OptiNose, Inc. (NASDAQ:OPTN) Q1 2023 Earnings Call Transcript May 11, 2023

OptiNose, Inc. misses on earnings expectations. Reported EPS is $-0.17 EPS, expectations were $-0.14.

Operator: Good day, and thank you for standing by. Welcome to the OptiNose’s First Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jonathan Neely, Vice President, Investor Relations. Please go ahead.

Jonathan Neely: Good morning, and thank you for joining us today as we review OptiNose’s first quarter 2023 performance and our plans for the remainder of the year. I’m joined today by our CEO, Dr. Ramy Mahmoud; and our Chief Commercial Officer, Paul Spence. The slides that will be presented on this call can be viewed on our website optinose.com in the Investors section. Before we start, I would like to remind you that our discussions during this conference call will include forward-looking statements. All statements that are not historical facts are hereby identified as forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated by such statements.

Additional information regarding these factors and forward-looking statements is discussed under the cautionary note on forward-looking statements section of the earnings release that we issued today as well as under the risk factors section and elsewhere in Optinose’s most recent Form 10-K and 10-Qs that are filed with the SEC and available at their website sec.gov and on our website at optinose.com. You are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements during this conference call speak only as of the original date of this call or any earlier date indicated in such statement, and we undertake no obligation to update or revise any of these statements. We will now make prepared remarks and then we will move to a question-and-answer session.

With that, I will now turn the call over to Ramy.

Ramy Mahmoud: Great. Thank you, Jonathan, and thank you to everyone listening for joining us this morning. We appreciate you joining us for this first quarter update. Starting on Slide 3, we’ll go into more detail in a moment, but I’d like to highlight 3 key takeaways from today’s presentation. First, we remain enthusiastic about the potential value of a first and only new indication to treat patients who have chronic sinusitis. Claims data suggests that CS is currently being diagnosed by healthcare providers approximately 10x more frequently than nasal polyps. In the current healthcare environment, where off-label use is increasingly constrained by payers, we believe the new indication could enable us to access a multifold larger patient audience and therefore drive significant growth.

Second, last week, we announced that the FDA accepted our supplemental new drug application for the new indication for XHANCE. In simple terms, the acceptance signals that a review of our application will proceed and that a goal date is set for December by which the FDA will aim to communicate a decision. Third, in the first quarter of the year, we continued to execute against our previously communicated strategy to prioritize the value of a potential launch of XHANCE as the first ever FDA-approved drug treatment for CS. There are important differences, including patient prevalence, frequency of diagnosis and payer dynamics that we believe make the potential for return on investment from promotion of XHANCE following the label expansion into chronic sinusitis significantly greater than the return available from promotion of XHANCE as a treatment for nasal polyps.

Because of this, as we advised in our last update, we’ve structured our business to reduce use of cash in 2023 and increased focus on profitability while preserving infrastructure and capabilities that will be necessary for a successful launch of the chronic sinusitis indication in 2024. In the first quarter, we adhered to this strategic intent and delivered results that met the expectations that we set in the previous call and which keep us on track to meet our expectations for the full year. Turning to Slide 4. We believe a future approval of XHANCE as the first and only FDA-approved treatment for CS has potential to increase the number of patients for whom the product can be promoted by tenfold because claims data suggests that, that order of magnitude more patients are currently diagnosed and treated for chronic sinusitis that are diagnosed and treated for nasal polyps.

We expect the greatly expanded universe of potential patients to include many who are currently cared for by physicians in our existing commercial footprint, significantly growing our potential within the scope of our current activities. We also expect the expanded universe of patients to include patients who are cared for by physicians outside of our current commercial reach. We are exploring commercial partnerships, alternative selling models and other ways to facilitate future outreach to those physicians and patients. Turning to Slide 6. Last week, we announced that the FDA accepted our supplemental new drug application in pursuit of an additional XHANCE indication for treatment of patients with chronic rhinosinusitis. This is a novel indication for which the agency has never previously approved a product.

Focusing on what’s next, the acceptance marked the start of the substantive review of safety and efficacy. The FDA action goal date, which is based on the original submission date in February, has been set for mid-December of this year. In the interim, our regulatory and clinical teams will focus on being responsive to the FDA during the review. Turning to Slide 8. On our first quarter — in our first quarter, the prescription demand results were aligned with the expectations that were set on our last call. As a reminder, our objective in 2023 is to stabilize demand trends in our current business with a reduced commercial footprint while preserving the necessary capabilities and creating an efficient deployment of resources to support a successful launch of XHANCE for CS in 2024.

In the first quarter of 2023, there were approximately 30,400 new prescriptions for XHANCE, an increase of 3% compared to first quarter of 2022. While a market, which is defined by INS prescriptions written by any physician for any condition, a quite large component of which our prescriptions for allergic rhinitis, increased 8% over the same period. In addition, there were 84,400 total prescriptions for XHANCE in the first quarter of 2023, an increase of 1% compared to first quarter 2022, while the market, which again includes INS prescriptions written by any physician for any condition, a large component of which our prescriptions for allergic rhinitis, increased 5% over the same period. Results were mixed for breadth and depth of physician prescribing as measured by the total number of physicians who have patients filling XHANCE prescriptions.

Regarding breadth, in the first quarter of 2023, there were 8,545 physicians who had a patient fill at least 1 prescription for XHANCE, an increase of 6% compared to the first quarter of 2022. Regarding depth, the number of physicians who had more than 15 XHANCE prescriptions filled by their patients in a quarter was generally unchanged at approximately 1,400 physicians, a decrease of 1% from first quarter 2022 to first quarter 2023. I’d like to note that all the data on this slide is estimated based on monthly prescription data from third parties and in large part, also on data directly reported to us by pharmacies that are part of the XHANCE preferred pharmacy network. I will note that the first quarter 2022 data we’re showing today reflects our current 2023 methodology.

For reference, we footnoted our prior estimates based on prior methodology. While our best estimates may indicate slight growth in prescription demand, we believe stable is an appropriate way to describe these results. I’ll now turn the call over to Jonathan to discuss our first quarter financial performance.

Jonathan Neely: Thank you, Ramy. Turning to Slide 10. Our first quarter 2023 financial results are largely in line with the expectations we communicated on our last earnings call and are shaped by our strategy to prioritize capital resources for the potential launch of XHANCE as the first ever FDA-approved drug treatment for chronic sinusitis. As we reported this morning, Optinose recognized $24.5 million of SG&A plus R&D expenses in the first quarter of 2023 or approximately a $10 million decrease compared to first quarter 2022 expenses of $34.1 million. Regarding revenue, Optinose recognized $11.8 million of XHANCE net revenue in the first quarter of 2023, a decrease compared to first quarter 2022 net revenues of $14.8 million.

Year-over-year decrease in the first quarter is primarily the result of a decrease in units shipped and an increase in co-pay assistance driven by an increase in the proportion of volumes attributable to patients with commercial insurance that does not cover XHANCE or we have not yet met the utilization management criteria of their insurer, as well as an increase in the proportion of volumes attributable to government programs, which increased gross to net deductions. While we exceeded the first quarter 2023 guidance that we gave on our last call for revenues of approximately $10 million in the first quarter, and we feel that the beat is encouraging, I’d like to note that we believe this result is not sufficient to change our expectations for the full year, which I will review in a moment.

Finally, based on available prescription data purchased from third parties and on data we received directly from our preferred pharmacy network, the estimated XHANCE average net revenue prescription for the first quarter of 2023 was $140. The decrease compared to $177 of estimated revenue per prescription in the first quarter of 2022. Year-over-year decrease is driven primarily by the increased gross to net deductions and the decrease in the unit shift that influenced XHANCE net revenue performance. Overall, these results align with our intent to reduce use of cash in 2023, while maintaining the capabilities and resources that will be necessary to enable a successful launch in a new indication for XHANCE in 2024. Turning to Slide 12. Our first quarter 2023 financial performance was in line with our prior guidance.

And as a result, our guidance for the full year of 2023 is largely unchanged. First, we are lowering our operating expense guidance to incorporate the effects of first quarter departures on stock compensation. We now expect operating expense to find a sales, general and administrative expense plus research and development expenses to be in the range from USD88 million to USD93 million, of which approximately $6 million of stock-based compensation. Previously, we expected operating expense to be in the range from USD90 million to USD95 million, of which approximately $8 million is stock-based compensation. Second, our expectation for XHANCE net revenue for the full year of 2023 is unchanged and is between USD62 million to USD68 million. It is important to note that we are not assuming revenues from a CS launch in our full year 2023 guidance.

Third, with respect to XHANCE average net revenue per prescription, we expect our typical historical pattern of improvement from the first quarter through the remaining 3 quarters of 2023 and continue to expect our average net revenue per prescription to be approximately $200 for the full year of 2023. I will now turn the call back over to Ramy for closing remarks. Ramy?

Ramy Mahmoud: Thank you, Jonathan. Before moving to Q&A, I’d like to take a moment to reiterate our clear strategic focus for this year. First, we believe achieving the first ever chronic sinusitis indication will be a crucial driver of future value for patients and for our company. It is therefore our top priority. Second, we are mindful of the importance of the cash we have today and of the potentially greater value of commercial investment following the future potential CS indication. Therefore, we have taken and will continue to take action to efficiently generate XHANCE revenue with the current indication. Third, we must prepare our organization to seize the potential opportunity created by a new chronic sinusitis indication by planning for a successful launch aimed at rapidly making the product available to millions of patients in need. With that, I’d like to thank you for your attention and open the call for questions and answers.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Brandon Folkes with Cantor Fitzgerald.

Operator: Our next question comes from the line of David Amsellem with Piper Sandler.

Operator: Thank you. And I’m currently showing no further questions at this time. I’d like to hand the call back over to Ramy Mahmoud for closing remarks.

Ramy Mahmoud: In conclusion, I think we’ve shown you information today, reflecting first quarter performance that’s entirely in line with the expectations we set for the first quarter and we intend to continue to meet the expectations that we’ve set as we progress onward through this year with a sense of optimism about the future approval as we enter into next year. Thank you again for joining this morning, and we look forward to speaking with you again in a few more months.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.