Orchestra BioMed (US:OBIO)2023-11-13 21:10PART I. FINANCIAL INFORMATION Financial Statements Orchestra BioMed's unaudited condensed consolidated financial statements as of September 30, 2023, detail financial position and performance post-business combination Condensed Consolidated Balance Sheets Total assets increased to $116.4 million by September 30, 2023, driven by marketable securities, while liabilities decreased and equity significantly rose due to the business combination Condensed Consolidated Balance Sheet Summary (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $19,078 | $19,784 | | Marketable securities | $89,410 | $63,915 | | Total current assets | $110,189 | $84,690 | | Total Assets | $116,357 | $95,572 | | Liabilities & Equity | | | | Total current liabilities | $21,473 | $18,566 | | Total Liabilities | $36,701 | $43,038 | | Total Stockholders' Equity | $79,656 | $52,534 | | Total Liabilities & Stockholders' Equity | $116,357 | $95,572 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss for the nine months ended September 30, 2023, increased to $36.3 million, primarily due to significant rises in R&D and SG&A expenses Statement of Operations Summary (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Revenue | $2,498 | $2,430 | | Research and development | $25,311 | $14,402 | | Selling, general and administrative | $16,073 | $10,699 | | Loss from operations | $(39,025) | $(22,829) | | Net loss | $(36,302) | $(23,858) | | Net loss per share (basic and diluted) | $(1.11) | $(1.80) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities totaled $35.2 million for the nine months ended September 30, 2023, offset by $56.9 million from financing activities Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(35,153) | $(20,545) | | Net cash used in investing activities | $(22,464) | $(745) | | Net cash provided by financing activities | $56,911 | $108,347 | | Net (decrease) increase in cash | $(706) | $87,057 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail accounting policies, the HSAC2 business combination, key partnership agreements with Terumo and Medtronic, debt repayment, and stock-based compensation - The company is a biomedical innovation firm with lead products BackBeat CNT and Virtue SAB, operating a partnership-enabled business model with Medtronic and Terumo23 - The company completed its business combination with HSAC2 on January 26, 2023, accounted for as a reverse recapitalization, yielding $54.3 million in net proceeds24106 - Under the Terumo Agreement, a $30 million upfront payment was received in 2019, with revenue recognized proportionally based on costs; $17.5 million remains as deferred revenue as of September 30, 2023107112114 - The Medtronic Agreement for BackBeat CNT involves Orchestra sponsoring the pivotal study and Medtronic commercializing the product globally post-approval, with no revenue recognized to date119120121 - Subsequent to quarter end, on October 6, 2023, the company fully repaid its 2022 Loan and Security Agreement, including $10 million in principal195 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, detailing the impact of the January 2023 business combination, clinical program advancements, and liquidity, projecting funding into the second half of 2026 Results of Operations Net loss increased significantly for both three and nine-month periods ended September 30, 2023, primarily due to substantial increases in R&D and SG&A expenses Comparison of Nine Months Ended Sep 30, 2023 and 2022 (in thousands) | Metric | 2023 | 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $2,498 | $2,430 | $68 | 3% | | Research and development | $25,311 | $14,402 | $10,909 | 76% | | Selling, general and administrative | $16,073 | $10,699 | $5,374 | 50% | | Net loss | $(36,302) | $(23,858) | $(12,444) | (52)% | Comparison of Three Months Ended Sep 30, 2023 and 2022 (in thousands) | Metric | 2023 | 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $419 | $1,163 | $(744) | (64)% | | Research and development | $8,558 | $5,899 | $2,659 | 45% | | Selling, general and administrative | $6,344 | $5,275 | $1,069 | 20% | | Net loss | $(13,316) | $(10,282) | $(3,034) | (30)% | Liquidity and Capital Resources As of September 30, 2023, the company held $19.1 million in cash and $89.4 million in marketable securities, projecting sufficient capital to fund operations into the second half of 2026 - The company had $19.1 million in cash and cash equivalents and $89.4 million in marketable securities as of September 30, 2023267 - Based on revised operating priorities, current capital is anticipated to fund operations into the second half of 2026270 - The Virtue ISR-US pivotal study is delayed pending a restructured partnership with Terumo to secure additional capital268 Critical Accounting Policies and Estimates Critical accounting policies include revenue recognition for the Terumo partnership, R&D accruals, warrant valuation, and stock-based compensation, all requiring significant management judgment - Partnership revenue from the Terumo Agreement is recognized using a proportional performance model, where changes in cost estimates can significantly impact reported revenue293294 - Stock-based compensation is a critical estimate, with fair value determined by complex private company valuations pre-merger and public market price post-merger301302303 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the current reporting period - Not applicable316 Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2023, with ongoing enhancements post-business combination - The CEO and CFO concluded the company's disclosure controls and procedures were effective as of September 30, 2023320321 - The company is enhancing its internal control environment by adding accounting resources and implementing new processes as a public company322 PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings or aware of any pending actions - The company reports no material legal proceedings326 Risk Factors Material risks include missed milestone payments and potential termination of the Terumo partnership, impacting Virtue SAB development and requiring renegotiation for capital - The company has missed target dates for two $5 million milestone payments from Terumo and is unlikely to earn an additional $25 million in time-based milestones328 - Failure to achieve milestones could lead Terumo to terminate the agreement, adversely impacting Virtue SAB product development and commercialization329 - Negotiations with Terumo are ongoing to restructure the agreement for additional capital, with the Virtue SAB pivotal study on hold pending outcomes330 Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period - None331 Other Information Director Geoffrey Smith resigned on November 9, 2023, and no Rule 10b5-1 trading plans were adopted or terminated during the quarter - Director Geoffrey Smith resigned from the Board and its committees on November 9, 2023334