalation Delivery System (EDS) that delivers a topically-acting corticosteroid for the treatment of chronic rhinosinusitis with nasal polyps and, if approved, chronic rhinosinusitis without nasal polyps (also known 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 U.S. Food and Drug Administration (FDA) approved XHANCE for the treatment of nasal polyps in patients 18 years of age or older. XHANCE was made widely available through commercial channels in April 2018.
We have completed two Phase 3b clinical trials of XHANCE for a follow-on indication for the treatment of chronic sinusitis. Positive top-line results from the trials were announced in March and June 2022. Based on the results of these trials, XHANCE has the potential to be the first drug therapy approved by the FDA for the treatment of chronic sinusitis. We plan to submit a supplemental new drug application for XHANCE to the U.S. Food and Drug Administration (FDA) by the end of 2022.
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.
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. We are currently operating under a hybrid-model for our office-based employees which includes a mix of in-office and work-from-home days.
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.
Although XHANCE prescriptions have grown since the start of the pandemic, the rate of growth was below our pre-pandemic expectations. The duration and magnitude of the impact of the COVID-19 pandemic on XHANCE prescriptions and XHANCE net revenue remains uncertain and it has and could in the future continue to affect our ability to remain in compliance with the financial covenant to achieve certain minimum trailing twelve month consolidated XHANCE net product sales and royalties and other covenants under that certain Note Purchase Agreement dated as of September 12, 2019 that we entered into with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of the BioPharma Credit Funds (BioPharma), as amended pursuant to that certain letter agreement dated as of August 13, 2020, as further amended by that certain First Amendment to Note Purchase Agreement dated as of March 2, 2021, as further amended pursuant to that certain Second Amendment to Note Purchase Agreement dated as of
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November 16, 2021, and as further amended pursuant to that certain Third Amendment dated as of August 10, 2022 (as so amended, the Note Purchase Agreement).
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.
For subjects participating in our two chronic sinusitis trials, procedures to facilitate ongoing treatment and capture of data during periods of in-person care restrictions were put in place. Pauses in patient enrollment due to factors related to the COVID-19 pandemic had varying effects in different geographies resulted in delays and additional costs associated with our chronic sinusitis trials.
The full impact of the COVID-19 pandemic on our business is still unknown. It is likely to continue to have adverse impacts on XHANCE prescription growth and net revenues as a result of fewer patients visiting physician offices, restrictions imposed by some physician offices relating to territory managers' visits, changes in employment that can adversely affect availability of insurance coverage of XHANCE, our ability to maintain compliance with the financial and other covenants under the Note Purchase Agreement, 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 2022 was 87,600, which represents 6% growth for prescriptions when compared to estimated second quarter 2021 prescriptions of 82,900. The INS prescription market increased 4% from second quarter 2021 to second quarter 2022 based on third-party prescription data. In addition, the total estimated number of XHANCE prescriptions was 86,300 in the third quarter of 2021, 93,700 in the fourth quarter of 2021, and 80,600 in the first quarter of 2022. The decrease of prescriptions from fourth quarter 2021 to first quarter 2022 was primarily driven by changes to our co-pay assistance program in January 2022 intended to increase average net revenue per prescription by decreasing the proportion of prescriptions filled by patients with insurance coverage that required co-pays above a target threshold as well as by seasonal factors as described below.
A seasonal effect has historically been observed in the INS prescription market in which market volume generally peaks near the middle of the second quarter and declines into the early part of the third quarter of each calendar year. Based on third-party prescription data, INS market prescriptions decreased 4% from fourth quarter 2020 to the first quarter of 2021, increased 14% from the first quarter of 2021 to the second quarter of 2021, decreased 4% from the second quarter of 2021 to the third quarter of 2021, increased 1% from the third quarter 2021 to the fourth quarter 2021, were flat from the fourth quarter of 2021 to the first quarter of 2022, and increased 7% from the first quarter of 2022 to the second quarter 2022. In addition, based on third-party prescription data, INS market prescriptions were flat from full year 2020 to full year 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 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 21,000 physicians. Our target physician audience includes all ENT and Allergy specialist physicians who, based on third-party data, write intranasal steroid
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spray prescriptions. In addition, our current target audience includes specialty-like primary care physicians called on by our 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 21,000 physicians of 4.8% in the fourth quarter of 2020, 5.0% in the first quarter of 2021, 5.2% in the second quarter of 2021, 5.7% in the third quarter of 2021, 5.9% in the fourth quarter of 2021, 5.4% in the first quarter of 2022, and 5.6% in the second quarter of 2022 . 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 2022 was 29,200, which represents 1% growth for new prescriptions when compared to estimated second quarter 2021 new prescriptions of 29,000. In addition, the total estimated number of XHANCE new prescriptions was 27,900 in the third quarter of 2021, 29,900 in the fourth quarter of 2021, and 28,200 in the first quarter of 2022. Based on third-party prescription data, the INS market for new prescriptions increased 8% from the second quarter of 2021 to the second quarter of 2022 and increased 7% from the first quarter of 2022 to the second quarter of 2022.
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 2022 was 58,400, which represents 8% growth for refill prescriptions when compared to estimated second quarter 2021 refill prescriptions of 53,900. In addition, the total estimated number of XHANCE refill prescriptions was 58,400 in the third quarter of 2021, 63,800 in the fourth quarter of 2021, and 52,400 in the first quarter of 2022.
Prescribing Breadth and Depth. We track the number of physicians who prescribe XHANCE in a time period to evaluate the breadth of prescribing. Based on third-party 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 2022 was 7,600, which represents 6% growth when compared to the estimated 7,188 physicians who had at least one patient fill a prescription for XHANCE in the second quarter of 2021. In addition, the total estimated number of physicians who had at least one patient fill a prescription for XHANCE was 7,196 in the third quarter of 2021, 7,532 in the fourth quarter of 2021, and 7,690 in the first quarter of 2022.
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 2022 was 1,550, which represents 10% growth when compared to the estimated 1,414 physicians who had more than 15 XHANCE prescriptions filled by their patients in the second quarter of 2021. In addition, the total estimated number of physicians who had more than 15 XHANCE prescriptions filled by their patients was 1,459 in the third quarter of 2021, 1,589 in the fourth quarter of 2021, and 1,468 in the first quarter of 2022.
XHANCE Net Product Revenues per Prescription. We calculate average net product revenues per prescription, one metric that we use to gauge the profitability of XHANCE, by dividing net product revenues for the quarter by the estimated number of XHANCE prescriptions dispensed during the quarter. Average XHANCE net product revenues per prescription were $235 in the second quarter of 2022 which represents an approximately 6% increase when compared to the $221 average XHANCE net product revenues per prescription in the second quarter of 2021. This increase was primarily driven by changes to our co-pay assistance program in January 2022 intended to increase average net revenue per prescription by decreasing the proportion of prescriptions filled by patients with insurance coverage that required co-pays
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above a target threshold. In addition, average XHANCE net revenues per prescription were $253 in the third quarter of 2021, $240 in the fourth quarter of 2021, and $183 in the first quarter of 2022. Average XHANCE net product revenues per prescription were $210 for the six months ended June 30, 2022 which represents an approximately 12% increase when compared to the $188 average XHANCE net product revenues per prescription for the six months ended June 30, 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 90 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. Our sales team is equipped with educational materials demonstrating the benefit and safety profile of XHANCE. 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. 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 support. This program provides patient co-pay assistance to eligible commercially insured patients. These patients may obtain XHANCE for as little as $0 out-of-pocket.

Market Access.  Based on currently available third-party data and our internal analyses as of July 31, 2022, we believe that approximately 80% 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 physician attest that they are treating a patient for an approved indication prior to becoming eligible for coverage for XHANCE. We estimate that approximately half of the commercially covered lives as of July 31, 2022 are in a plan that requires a prior authorization and most of those prior authorizations request information regarding prior use of INS and a patient diagnosis of nasal polyps. In some cases, patients do not meet the payors' utilization management criteria, and in other cases, 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 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.
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 in the U.S. 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, ReOpen1, was initiated in the fourth quarter of 2018, completed enrollment of approximately 330 chronic sinusitis patients with and without nasal polyps in July of 2021. The second trial, ReOpen2, was initiated in the second quarter of 2019 and completed enrollment of approximately 220 chronic sinusitis patients without nasal
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polyps in October of 2021. We announced positive top-line results for ReOpen1 and ReOpen2 in March and June 2022, respectively.

ReOpen 1

Top-line results from ReOpen1 were summarized in our Form 10-Q for the quarterly period ended March 31, 2022, filed with the Securities and Exchange Commission on May 12, 2022.

ReOpen2

ReOpen2 was a randomized double-blinded, placebo controlled Phase 3 clinical trial examining the safety and efficacy of XHANCE versus a placebo Exhalation Delivery System (which we refer to as placebo EDS) in adults with chronic sinusitis with or without nasal polyps. This clinical trial (which we refer to as ReOpen2) is intended to serve as the second of two pivotal clinical trials we intend to submit to the FDA in a future supplemental NDA for XHANCE for the treatment of adults with chronic sinusitis. This clinical trial was conducted in the United States, Australia, Bulgaria, Czechia, New Zealand, Poland, Romania, Spain, The Republic of Georgia and the United Kingdom.

Top-line results from ReOpen2 are summarized below.

Study Design

The clinical trial included a single-blind EDS-placebo lead-in and a EDS-placebo control group, a multi-center, multi-national study population to increase generalizability and an assessment of the safety and efficacy of multiple doses (186 or 372 mcg twice daily) over a 24-week period. A total of 222 adult subjects were enrolled in this study.

Placebo EDS
(N=110)
OPN-375 186 µg
(N=110)
OPN-375 372 µg
(N=107)
Full Analysis Set757374
Completed Study697071
Subjects Discontinuing Early633

ReOpen2 had co-primary endpoints of (i) change in a composite score of nasal congestion/obstruction symptoms, nasal discharge, and facial pain and pressure from baseline to week, and (ii) change in average percent of opacified volume of the ethmoid and maxillary sinuses from baseline to week 24. The severity of nasal symptoms was recorded by patients in an electronic diary immediately before dosing in the morning (AM) and evening (PM), and was measured using 7-day average instantaneous AM diary scores. Each symptom was scored from 0-3. The volume of the ethmoid and maxillary sinuses occupied by disease was assessed using computer-assisted assessment of CT scans to determine the percentage (0-100%) of the sinus cavity space summed across all ethmoid and maxillary sinuses that was opacified. CT scans were performed at screening and at Week 24.
This trial also evaluated several secondary endpoints, including the proportion of patients with acute disease exacerbations and their time to exacerbation and the Sinonasal Outcome Test-22 score, which considers the core defining signs and symptoms of chronic sinusitis and the impact on functioning, quality of life and sleep.

Top-Line Efficacy Results

The 186- and 372-mcg treatment groups achieved statistically significant reductions in the primary assessments of composite symptom scores at week 4 and reductions in the opacified volume of the maxillary and ethmoid sinuses on CT scans at week 24 relative to a placebo EDS.

The following table summarizes the mean change in composite symptom scores (or CSS) from baseline to week 4 and the change in the percent of opacified volume (or APOV) of the ethmoid and maxillary sinuses from baseline to week 24.

Difference from Placebo EDS
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TreatmentnBaseline Score (Standard Deviation)Mean (Standard Error) Change from BaselineMean95% confidence intervalP-value (1)
Change in CSS from Baseline to Week 4
XHANCE 372 mcg745.97 (1.59)-1.74 (0.20)-0.93-1.49, -0.370.001
XHANCE 186 mcg735.87 (1.48)-1.54 (0.20)-0.73-1.29, -0.170.011
Placebo EDS756.15 (1.77)-0.81 (0.20)---
Change in APOV in the Ethmoid and Maxillary Sinuses from Baseline to Week 24
XHANCE 372 mcg7461.50 (18.46)-5.14 (1.74)-6.33-11.08, -1.580.009
XHANCE 186 mcg7360.51 (19.37)-7.00 (1.73)-8.19-12.93, -3.45<0.001
Placebo EDS7564.09 (17.74)+1.19 (1.74)---
1 - The p-value, or probability value, is a measure of statistical significance reflecting the likelihood that an observed result occurred by chance.

Top-Line Safety Results

XHANCE was well tolerated across the 186- and 372-mcg dose groups and the safety profile in this trial was generally consistent with the safety profile contained in XHANCE’s currently approved label. No serious adverse events were reported in ReOpen2. The table below summarizes adverse events that occurred at a rate of more than 3% with XHANCE and more common than the placebo EDS in this trial.

Summary of Adverse Events with XHANCE Reported in ≥ 3%
and More Common Than Placebo EDS in ReOpen2
Adverse Event (AE)Placebo EDS BID
(N =75)
n (%)
XHANCE 186 mcg BID
(N =73)
n (%)
XHANCE 372 mcg BID
(N =74)
n (%)
COVID-192 (2.7)3 (4.1)7 (9.5)
Epistaxis04 (5.5)7 (9.5)
Headache6 (8.0)2 (2.7)7 (9.5)
Depression1 (1.3)03 (4.1)


Pooled Results from the ReOpen Program
In July 2022, we announced selected pooled results from the ReOpen program. First, to inform possible differences in response of patients previously using a standard nasal steroid spray, a pre-planned analysis of pooled data assessed symptom improvement for patients entering the trials with at least moderate symptoms despite reporting use of a standard nasal steroid spray. For this subgroup, patients receiving XHANCE improved more from baseline than patients receiving placebo comparator. Second, a pooled analysis was performed to assess change in CT scans, measured by APOV at week 24, for the subgroup of patients receiving XHANCE who had chronic sinusitis without nasal polyps. Compared to patients treated with placebo comparator, XHANCE treatment produced greater reduction in sinus opacification in this subgroup. Differences between active and placebo in 186 mcg or 372 mcg XHANCE treatment groups were similar and nominally statistically significant. Finally, an analysis of pooled data found that the 372 mcg treatment group achieved a type 1 error controlled statistically significant reduction of 66% in the incidence of exacerbations compared to placebo comparator. Reductions in the number of exacerbations, ranging from 53 to 80%, were found for subgroups of chronic sinusitis patients with or without nasal polyps in the 186 mcg or 372 mcg XHANCE treatment groups in additional pre-planned exploratory analyses that were not type 1 error controlled. Exacerbations were defined as a worsening of at least one of the four cardinal symptoms of chronic sinusitis (nasal congestion/obstruction, rhinorrhea, facial pain/pressure, and loss of sense of smell) lasting at least 3 days accompanied by an escalation in medical care, such as doctor visits or antibiotic or steroid prescription.
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In addition, we completed an analysis of mean change in APOV by Patient-Reported Global Change Score (PGIC). The PGIC is a 7-point Likert scale on which the subject directly reports their perceived overall change in disease since initiating study medication.
The following three tables summarize these results.
Difference from Placebo EDS
TreatmentnBaseline ScoreLS Mean Change from BaselineLS MeanNominal
P-value (1)
Change in Symptoms in Prior Nasal Steroid Users from Baseline to Week 4 (Pooled)
XHANCE 186 or 372 mcg1725.63-1.46-0.7<0.001
Placebo EDS1085.84-0.77--
Change in APOV in CS Patients without Nasal Polyps from Baseline to Week 24 (Pooled)
XHANCE 186 or 372 mcg22561.33-6.31-4.760.004
XHANCE 372 mcg11261.26-6.5-4.950.01
XHANCE 186 mcg11361.4-6.12-4.570.019
Placebo EDS11663.32-1.55--

Treatment GroupnEventsLS MeanIncidence Rate Ratio (Active/PBO)
P-value (1)
Frequency of Exacerbations over 24 Weeks (Full Analysis Set/All Patients)
XHANCE 186 or 372 mcg362350.0810.3890.001
XHANCE 372 mcg180150.0720.343
0.002(2)
XHANCE 186 mcg182200.0920.4410.012
Placebo EDS185410.208--
Frequency of Exacerbations over 24 Weeks (Patients with Nasal Polyps)
XHANCE 186 or 372 mcg137120.0520.2760.005
XHANCE 372 mcg6840.0380.2030.01
XHANCE 186 mcg6980.070.3760.055
Placebo EDS69170.187--
Frequency of Exacerbations over 24 Weeks (Patients without Nasal Polyps)
XHANCE 186 or 372 mcg225230.1130.4720.032
XHANCE 372 mcg112110.1130.470.077
XHANCE 186 mcg113120.1130.4740.076
Placebo EDS116240.239--
1.The p-value, or probability value, is a measure of statistical significance reflecting the likelihood that an observed result occurred by chance and compares the indicated group to the relevant placebo EDS group. Unless otherwise noted, all p-values shown in this table represent nominal p-values (meaning they are exploratory, not type 1 error controlled) and therefore have an increased possibility of being a chance finding
2.This p-value for all patients receiving XHANCE 372 mcg in the ReOpen Program is a type 1 error controlled statistically significant result. All other p-values shown in this table are nominal p-values.

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Mean change in APOV by Patient-Reported Global Change Score at Week 24
PGIC Category
Very Much ImprovedMuch ImprovedMinimally ImprovedNo ChangeMinimally WorsenedMuch WorsenedVery Much Worsened
Subjects67641649016104
Mean Change in APOV(10.53)%(7.26)%(2.86)%(0.32)%2.01 %4.82 %5.30 %
Pooled Safety Results from the ReOpen Program
XHANCE was well tolerated across the 186- and 372-mcg dose groups and the safety profile in the ReOpen program was generally consistent with the safety profile contained in XHANCE’s currently approved label. No serious adverse events were reported in the ReOpen program. The table below summarizes adverse events that occurred at a rate of more than 3% with XHANCE and more common than the placebo EDS in this trial.
Summary of Adverse Events with XHANCE Reported in ≥ 3%
and More Common Than Placebo EDS in Pooled data
Adverse Event (AE)Placebo EDS BID
(N =187)
n (%)
XHANCE 186 mcg BID
(N =184)
n (%)
XHANCE 372 mcg BID
(N =183)
n (%)
Epistaxis1 (0.5)9 (4.9)20 (10.9)
COVID-198 (4.3)5 (2.7)12 (6.7)
Nasopharyngitis8 (4.3)9 (4.9)7 (3.8)
Headache7 (3.7)4 (2.2)10 (5.5)

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 $20.6 million and $18.4 million in net product revenues for the three months ended June 30, 2022 and 2021, respectively, and $35.3 million and $29.3 million for the six months ended June 30, 2022 and 2021, 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 80% of our total prescriptions (TRxs) in the period, our average net product revenues per prescription for the second quarter of 2022 was $235, an increase compared to average net product revenues per prescription of $221 in the second quarter of 2021 and an increase compared to $183 in the first quarter of 2022.
The increase in average net product revenues per prescription from the second quarter of 2021 to the second quarter of 2022 is driven largely by changes in 2022 to our co-pay assistance program that were intended to increase revenues per prescription by decreasing the proportion of prescriptions filled by patients with insurance coverage that required co-pays above a target threshold.
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The increase in average net product revenues per prescription from the first quarter of 2022 to the second quarter of 2022 is largely a consequence of the reset of many patient insurance deductibles in January. As a result of this annual reset, we provide greater copay support under our assistance programs. In addition, we believe another contributor to the first quarter 2022 increase is related to changes in patients' healthcare insurance coverage that reduce demand for refill prescriptions early in the year. This reduction in refill prescriptions also has the effect of lowering average net product revenues per prescription as it reduces the proportion of prescriptions that are covered (reimbursed) by a commercial insurer, which results in us providing greater copay support under our assistance programs.
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 2022 net product revenues will be between $85.0 million and $92.0 million. Previously we expected full year 2022 net product revenues would be at least $90.0 million. We revised our full year 2022 guidance for net revenue because we experienced greater than expected vacancy rates in our sales territories in recent months and greater than expected summer seasonal volume declines. We expect full year 2022 average net product revenues per prescription will be greater than $220.
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.
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 the EDS;
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; and
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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.
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 efforts. Additionally, sales and marketing-related expenses include fees paid to our PPN partners for services unrelated to traditional distribution functions, such as data fees and benefit claims adjudication.
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 the Note Purchase Agreement.
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, 2022 and 2021
The following table sets forth our selected consolidated statements of operations data for the periods indicated (in thousands):
 Three Months Ended June 30,
 20222021
Revenues:
Net product revenues$20,582 $18,357 
Licensing revenues— — 
   Total revenues20,582 18,357 
Costs and expenses:  
Cost of product sales2,143 2,425 
Research and development4,270 8,179 
Selling, general and administrative29,514 27,308 
Total operating expenses35,927 37,912 
Loss from operations(15,345)(19,555)
Other (income) expense: 
Interest (income) expense4,050 4,000 
Other (income) expense(53)
Total other (income) expense4,052 3,947 
Net loss$(19,397)$(23,502)
Net product revenues
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Net product revenues related to sales of XHANCE were $20.6 million and $18.4 million for the three months ended June 30, 2022 and 2021, respectively. Revenue growth is attributable primarily to an increase in our average net selling price during the three months ended June 30, 2022.
Cost of product sales
Cost of product sales related to XHANCE were $2.1 million and $2.4 million for the three months ended June 30, 2022 and 2021, respectively.
Research and development expense
Research and development expense was $4.3 million and $8.2 million for the three months ended June 30, 2022 and 2021, respectively. This decrease was primarily attributable primarily to a decrease in costs related to the conduct of our clinical trials of XHANCE for the treatment of chronic sinusitis, both trials had top-line data readouts in 2022.
Selling, general and administrative expense
Selling, general and administrative expense was $29.5 million and $27.3 million for the three months ended June 30, 2022 and 2021, respectively. The $2.2 million increase was due primarily to:
a $1.9 million increase in payroll and related costs;
a $0.6 million increase in PPN fees and other patient assistance costs;
The increase was offset by a $0.3 million decrease in other sales, marketing and administrative expenses.
Interest (income) expense, net
Interest (income) expense, net, was $4.1 million and $4.0 million for the three months ended June 30, 2022 and 2021, respectively, which was primarily comprised of interest expense on the Pharmakon Senior Secured Notes during both periods.
Comparison of six months ended June 30, 2022 and 2021
The following table sets forth our selected consolidated statements of operations data for the periods indicated (in thousands):
 Six Months Ended June 30,
 20222021
Revenues:
Net product revenues$35,342 $29,317 
Licensing revenues— 1,000 
   Total revenues35,342 30,317 
Costs and expenses:  
Cost of product sales4,157 4,165 
Research and development9,072 13,404 
Selling, general and administrative58,853 54,493 
Total operating expenses72,082 72,062 
Loss from operations(36,740)(41,745)
Other (income) expense: 
Interest (income) expense7,989 7,855 
Other (income) expense(45)
Total other (income) expense7,990 7,810 
Net loss$(44,730)$(49,555)
Net product revenues
Net product revenues related to sales of XHANCE were $35.3 million and $29.3 million for the six months ended June 30, 2022 and 2021, 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, as well as an increase in our average net selling price during the six months ended June 30, 2022.
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Cost of product sales
Cost of product sales related to XHANCE were $4.2 million and $4.2 million for the six months ended June 30, 2022 and 2021, respectively.
Research and development expense
Research and development expense was $9.1 million and $13.4 million for the six months ended June 30, 2022 and 2021, respectively. The $4.3 million decrease was attributable primarily to a decrease in costs related to the conduct of our clinical trials of XHANCE for the treatment of chronic sinusitis, both trials had top-line data readouts in 2022.
Selling, general and administrative expense
Selling, general and administrative expense was $58.9 million and $54.5 million for the six months ended June 30, 2022 and 2021, respectively. The $4.4 million increase was due primarily to:
a $2.4 million increase in payroll and related costs;
a $1.1 million increase in other sales, marketing and consulting costs;
a $0.8 million increase in PPN fees and other patient assistance costs;
a $0.1 million increase in other administrative expenses.
Interest (income) expense, net
Interest (income) expense, net, was $8.0 million and $7.9 million for the six months ended June 30, 2022 and 2021, respectively, which was primarily comprised of interest expense on the Pharmakon Senior Secured Notes during both periods.
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 $44.7 million and $49.6 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $654.8 million. We have funded our operations primarily through the sale and issuance of stock and debt, as well as through sales of XHANCE and licensing revenues. As of June 30, 2022, we had $78.3 million in cash and cash equivalents.
The following table shows a summary of our cash flows for the periods indicated (in thousands):
 Six Months Ended June 30,
 20222021
Net cash used in operating activities$(32,473)$(50,518)
Net cash used in investing activities(50)(10)
Net cash provided by financing activities276 276 
Effects of exchange rates on cash and cash equivalents— 
Net decrease in cash, cash equivalents and restricted cash$(32,244)$(50,252)
Operating activities
Cash used in operating activities decreased by $18.0 million, from $50.5 million for the six months ended June 30, 2021 to $32.5 million for the six months ended June 30, 2022. The decrease in cash used in operating activities was attributable to a decrease in accounts receivable and inventory due to increased sales and collections for the six months ended June 30, 2022.
Investing activities
Cash used in investing activities increased by $0.1 million from the six months ended June 30, 2021 to the six months ended June 30, 2022 due to proceeds from the sale of equipment during the six months ended June 30, 2021.
Financing activities
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Cash provided by financing activities was $0.3 million for the six months ended June 30, 2022 and 2021. Cash used in financing activities for both periods was primarily driven by proceeds from the issuance of common stock under our employee stock purchase plan.
Senior Secured Note Purchase Agreement
On September 12, 2019 (the Closing Date), we entered into a Note Purchase Agreement with funds managed by Pharmakon Advisors, LP (Pharmakon), the investment manager of BioPharma Credit Funds (BioPharma). The Note Purchase Agreement provided us, through our subsidiary OptiNose US, Inc., with $130.0 million in debt financing, of which $80.0 million of Pharmakon Senior Secured Notes was issued on the Closing Date, $30.0 million was issued on February 13, 2020 after achieving the $9.0 million consolidated XHANCE net sales and royalties threshold for the quarter ended December 31, 2019 and $20.0 million was issued on December 1, 2020 after achieving the $14.5 million consolidated XHANCE net sales and royalties threshold for the quarter ended September 30, 2020.
Amounts outstanding under the Pharmakon Senior Secured Notes bear interest at a fixed rate of 10.75% per annum and are scheduled to mature on September 12, 2024 (the Maturity Date). We are required to make interest-only payments on the Pharmakon Senior Secured Notes until September 2023. Principal repayments will commence on September 15, 2023, with five equal quarterly installments of principal and interest through to the Maturity Date. Upon repayment of the Senior Secured Notes we will also be required to pay $2.1 million in fees.
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 prepayments (whether mandatory or voluntary) made prior to the 30-month anniversary of the closing of our underwritten public offering on November 18, 2021, 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 prepayment, provided that in the case of any prepayment made prior to the 15-month anniversary, we will not be required to pay a "make-whole" amount in excess of an amount equal to the interest that would have accrued through the 15-month anniversary but for such principal prepayment.
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, pay dividends and distributions, repay junior indebtedness and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Note Purchase Agreement contains 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, as follows (in millions):
Trailing Twelve-Months EndingRequirement under the Note Purchase Agreement After the Second Amendment
March 31, 202270.00
June 30, 202275.00
September 30, 202280.00
December 31, 202285.00
March 31, 202398.75
June 30, 2023102.50
September 30, 2023106.25
December 31, 2023110.00
March 31, 2024113.75
June 30, 2024117.50
We are also required to maintain at all times at least $30.0 million of cash and cash equivalents. As of June 30, 2022, we were in compliance with the covenants. The Note Purchase Agreement also includes events of default
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customary for financings of this type, in certain cases subject to customary periods to cure, following which BioPharma may accelerate all amounts outstanding under the Pharmakon Senior Secured Notes.
On August 10, 2022, we entered into the Third Amendment to the Note Purchase Agreement (the Third Amendment). The Third Amendment reduced the minimum consolidated XHANCE net sales and royalties required to be achieved under the Note Purchase Agreement for the trailing twelve-month period ending December 31, 2022 from $90.0 million to $85.0 million (as reflected in the table above) in exchange for a $0.8 million fee due on the repayment of the Pharmakon Senior Secured Notes.
Projected 2022 operating expenses
We expect that our total GAAP operating expenses (consisting of selling, general & administrative expenses and research & development expenses) for 2022 will be between $129.0 million and $134.0 million of which approximately $9.0 million is expected to be stock-based compensation expense. As a result, total GAAP operating expenses excluding stock-based compensation expense are expected to be between $120.0 million and $125.0 million. Previously we expected total GAAP operating expenses (consisting of selling, general & administrative expenses and research & development expenses) for 2022 to be between $135.0 million and $140.0 million of which approximately $10.0 million was expected to be stock-based compensation expense. An increase in selling, general, and administrative expenses from 2021 to 2022 is anticipated primarily due to inflation, and an increase in fees paid to our PPN partners associated with higher projected XHANCE prescription volumes which is offset by an expected decrease in research and development expenses as our clinical trial program in pursuit of a follow-on indication for XHANCE for the treatment of chronic sinusitis nears completion.
Future capital requirements
We expect to continue to incur significant expenses in connection with our ongoing activities, particularly as we:
continue advertising and other promotional activities to support the commercialization of XHANCE;
continue to provide co-pay and other patient affordability programs for XHANCE;
continue clinical development activities for XHANCE, including studies mandated under the Pediatric Research Equity Act, and activities in pursuit of a follow-on indication for the treatment of chronic sinusitis;
evaluate product candidates;
continue to contract to manufacture XHANCE and our other product candidates;
maintain, expand and protect our patent portfolio;
service our debt obligations under the Pharmakon Senior Secured Notes;
maintain infrastructure necessary to operate as a publicly-traded, commercial-stage company; and
hire additional staff and add operational, financial and information systems to execute our business plan.
Our future capital requirements, both near and long-term, will depend on many factors, including, but not limited to:
the duration and impact of the COVID-19 pandemic on our business;
the success of our commercialization of XHANCE for the treatment of nasal polyps including, among other things, continued patient and physician adoption 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 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 studies mandated under the Pediatric Research Equity Act, and activities in pursuit of a follow-on indication for the treatment of chronic sinusitis;
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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;
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;
the extent to which we in-license, acquire or otherwise partner in development or commercialization of other products, product candidates or technologies; and
our ability to maintain compliance with the financial covenant to achieve certain minimum trailing twelve-month consolidated XHANCE net sales and royalties and the other provisions under the Note Purchase Agreement, and, if needed and available from the holders of the Pharmakon Senior Secured Notes, the costs and conditions associated with obtaining a waiver or modification of such covenant or other provisions.
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 outstanding debt 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, will be required, and 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. Commencing on September 15, 2023, we will be required to begin making principal repayments on our debt in five quarterly installments of $26.0 million each through maturity in September 2024. 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.
As of the filing of this quarterly report on Form 10-Q, we expect consolidated XHANCE net sales and royalties for the trailing twelve-month period ending December 31, 2022 to be between $85 million and $92 million. Previously we expected consolidated XHANCE net sales and royalties for such twelve month period to be at least $90 million. If we are unable to achieve at least $85 million of consolidated XHANCE net sales and royalties for the trailing twelve-month period ending December 31, 2022 or are unable to achieve the minimum consolidated XHANCE net sales and royalties for any other trailing twelve-month period as required under the Note Purchase Agreement, and we are unable to obtain a waiver or modification to this financial covenant, we will be in breach under the Note Purchase Agreement, which will constitute an event of default under the terms of the Note Purchase Agreement. If the holders of the Pharmakon Senior Secured Notes elect to accelerate the repayment of all or a portion of the unpaid principal, accrued interest and other amounts due under such holders’ Pharmakon Senior Secured Notes in such an event, we will require additional capital secured through equity or debt financings, partnerships, collaborations, or other sources in order to meet such payment obligations, and to carry out our planned development and commercial activities. The holders of the Pharmakon Senior Secured Notes have, in the past, conditioned modifications to the minimum trailing twelve-month consolidated XHANCE net sales and royalties financial covenant and other provisions of the Note Purchase Agreement on our securing additional capital through equity financings and other conditions and fees, and could do so again in the future, which would impact the timing and amount that we may seek to raise in a financing. Although there can be no guarantee that the holders of the Pharmakon Senior Secured Notes will provide a waiver or modification if requested. In addition, in order to complete future financings the investors in such financings may require us to obtain certain modifications to the minimum trailing twelve-month consolidated XHANCE net sales and royalties financial covenant and other provisions of the Note Purchase Agreement which may or may not be acceptable to the holders of the Pharmakon Senior Secured Notes.
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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, 2021, as filed with the SEC on March 8, 2022, have not materially changed.
Recent accounting pronouncements
See Note 3 to our unaudited interim consolidated financial statements of this Form 10-Q for a description of recent accounting pronouncements applicable to our consolidated financial statements.
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. QUANTITATIVE AND QUALITATIVE 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, 2022.
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, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II