OptiNose, Inc. (NASDAQ:OPTN) Q2 2023 Earnings Call Transcript

OptiNose, Inc. (NASDAQ:OPTN) Q2 2023 Earnings Call Transcript August 10, 2023

OptiNose, Inc. beats earnings expectations. Reported EPS is $0.02, expectations were $-0.11.

Operator: Hello. Good day everyone and thank you for standing by. Welcome to the OptiNose Second Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s call is being recorded. I would now like to hand the conference over to Jonathan Neely, Head of Investor Relations.

Jonathan Neely: Good morning and thank you for joining us today as we review OptiNose’s second 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 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. The 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: Thank you, Jonathan and thank you to everyone listening for joining us this morning. We appreciate you joining us for our second quarter update. I’d like to start on slide three. We’ll go into more detail in a moment, but I’d like to highlight three key takeaways from today’s presentation. First, as we engage in additional market research and preparations to be ready for a launch, we remain enthusiastic about the potential value of being able to offer XHANCE as the first and only product indicated for the treatment of chronic sinusitis. Claims data suggest that CS is currently being diagnosed by health care providers at least 10 times more frequently than nasal polyps. In the current health care environment, where off-label use of branded products is increasingly constrained by payers, we believe the new indication could enable us to access a multifold larger patient audience and therefore, drive strong growth for multiple years starting in 2024.

We also believe the value proposition that XHANCE could offer, both clinically and economically is very desirable, particularly for patients dissatisfied with their current symptom burden or who may otherwise be facing treatment with surgery or high-cost injected biologics. Second, our supplemental new drug application for the new indication of XHANCE is being reviewed by FDA now. We submitted our application in February and with the FDA target goal date in December, we are now more than halfway through the review period. Third, we will show you how in the second quarter of the year, we have continued to effectively execute against our previously communicated 2023 operating strategy, which is rooted in our intent to prioritize the value of investing in the potential near-term launch of XHANCE the first and only FDA-approved drug treatment for chronic sinusitis.

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To briefly elaborate on this last point, I’d like to remind you that we believe there are important differences, including patient prevalence, frequency of diagnosis, and payer dynamics that make the potential for return on investment from promotion of XHANCE following a potential clinics sinusitis approval, significantly greater than the return available from promotion of XHANCE as a treatment for nasal polyps. Because of this, we have structured our business in 2023 to materially reduce the use of cash and increased focus on profitability while being careful to preserve infrastructure and capabilities that will be important for the successful launch of chronic sinusitis in 2024. We adhered to this strategic discipline through the first half of this year and delivered results that are better than our initial expectations.

As a result of that performance, we have increased our revenue expectation for full year 2023. Turning to slide four, we believe 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 at least 10-fold because medical claims data indicate that order of magnitude more patients are currently being diagnosed with chronic sinusitis that are being diagnosed with nasal polyps. The new indication would create opportunity for strong growth within our existing commercial footprint, promoting largely to specialists who see large numbers of patients with the diagnosis. The newly expanded universe of patients would also include patients cared for by physicians outside our current commercial reach, and we are actively exploring commercial partnerships, alternative selling models and other ways to facilitate future outreach to those physicians and patients.

Turning to slide six, previously, we announced that during the second quarter, the FDA accepted our supplemental new drug application in pursuit of an XHANCE indication for treatment of patients with chronic rhino sinusitis. This is a novel indication for which the agency has never previously approved any drug product. Focusing on what’s next, the substantive review of safety and efficacy for this largely clinical application is ongoing. And the FDA action goal date, which is based on the original submission date in February, has been set for mid-December of this year. Our regulatory and clinical teams continue to focus on being responsive to the FDA during the review and will continue to do so throughout the entire review process. Turning to slide eight.

As a reminder, our objective in 2023 is to stabilize demand trends in our current nasal polyp specialty business with a reduced commercial footprint and materially reduced expense. While both preserving the necessary launch capabilities and improving operational efficiency and effectiveness of our commercial resources. This is intended to best set us up for successful launch of XHANCE for CS in 2024. With that objective in mind, we are pleased by XHANCE prescription demand results in the second quarter of 2023. Regarding prescription demand. In the second quarter of 2023, there were approximately 3,900 new prescriptions for XHANCE, an increase of 3% over second quarter 2022. In addition, there were approximately 90,700 total prescriptions for XHANCE in the second quarter of 2023, an increase of about 3% compared to the second quarter of 2022.

We measure breadth and depth of physician prescribing by the total number of physicians who have patients filling XHANCE prescriptions. Regarding breadth, in the second quarter of 2023, there were 8,624 physicians who had a patient fill at least one prescription of XHANCE, an increase of 4% compared to second quarter of 2022. Regarding depth, the number of physicians who had more than 15 prescriptions filled by their patients in a quarter, that number decreased by approximately 6% from second quarter 2022 to second quarter 2023, now at approximately 1,400 physicians. I’d like to note that all the data on this slide is estimated based in part on monthly prescription and inventory 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’ll also note that the second quarter 2022 data that we’re showing today reflects our current 2023 methodology. For reference, we’ve footnoted our prior estimates based on prior methodology. I’ll now turn the call over to Jonathan to discuss our second quarter financial performance.

Jonathan Neely: Thank you, Ramy. Turning to slide 10. We are encouraged by our second quarter 2023 financial results. They 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 rhino sinusitis. As we reported earlier, OptiNose recognized $21.1 million of that SG&A plus R&D expenses in the second quarter of 2023. This is approximately a $13 million or 38% decrease compared to second quarter 2022 expenses of $33.8 million. Regarding revenue, OptiNose recognized $19.5 million of XHANCE net revenue in the second quarter of 2023, a decrease compared to second quarter 2022 net revenues of $20.6 million. This is stronger than our original expectations for the second quarter.

It is important to note that our first half 2023 revenues of $31.3 million were also stronger than what we expected when we announced our initial financial guidance for the year. Accordingly, we have raised our guidance range for full year 2023 XHANCE Net revenues, which I will discuss further in a few moments. The year-over-year decrease in revenue in the second quarter of 2023 is a result of a number of factors, including 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 have not 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 deduction.

I will note that we view the prescription demand strength within the uncovered commercial patient segment is an opportunity to modestly revise our co-pay assistance program in a way that exchanges some of that demand strength for increased profitability. Finally, based on available prescription and inventory data purchased from third parties and on data we received directly from our preferred pharmacy network, the estimated XHANCE average net revenue per prescription for the second quarter of 2023 was $214, a decrease compared to $235 of estimated revenue per prescription in the second quarter of 2022. What is important here is that second quarter 2023 net revenue per prescription increased substantially compared to the first quarter of 2023, and in line with our expected annual pattern.

And these results are consistent with our prior expectations for overall 2023 net revenue per prescription. Overall, our first half results continue to align with our intent to reduce use of cash in 2023. We reduced operating expenses by $22 million or 33% in the first half of 2023 when compared to the first half of 2022. We outperformed our initial expectations for revenue, and we achieved this while sustaining product demand and maintaining the capabilities and resources that we believe will be necessary to enable a successful launch of a potential new indication for XHANCE in 2024. Turning to Slide 12. As I just mentioned, XHANCE net revenues in the first half of 2023 were better than our initial expectations. As a result of that performance, we have increased our revenue expectations for full year 2023.

We now expect XHANCE net revenue for the full year 2023 to be between $64 million to $70 million. Previously, we expected XHANCE net revenue to be between $62 million and $68 million. It’s important to note that we are not assuming revenues from a CS launch in our full year 2023 guidance. In addition, with respect to XHANCE net revenue per prescription, we expect our typical historical pattern of improvement from the first half through the second half of 2023. We continue to expect our average net revenue per prescription to be approximately $200 for the full year 2023. Finally, we continue to expect operating expense defined as sales, general and administrative plus research and development expenses for the full year 2023 to be in the range from $88 million to $93 million of which approximately $6 million of stock-based compensation.

I will now turn the call back over to Ramy for closing remarks. Ramy?

Ramy Mahmoud: Thank you, Jonathan. Before moving on to take questions, I’d like to reiterate the significance of the opportunity in front of us, which I believe has potential to reshape our business in the coming months and for years into the future. We believe an approval for XHANCE as the first and only drug indicated for treatment of chronic sinusitis would give us an opportunity to build a profitable ENT and allergy focused business by increasing net revenues and leveraging our existing commercial capabilities. In addition, as I previously noted, we are actively exploring commercial partnerships in primary care to create shared value beyond what we can create on our own in the largely specialty segment that’s engaged by our current commercial infrastructure. With that, I’d like to thank you for your attention this morning and open the call for Q&A.

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Q&A Session

Operator: Thank you, doctor. [Operator Instructions] Our first question comes from the line of David Amsellem with Piper Sandler. Please proceed.

Unidentified Analyst: Hi, this is Skyler on for David. A couple of questions. Can you speak to the payer landscape and whether it’s evolved at all recently in terms of seeing payers limit prescription nasal follow-ups? And do you expect us to change after the label expansion? And additionally, how are you expecting the net revenue per prescription to evolve with upcoming expansion to CS?

Ramy Mahmoud: Paul, maybe you’d like to answer the first part of that question around payers and then Jonathan can address the question about the revenue.

Paul Spence: Sure. Thanks for the question. We really haven’t seen any material change in that payer landscape related to XHANCE and coverage with the nasal polyps. And so we continue to deploy our commercial efforts to optimize our prior authorization efforts as well as the fulfillment of the increasing demand in prescriptions there. As we look forward to the CS launch, we also expect that, that will continue in a similar fashion. And again, we’ve continued to optimize our efforts there with the payers and with our commercial deployment to make sure the access is there. So hopefully, that answers your question around coverage.

Jonathan Neely: Okay. And Skyler, just keeping in mind, we don’t have any guidance in place for 2024 in terms of our expectations on revenues or on revenue per prescription. But I think when you look at our contracting with payers, in particular, in the commercial space where most of our business is coming from, many of our contracts today are written to cover the indications on the label for the product. And so we anticipate, as we roll into 2024, that if we have an approval in CS that much of the contracting that we have in place today is going to be applicable to those prescriptions in the future, they’re written for chronic sinusitis or a similar indication. Then I think our expectation this year, we expect revenue per prescription to come in at approximately $200 for the full year.

And last year, we reported something that was just a bit below $220 for the full year. But I think there are aspects of this year’s expectation for revenue per prescription that are not really [Indiscernible] into the future. We anticipate that this year, there was going to be slightly less appetite on the customer side to hold inventory. And so I think when we look at on a year-over-year basis, that, that was going to be some of the downward pressure that we were expecting and would lead us to a revenue per prescription this year of approximately $200. But in terms of that being something that would repeat itself into the future, there is — I think there’s a level of inventory we’ll arrive at, and that’s something that won’t be a headwind for us in the future.

So, we think that there’s going to be opportunities that will help us improve net revenues into the future, but a net revenue per prescription into the future. With that, I think I’ll turn it back over to Ramy to see if he has any summary remarks on either of those.