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spk00: Hello. Good day, everyone, and thank you for standing by. Welcome to the Opti-Nose Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask the question, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand this phrase. To withdraw the question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jonathan Neely, Head of Investor Relations.
spk04: 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. Rami 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 Investor 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 OPTINOS'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 optinos.com. Your caution 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'll now turn the call over to Rami.
spk02: 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 ExHance as the first and only product indicated for the treatment of chronic sinusitis. Claims data suggests that CS is currently being diagnosed by healthcare providers at least 10 times more frequently than nasal polyps. In the current healthcare environment where off-label use of branded products is increasingly constrained by payers, we believe the new indication could enable us to access a multi-fold larger patient audience and therefore drive strong growth for multiple years starting in 2024. We also believe the value proposition that exams 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 ExHance 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. 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 as the first and only FDA-approved drug treatment for chronic sinusitis. 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 ex-hance following a potential chronic sinusitis approval significantly greater than the return available from promotion of ex-hance as a treatment for nasal polyps. Because of this, we have structured our business in 2023 to materially reduce the use of cash and increase 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 tenfold because medical claims data indicate that order of magnitude more patients are currently being diagnosed with chronic sinusitis than 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 enhanced indication for treatment of patients with chronic rhinosinusitis. 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 polyps 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 ExHance prescription demand results in the second quarter of 2023. Regarding prescription demand, in the second quarter of 2023, there were approximately 30,900 new prescriptions for ExHance, an increase of 3% over second quarter 2022. In addition, there were approximately 90,700 total prescriptions for ExHance 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 ex-hands prescriptions. Regarding breadth, in the second quarter of 2023, there were 8,624 physicians who had a patient fill at least one prescription of ex-hands, 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 Ex-Hands 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 footnoted our prior estimates based on prior methodology. I'll now turn the call over to Jonathan to discuss our second quarter financial performance.
spk04: Thank you, Rami. Turning to slide 10. We are encouraged by our second quarter 2023 financial results. They're shaped by our strategy to prioritize capital resources for the potential launch of Exhance, the first ever FDA approved drug treatment for chronic rhinosinusitis. As we reported earlier, OptiNose recognized $21.1 million of 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 Exance 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 financial, our guidance range for full year 2023 ExanceNet revenues, which I will discuss further in a few moments. The year-over-year decrease in revenue in the second quarter of 2023 is the result of a number of factors, including an increase in copay assistance driven by an increase in the proportion of volumes attributable to patients with commercial insurance that does not cover Exance 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 deductions. I will note that we view the prescription demand strength within the uncovered commercial patient segment as an opportunity to modestly revise our copay 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 expense 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 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 expense in 2024. Turning to slide 12. As I just mentioned, ExanceNet 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 ExanceNet revenue for the full year 2023 to be between $64 to $70 million. Previously, we expected ExanceNet revenue to be between $62 and $68 million. It is important to note that we are not assuming revenues from a CS launch in our full year 2023 guidance. In addition, with respect to expense 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 of 2023. Finally, we continue to expect operating expense defined as sales, general, and administrative plus research and development expenses for the full year of 2023 to be in the range from $88 million to $93 million. of which approximately $6 million is stock-based compensation. I will now turn the call back over to Rami for closing remarks. Rami?
spk02: 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 in 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.
spk00: Thank you, Doctor. And as a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw the question, simply press star 1-1 again. One moment while we compile the Q&A roster. Our first question comes from the line of David Amselen with Piper Sandler. Please proceed.
spk01: Hi, thanks. This is for David. A couple questions. Can you speak to the payer landscape and whether it's evolved at all recently in terms of seeing payers limit prescriptions to nasal polyps? And do you expect this to change after the label expansion? And additionally, how are you expecting the net revenue for prescription to evolve with the upcoming expansion to CF?
spk02: 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.
spk03: Sure. Thanks for the question. Yeah, we really haven't seen any material change in that payer landscape related to expense and coverage within the NALA policy. And so we continue to deploy our commercial efforts to optimize our prior authorization efforts, as well as the fulfillment of the increasing demand and prescriptions there. As we look forward to the CS launch, we also expect that that will continue in 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.
spk04: Okay. And Skylar, 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 if 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 extrapolable into the future. We anticipate that this year there was going to be slightly less appetite on the customer side. um to hold inventory and so i think when we look at you know on a year-over-year basis that that was going to be you know some of the downward pressure that we were you know expecting and and and would lead us to you know a revenue per prescription this year of approximately 200 but in terms of yeah in terms of um you know that being something that would repeat itself in the future there is you know i think there's a level of inventory we'll arrive at and uh you know that's something that won't be a headwind for us in the future so we think that there's going to be opportunities you know that will help us you know improve uh you know net revenues into the future um but any net revenue per prescription into the future um with that yeah i think uh you know i'll turn it back over to rami to see if he has any um summary remarks on either of those no i guess i'd just like to reiterate that um we feel like we have pretty good coverage today um forex hands and as we have said before there's a meaningful part of that coverage that does involve prior authorizations
spk02: which frequently are restricted to the FDA-approved indications, which today, of course, is just nasal polyps. As Paul said, in future, that same coverage wouldn't be inclusive of the new indication of chronic sinusitis. We have engaged in conversations with payers through the first part of this year. We're being very transparent. And at least going into 2024, we expect our coverage to be quite similar to the way it is today. And do we answer your questions? Do you have any additional questions?
spk01: Yes, that was super helpful. If I could just sneak one separate question in. Can you provide any additional color on the launch preparedness you're doing ahead of the label expansion?
spk02: We are actively engaged in preparation for the launch, as you might expect. Paul, would you like to make any comments?
spk03: Yeah, sure. Skylar, so we're focused on many things as we prepare for the launch. One is that we're taking a fresh product positioning approach and messaging. so that we can fully seize the first and only positioning and new indication of Xhance that will enable that launch and that rapid uptake. We're also ensuring scalability of our pharmacy distribution infrastructure that's both within the retail setting as well as within pharmacy network. We continue to look at and evaluate our payer and affordability programs. So as Rami had said, we can make sure the appropriate patients can get access to Xhance at launch. We're also refining our healthcare provider targeting for both our direct selling and non-personal promotion to access the larger opportunity while assuring overall efficiency within our model and our P&L. And then lastly, we continue to evaluate efficient options for accessing the CIS opportunity outside of our current HCP promotion audience. So these are just several things that we have as we're continuing to launch plan and get ready for launch that we think will put us in a position to be ready.
spk02: If I can just add a couple of comments. The first is, as we've said before, it is our current intent that the operating expenses associated with the launch as we go into 2024 will be similar to the operating expenses we have today. So they may not be precisely the same, but we don't expect them to materially increase in association with the launch because we're launching largely to the same audience with a similar footprint to what we have today. Second comment I'll make is that, as I mentioned earlier, we are actively pursuing, as part of our planning for the launch, the possibility of a primary care partner who can expand our reach into the primary care space and allow us to access the incremental opportunity associated with that. Did you have any additional questions?
spk01: No, that's great. Thanks so much for all the color.
spk00: Thank you. And as a reminder, if you do have a question, simply press star 11 from your telephone keypad. All right. I don't see any further questions. I will pass it back to Dr. Rami Mahmoud for final remarks.
spk02: Okay. Well, I'd like to thank everyone for joining us this morning. Hopefully you've heard our enthusiasm over the potential associated with our upcoming approval date in December. And the fact that we're pleased with the execution so far this year against our 2023 strategy, reducing expenses while stabilizing and potentially even growing a little bit our underlying product demand. We look forward to filling you in on our results third quarter and hope we'll continue to perform exactly as expected.
spk00: Thank you all for participating in today's conference. This does conclude the program and you may now disconnect.
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