Orchestra BioMed (OBIO) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, detailing the company's financial position, operational results, and cash flows as of June 30, 2023 Condensed Consolidated Balance Sheets The balance sheet reflects a significant increase in total assets and stockholders' equity as of June 30, 2023, primarily driven by marketable securities and proceeds from the business combination Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $16,409 | $19,784 | | Marketable securities | $101,295 | $63,915 | | Total current assets | $119,590 | $84,690 | | Total Assets | $125,883 | $95,572 | | Liabilities & Equity | | | | Total current liabilities | $11,860 | $18,566 | | Warrant liability | $0 | $2,089 | | Total Liabilities | $36,444 | $43,038 | | Total Stockholders' Equity | $89,439 | $52,534 | Condensed Consolidated Statements of Operations and Comprehensive Loss The statement of operations shows increased revenue offset by a sharp rise in operating expenses, leading to a higher net loss for the six months ended June 30, 2023 Statement of Operations Summary (in thousands, except per share data) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Total revenue | $2,079 | $1,267 | | Research and development | $16,753 | $8,503 | | Selling, general and administrative | $9,729 | $5,424 | | Loss from operations | $(24,501) | $(12,762) | | Net loss | $(22,986) | $(13,576) | | Net loss per share, basic and diluted | $(0.74) | $(0.74) | Condensed Consolidated Statements of Cash Flows Cash flow analysis indicates increased cash usage in operations and investing, largely offset by significant cash provided by financing activities for the six months ended June 30, 2023 Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(24,871) | $(13,289) | | Net cash used in investing activities | $(35,411) | $(521) | | Net cash provided by financing activities | $56,907 | $110,845 | | Net (decrease) increase in cash | $(3,375) | $97,035 | Notes to Unaudited Condensed Consolidated Financial Statements This section details the company's accounting policies, significant financial items, partnership agreements, debt financing, and subsequent events, including FDA approval for a pivotal study - The company is a biomedical innovation firm with flagship products BackBeat CNT (for hypertension) and Virtue SAB (for artery disease)[23] - On January 26, 2023, the company completed its business combination with HSAC2, becoming a publicly traded entity. The transaction is accounted for as a reverse recapitalization, with Legacy Orchestra as the accounting acquirer[24][34][87] - The Terumo Agreement for Virtue SAB involves an upfront payment of $30 million, recognized over time, and potential future milestones and royalties. The company notes that it is unlikely to meet certain time-based milestones[100] - The Medtronic Agreement for BackBeat CNT grants Medtronic exclusive commercialization rights post-approval, with Orchestra BioMed receiving payments based on sales. No revenue has been recognized under this agreement as of June 30, 2023[108][109][116] - The company has a $10 million term loan outstanding from a June 2022 agreement, maturing in June 2026 with a floating interest rate of prime plus 6.45% (14.7% at June 30, 2023)[168][170] - Subsequent to the quarter end, on August 8, 2023, the FDA granted investigational device exemption (IDE) approval with conditions to initiate the Virtue ISR-US pivotal study[180] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial performance for the six months ended June 30, 2023, highlighting revenue growth, increased operating expenses, strong liquidity, and key risks related to partnership milestones Results of Operations Operational results for the six months ended June 30, 2023, show increased partnership revenue, significantly higher R&D and SG&A expenses, and a resulting larger operating loss Comparison of Results for the Six Months Ended June 30 (in thousands) | Line Item | 2023 | 2022 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Partnership revenue | $1,747 | $945 | $802 | 85% | | Research and development | $16,753 | $8,503 | $8,250 | 97% | | Selling, general and administrative | $9,729 | $5,424 | $4,305 | 79% | | Loss from operations | $(24,501) | $(12,762) | $(11,739) | (92)% | | Net loss | $(22,986) | $(13,576) | $(9,410) | (69)% | - The increase in R&D expenses was primarily due to a $3.2 million increase in personnel costs, a $2.7 million increase in program costs and supplies, and a $1.3 million increase in clinical development costs to advance BackBeat CNT and Virtue SAB[214] - The increase in SG&A expenses was mainly due to a $2.0 million increase in stock-based compensation and a $1.3 million increase in professional fees related to being a public company[216] Liquidity and Capital Resources The company's liquidity position as of June 30, 2023, is strong, with sufficient cash and marketable securities to fund operations into 2026, supported by recent financing activities - The company has funded operations through convertible preferred stock ($166.8M cumulative), the Business Combination ($70.0M gross proceeds), and the Terumo Agreement ($30.0M)[236] - As of June 30, 2023, the company held $16.4 million in cash and cash equivalents and $101.3 million in short-term marketable securities[236] - Management believes current cash and marketable securities are sufficient to fund operations into 2026[238] Critical Accounting Policies and Estimates This section outlines the company's critical accounting policies and estimates, focusing on revenue recognition, research and development expenses, and stock-based compensation, which involve significant judgment - Partnership revenue from the Terumo agreement is recognized over time using a proportional performance model based on costs incurred relative to total expected costs. This requires significant estimation[264] - Estimates for total costs under the Terumo agreement were updated in Q2 2023, resulting in a $303,000 reduction in partnership revenue for the six-month period compared to previous estimates[265] - Stock-based compensation expense for the six months ended June 30, 2023 was $3.2 million. As of June 30, 2023, there was approximately $6.6 million of total unrecognized stock-based compensation[279] Quantitative and Qualitative Disclosures About Market Risk This section addresses the company's exposure to market risks, which is currently deemed not applicable - Not applicable[287] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with enhancements implemented post-business combination - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[291] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls, other than enhancements made as a result of becoming a public company[292] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings or aware of any pending actions that would significantly impact its business - The company is not currently a party to any material legal proceedings[297] Risk Factors A primary risk factor involves the company's strategic partnership with Terumo, specifically the failure to meet time-based milestone payments, which could adversely affect the agreement and financial results - A key risk is the failure to meet target achievement dates for milestone payments under the Terumo agreement[299] - The company has already passed the target dates for two $5 million milestone payments without achieving them and is unlikely to meet the remaining $25 million in time-based milestones[299] - Terumo has the right to terminate the agreement if certain milestones are not achieved, which would adversely impact development and commercialization plans for Virtue SAB[300] Unregistered Sales of Equity Securities and Use of Proceeds This section confirms there were no unregistered sales of equity securities during the reporting period - None[302] Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the three months ended June 30, 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter[305] Exhibits This section provides a comprehensive list of exhibits filed with the Form 10-Q, including corporate governance documents, agreements, and required certifications