Q4 2022 OptiNose Inc Earnings Call

Speaker 2: Good day and thank you for standing by. Welcome to the Optino's fourth quarter 2022 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 during this session, you will need to press star 1 1 on your telephone.

Speaker 2: Jonathan Neely, Vice President of Investor Relations. Please go ahead.

Speaker 3: Good morning and thank you for joining us today as we review Optinosis fourth quarter 2022 performance and our plans for the remainder of the year. I'm joined today by our chairman Joe Scodari, our CEO , Dr. Rami Mahmood and our chief commercial officer Paul Spence. Joe is contributing to the prepared remarks proportion portion of today's call. Rami Paul and I will host the question and answer session.

Speaker 3: 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 the...

Speaker 3: filed with the SEC and available on the website sec.gov and on our website at optinose.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.

Speaker 3: We will now make prepared remarks and then we will move to the question and answer session. With that, I will now turn the call over to Joe Scodari. Joe.

Speaker 4: Thanks Jonathan and good morning everyone. You've all had the opportunity to interact with Rami over the years in his prior position as President and Chief Operating Officer of the company. But given the recent decision to name him CEO , I'm taking this opportunity to introduce him and to share some perspectives about him.

Speaker 4: on behalf of the Board of Directors.

Speaker 4: As you know, Peter recently made the decision to step down as CEO . In that context, the board confronted the question of CEO succession. Obviously a very important decision for any company, private or public.

Speaker 4: As the board discussed this decision, we recognized that we were in this somewhat unique position for a company of our size to have a ready-now candidate to promote into the position.

Speaker 4: As you know, Rami has been a part of building Optinos from its very beginning and has been a very close working partner with Peter.

Speaker 4: The fact that he can step into the CEO position given that history is an incredible benefit to the company, its shareholders, the management team, all of our people, and the customers and patients we serve. I've known Rami for more than 20 years, dating from the time that we overlapped while we were both employed by Johnson & Johnson.

Speaker 4: In this case, while Romney served as a member of the management team at Jamson, Pharmaceutical Cup, and I served as company group chairman and later worldwide chairman of the Pharmaceutical Secretary.

Speaker 4: During that period, in the very robust succession planning processes within J&J, Rami was consistently viewed as a rising star with significant upward potential for senior leadership roles, both within and beyond medical affairs and R&D.

Speaker 4: Over the past five years as Chairman of the Board for Optinos, I've had the chance to work more closely with him and further recognize his leadership skills.

Speaker 4: We all recognize Rami when he's about lighting the development of the chance for chronic rhinocyanusitis, but he brings much more to the senior leadership roles he has occupied, and the board is confident he will do so as the company's CEO . It's rare to see a senior executive in our industry that is trained as an MD. It's rare to see a senior executive in our industry that is trained as an MD.

Speaker 4: served in the military, and combines a history of highly productive drug development with exceptional executive and leadership skills.

Speaker 4: Rami's been an integral part of building Optinos into what it is today. And notwithstanding the challenges the industry and the company has faced in the last few years, Rami is ready now to lead the company into its next chapter of growth.

Speaker 4: With the filing of the supplemental NDA for the chronic rhinosinusitis indication now behind us,

Speaker 4: Rami will lead the effort to ensure the company is ready to launch its hands for this very important application.

Speaker 4: As you know, there is currently no FDA-approved therapy for this disease, and a high level of patient satisfaction with the therapeutic options currently available.

Speaker 4: The planning is already underway to get the company into the position to successfully launch exams into a marketplace with significant unmet medical need in the not too distant future.

Speaker 4: I can speak on behalf of the entire board of directors when I say that we are thrilled that this executive transition has already occurred from the prior to the new CEO .

Speaker 4: We anticipate we will not miss a beat and that Rami will lead this team to the next level of success, while maintaining the culture and values that have contributed to the company winning awards for being a great place to work.

Speaker 4: Thank you all for listening and now I'll turn it over to Rami. Rami?

Speaker 5: Thank you very much, Joe, for your kind remarks, and thank you to everyone listening for joining us this morning. We appreciate you joining us for our fourth quarter update.

Speaker 5: Before we get started with our business update, I would like to introduce our new Chief Commercial Officer Paul Spence.

Speaker 5: Paul is most recently the Senior Vice President of the US Pharmaceutical Commercial Organization at AMU Therapeutics, a division of Nestle Health Sciences, and has nearly 30 years of experience in the life science and pharmaceuticals industry as a commercial leader, including responsibility for marketing, sales, market access, and commercial operations.

Speaker 5: His history of relentless focus on commercial execution and lengthy experience building successful commercial organizations and brands out of products with profiles similar to exams is a big part of why we believe he will be successful in his role as the new leader of our commercial team. So starting on slide three.

Speaker 5: We'll go into more detail in a moment, but I'd like to highlight three key takeaways from today's presentation.

Speaker 5: First, we remain enthusiastic about the potential addition of an indication to treat patients who have chronic sinusitis.

Speaker 5: Claims data suggests that CS is currently being diagnosed by healthcare providers approximately 10 times more frequently than nasal polyps. And, 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 multi-fold larger patient audience and therefore drive significant growth. Second.

Speaker 5: We announced the submission of our supplemental new drug application in February for X-HANDS as a treatment for patients with chronic sinusitis.

Speaker 5: This was consistent with our previous guidance and is an important milestone on the road to a potential approval of the new indication in December 2023.

Speaker 5: Third, we have refocused our strategy to prioritize the potential launch of Xhans as the first ever FDA approved drug treatment for CS.

Speaker 5: Because of important differences in patient prevalence, frequency of diagnosis, and payer dynamics, we believe the potential for return on investment that can be produced by promoting EXHANCE following the potential label expansion for CS is significantly greater than the return available from promotion of EXHANCE as a treatment for nasal polyps.

Speaker 5: Because of this, we have, as we enter 2023, structured our business to reduce the use of cash during 2023 and to increase our focus on profitability, while preserving the infrastructure and capabilities that will be important to a rapid and successful launch in CS following the potential approval.

Speaker 5: These principles have shaped our expectations for 2023 and we will discuss those expectations later in the presentation.

Speaker 5: Turning to slide four.

Speaker 5: We believe the future approval of ExHance 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 an order of magnitude more patients are currently diagnosed and treated for chronic sinusitis than are diagnosed and treated for nasal polyps.

Speaker 5: We expect the greatly expanded universe of potential patients to include those that are currently cared for by physicians in our existing commercial footprint, which would significantly grow 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. And we are already exploring a number of ways to improve the quality of care for patients in our current commercial reach.

Speaker 5: that future outreach to those physicians and patients is possible, including through commercial partnerships, alternative selling models, modest future expansion of our direct selling efforts, or by other means.

Speaker 5: The fact that claims data show a very large number of patients are being diagnosed with CS today, up to 10 million office visits per year are coded for chronic sinusitis related diagnoses, gives us optimism that it will not be necessary to engage in educational efforts around the prevalence or recognition of chronic sinusitis.

Speaker 5: The diagnosis is already being made and documented frequently, much more frequently than nasal polyps in the course of ordinary clinical practice.

Speaker 5: In addition, you are aware that we believe payer friction is one of the chief hindrances to product uptake, and the fact that a diagnosis of chronic sinusitis is commonly documented in routine practice may help address one of the most important challenges to uptake created by payers today.

Speaker 5: Specifically, one of the challenges payers create for physicians prescribing exams today, particularly allergists or primary care providers who do not routinely perform nasal endoscopy, is asking for attestation to an on-label diagnosis, which today, of course, is a diagnosis of nasal polyps.

Speaker 5: The new CS indication may be better aligned with current physician practice behaviors and with payer requirements in addition to addressing a larger patient population.

Speaker 5: As a reminder, today approximately 80% of commercial lives are in a plan that covers ex-hance, and of those, approximately half are in a plan that requires a prior authorization that includes physician attestation to an on-label diagnosis.

Speaker 5: While we believe more patients could be diagnosed with nasal polyps than are currently being diagnosed, and that some physicians could independently choose to write exams more broadly for patients with insurance plans that don't require attestation to a nasal polyp diagnosis.

Speaker 5: Having a meaningful number of patients in plans that require attestation, we believe is deterring many physicians from writing exams broadly or at all. And of course our promotional efforts today are constrained to nasal polyps.

Speaker 5: With a CS indication, we believe there's significant potential for more physicians to be willing to write for a broader group of their patients because it will be comparatively much more straightforward to attest to a diagnosis that they are routinely documenting today.

Speaker 5: Turning to slide six.

Speaker 5: On February 16th, we submitted our supplemental new drug application in pursuit of the additional examines indication for treatment of patients with chronic rhinosynucitis. This is a novel indication for which no drug has ever been approved by FDA.

Speaker 5: Accordingly, the specific language of this potential future indication is a bit uncertain and may be chronic sinusitis, chronic rhinosinusitis, chronic rhinosinusitis without nasal polyps, or other similar language.

Speaker 5: From a promotional perspective, we view these terms as interchangeable. Focusing on what's next, we are now in a 74-day window during which FDA will decide whether to accept the SNDA submission for filing.

Speaker 5: Based on the submission date, we expect that to occur by the start of May.

Speaker 5: If accepted, the standard FDA review period for this type of application is 10 months, 10 months from the submission date, which would result in an expected FDA action date in mid-December 2023.

Speaker 5: I will not review data from the Reopen program in detail during prepared remarks. However, we have included summaries of the co-primary endpoints in an appendix to today's presentation.

Speaker 5: We open with a landmark program and a major accomplishment for our organization and for the field.

Speaker 5: If there are any questions, we'll be happy to address those during the Q&A session. Turning to slide 8. While our fourth quarter and full year 2022 results were aligned with the expectations that were set in our last call, we are not satisfied with these results.

Speaker 5: Accordingly, we've made significant changes to our organization as well as to how we plan to operate moving forward.

Speaker 5: Our initial changes, already implemented, will focus on reducing total expenses while concentrating our commercial investments for growth on our most productive territories and programs.

Speaker 5: In addition, our new Chief Commercial Officer, Paul Spence, and his team are evaluating and acting on a number of key factors that we believe underlie the revenue trends observed in the second half of 2022. He's taken on this challenge energetically and with an eye on both improving the tactical quality of our commercial execution and improving the quality of our commercial execution, and he's also taken on a number of key factors that we believe underlie the revenue trends observed in the second half of 2022. He's taken on this challenge energetically and with an eye on both improving the tactical quality of our commercial execution and improving the quality of our commercial execution, and

Speaker 5: and on a variety of potential strategic changes during the coming months. Specific examples of areas receiving attention include improving the efficiency with which active physician interest in prescribing exams is converted to fill the prescriptions that drive net revenue.

Speaker 5: the rate at which prior authorization paperwork is submitted, the structure and implementation of our copay program, and the size and management of our pharmacy distribution network and our payer strategy.

Speaker 5: Our commercial team is aware that these and other areas where we are evaluating and considering action this year have potential ramifications not only for our promotional efforts in nasal polyps in 2023, but also for how we are setting the organization up for a successful launch of the much larger new CS indication.

Speaker 5: I'd like to note that we'll be looking for evidence of performance improvement before we allow our commercial changes to influence our outlook for the full year 2023.

Speaker 5: As for results, in fourth quarter 2022, there were approximately 27,700 new prescriptions for exams, a decrease of 7% compared to fourth quarter 2021.

Speaker 5: while a market defined by INS prescriptions written by any physician for any condition, a large component of which are prescriptions for allergic rhinitis, increased by 5% over the same period. For the full year 2022, there were approximately 113,100 new prescriptions for exams.

Speaker 5: a slight increase compared to full year 2021, while the INS market I just described increased by 7% over the same period. Turning to slide 9. In fourth quarter 2022, there were approximately 86,200 total prescriptions for exams.

Speaker 5: A decrease of 8% compared to fourth quarter 2021. While the market, which includes INS prescriptions, written by any physician for any condition, a large component of which are prescriptions for allergic rhinitis, increased by 3% over the same period. For the full year 2022, there were approximately 341,000.

Speaker 5: Total prescriptions for exams, a 2% increase compared to full year 2021, while the INS market previously described increased by 4% over the same period.

Speaker 5: Turning to slide 10, enhanced market share of 5.7% in fourth quarter of 2022 decreased when compared to the 5.9% share in fourth quarter 2021.

Speaker 5: In the future, we may eliminate or replace this measure because the denominator we use to calculate this fraction has limitations.

Speaker 5: As a reminder, the denominator for this share includes all intranasal steroid prescriptions written by an audience of approximately 21,000 physicians.

Speaker 5: which includes a substantial number of descriptions for indications such as allergic rhinitis, in which does not include prescriptions for the several biologics that are indicated to treat nasal polyps. Brett and Depth of Physician Prescribing, as measured by the total number of physicians who have patients filling exams prescriptions, turns human

Speaker 5: had mixed results from fourth quarter 21 to fourth quarter 22. Regarding breadth, in fourth quarter of 22, there were 8,104 physicians who had a patient fill at least one prescription for exams, an increase of 8% compared to fourth quarter of 2021. Regarding depth, in fourth quarter of 22, there were 8,004 physicians who had a patient fill at least one prescription for exams,

Speaker 5: the number of physicians who had more than 15 ex-hance prescriptions filled by their patients in a quarter decreased by 8% from fourth quarter 21 to fourth quarter 22, with approximately 1,450 physicians in this segment.

Speaker 5: I will now turn the call over to Jonathan to discuss fourth quarter and full year financial performance and guidance.

Speaker 3: Thank you, Rami. Turning to slide 12. As we reported, OPMO's recognized $20.9 million of ex-ance net revenue in the fourth quarter of 2022, a decrease of 7% compared to fourth quarter 2021 net revenues of $22.5 million.

Speaker 3: The primary driver of the year of your decrease in fourth quarter is the prescription demand that Rami just discussed.

Speaker 3: Full year 2022, exchange net revenue was $76.3 million, an increase of 4% compared to the prior year. Turning to slide 13. Based on available prescription data purchased from third parties and on data we received directly from a preferred pharmacy network, exchange net average net revenue per prescription for the fourth quarter of 2022 was $242.

Speaker 3: an increase of 1% compared to $240 of revenue per prescription in fourth quarter 2021. Full year 2022 average net revenue per prescription was $224 and reflects an increase of approximately 2% compared to $219 for the full year 2021.

Speaker 3: As we discussed on prior calls, we made a change to our copay assistance program, start of 2022, that was intended to increase average net revenue per prescription by reducing the number of prescription fills by commercially insured patients and plans that have a high deductible.

Speaker 3: We believe this change had the intended effect, reduced our copay assistance expense, and increased average net revenue per prescription in the early part of the year. We believe the increase in average net revenue per prescription due to the change in copay assistance helped offset effects of an increasing proportion of our prescription volumes through government plans and increases to contracted rebates and commercial plans, both of which have the effect of the change in copay assistance.

Speaker 3: And I hope the message our investors take home today is that we are focused as a company on preserving cash that we believe will generate a higher return if used to support a CS launch while maintaining the infrastructure necessary to rapidly and successfully launch the new indication upon approval.

Speaker 3: First, for the full year of 2023, we expect total operating expenses to be in the range from 90 to 95 million dollars, of which approximately 8 million dollars is stock based compensation. There's a reduction of approximately 30 million dollars, or 25%, compared to the 123 million dollars reported for the full year of 2022.

Speaker 3: and reflect the actions taken to reduce both employee related and third-party expenses. Approximately half of the $30 million reduction is attributable to sales and marketing, and the remainder is available to general administrative expenses and reduce research and development that follows from the conclusion of the Reopen Program.

Speaker 3: As part of actions intended to reduce total operating expenses for full year 2023, the company reduced its number of territory managers by approximately 15% at the end of 2022.

Speaker 3: Second, bearing in mind the level of sales and marketing expense reductions and our second half 2022 prescription trends, our expectation for ExanceNet revenue for the full year of 2023 is between 62 million to 68 million dollars.

Speaker 3: It is important to note that we are not assuming revenues from a CS launch in our full year 2023 guidance.

Speaker 3: Third, as part of our expectation for full year 2023, we expect first quarter 2023 enhanced net revenue to be approximately $10 million.

Speaker 3: The year-over-year decrease to enhanced net revenue for the first quarter of 2023 is a consequence of an expected increase in gross net deductions and an expected decrease in the unit ship.

Speaker 3: The expected increase in gross net deductions in the first quarter of 2023 includes increased rebates and changes in business mix that also influence our full year 2023 net revenue expectations and average net revenue per prescription. We expect the average net revenue per prescription to be approximately $200 for the full year of 2023. Finally, as we noted in our earnings press release this morning, all of our financial obligations under the amended and restated PharmaCon note purchase...

Speaker 3: for sinusitis with nasal polyps. On that accounting basis, we believe that it will not be able to maintain compliance with certain financial and liquidity covenants in the agreement. It is important to note that this assessment does not account for revenues from a CSO approval. The potential to add a partner for primary care. Another event that could lead to us achieving a compliance in the future.

Speaker 5: I will now turn the call back over to Rami for closing remarks. Rami? Thank you, Jonathan. Before moving to Q&A, and as we turn our attention fully forward to 2023, I'd like to take a moment to reiterate our strategic focus this year.

Speaker 5: 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's therefore our top priority.

Speaker 5: Second, we are dissatisfied with our commercial results in 2022. 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, we have taken and will continue to take action to efficiently generate enhanced revenue with the current indication.

Speaker 5: of efforts during 2023 to position ourselves for an inflection in 2024.

Speaker 2: With that, I'd like to thank you for your attention this morning and open the call for Q&A. As a reminder to ask a question, please press star 1 1 on your telephone and wait for your name to be announced.

Speaker 2: To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

Speaker 2: Our first question comes from Brandon Folks with Cantor. Your line is now open.

Speaker 6: All right, thanks for taking my questions and congratulations on the appointment.

Speaker 6: How quickly can you run?

Speaker 6: the CS label uptake, just given sort of we go back to the revenue covenants in the first quarter of 2024. And then similarly, you know, can you elaborate a bit more on the first quarter headwinds you're seeing in 2023? And why could those different 2024 with this indication late in the label? Thank you.

Speaker 5: Hey Brandon, and thank you. So obviously we're not sharing a CS forecast for 2024 at this time, but I'll just share a couple of general thoughts about the nature of the launch for CS. The first thing I'll say is that...

Speaker 5: This is the launch of a new indication, not a de novo launch of a new product into the market. So we have the advantage of physicians who are already in established relationships with our commercial organization. We have the advantage of the distribution channels that are already in place.

Speaker 5: We have the advantage of many of the prescribers that we'll be talking to already having a general familiarity with the product, all of which may not be the same if we were launching a product de novo into the marketplace. So those things I think will facilitate the adoption of the product more rapidly than it might be if we were launching new. On the other hand, it's never a good idea to underestimate the potential impact of the product.

Speaker 5: some general thoughts that I think could suggest the rapid and successful launch of CS in 2024.

Speaker 3: I don't know, Paul or Jonathan, if you wish to add anything. I think that's good. I think in terms of typical first quarter cadence for 2024, I think each year we talk a little bit about the start of year resets on out-of-pocket expenses for patients.

Speaker 3: I think typically that results in a lower revenue prescription in first quarter as patients meet that out of pocket minimum. There's kind of greater reliance on our copay assistance program during that period. I think our expectations at the beginning and next year would be similar to what they are each year in terms of that dynamic.

Speaker 7: open.

Speaker 3: Hi, guys. Good morning. So, you know, with a lot of the evaluation of the commercial components and strategies that you highlighted that you're doing this year, it sounds like you're taking a close look at everything. So, you know, what are the areas where you think you need to have the greatest change and how long it'll take to affect those changes? And then with the reduction in territory managers by 15 percent.

Speaker 5: us to cover the sort of most potential, the physicians with the greatest potential from our current universe and understanding of course the products been on the market for several years and we have a better sense of physicians who are prescribing today than we had when we initially launched.

Speaker 5: So, with regard to the areas of action, you observed that it sounded to you, I think, like we were acting in every area of commercial. And I'm kind of glad that you reached that conclusion because we sort of opened the full book to reevaluate all aspects of our commercialization.

Speaker 5: So nothing is off the table for consideration. Having said that, the areas that I specifically mentioned as examples are areas where we think a greater focus or attention is likely to produce the greatest potential for a change, the greatest difference during 2023.

Speaker 5: The timeline for the expectation for change varies depending on which of those areas we're talking about. So some of those things, Paul and his team have already acted to look for changes. Some of those things have been subjected to fairly intensive analysis, and we expect action to be following here later during March or during the spring.

Speaker 5: And the timeframe for seeing the difference in the market, again, varies by which of those tactics we're talking about. Paul, would you like to add anything? Yeah, Gary, thank you for the question. So to start the year, there's actually several areas that are receiving particular attention, as Rami had mentioned. Of particular note, we just came from our national sales meeting.

Speaker 4: where we were focused on several things, one most importantly was improving the efficiency with which active written ex-hands prescriptions are converted to filled dispensed prescriptions that ultimately are gonna drive greater revenue. It, particularly around that, stronger patient positioning.

Speaker 4: and improving the quality and speed of PA submission was a lot of our tension last week as we were together. In addition, the structure and implementation of our Co-P program, the size and management of our pharmacy distribution network, and our payer access strategy were all receiving particular attention as well.

Speaker 3: Okay, that's helpful. Yeah, yeah, no, it didn't. I mean, it sounds like things are going to be evolving over the course of the year, and I'm sure we'll get updates on all these different areas. But when it comes to thinking about the CF launch, how...

Speaker 3: Do you have any sense of how much of an effort you're going to need behind that at this point? And, you know, just, Rami, talk about some of the discussions you might be having with potential co-promote partners and what some other failed alternatives might be. You mentioned that in the prepared remarks. such an facetous decision to the general public to really see that it's a progress in basis

Speaker 5: Yeah, sure. And thanks for that question. So we are doing a lot during 2023 to prepare to be able to have a rapid and successful launch as we as we head into into next year with the new indication should we receive that in December .

Speaker 5: And some of those things require this kind of lead time. So Paul alluded to a payer access. Payer access has ramifications not just now, obviously has ramifications for 2024. And in fact many of the negotiations happening now are specific to contracts which will come into force at the beginning of 2024. So there's a lot of things we have to do now to be ready for next year. The overall commercial investment, the.

Speaker 5: the size and distribution, sort of a footprint of our direct selling structure, and sort of some other major selling efforts. I don't expect that to change substantially in size. It's not so much about having to ramp up the size of it going into 24. It's more about changing the content and the strategy and the manner of execution.

Speaker 5: in order to shift the focus to this newer, more commonly diagnosed, you know, easier to see sort of widespread uptake indication. So it's not an issue so much of size.

Speaker 5: as of style or quality of the work that we'll be doing. If that's sort of what you were getting out of regard to the plans for our commercial infrastructure. Is that getting at the issue you're asking about Gary?

Speaker 3: Yeah, no, I mean, that's helpful, but, you know, as far as potential co promotes and then you said other types of selling alternatives for chronic sinusitis and. If you're not going to change the size of the footprint, then there's other ways that you'd be able to tap into that larger market. I presume. Right well, so Gary, here's here's some.

Speaker 5: The way we're thinking about this is that there's a substantially increased potential within our current specialty audience And that's what I was talking about before but yet as you said There's a lot of potential outside of our current specialty audience also And we have to think creatively about the ways in which our company can reach our customers.

Speaker 5: promotion into that primary care audience.

Speaker 5: And we are planning to continue to actively pursue conversations with organizations that have the necessary infrastructure and an interest in a product that creates leverage with that infrastructure. So that would be one way of our organization seeing potential benefit from that.

Speaker 5: I also alluded to the possibility that there are other ways we might see those benefits, ways that might not involve having to share value in the same ways as we might have to in a primary care partnership. And those ways are a little less certain, but worthy of exploration right now during our lead time up to the new indication.

Speaker 5: For example, there appear to be emerging models in the marketplace for mechanisms of reaching out directly to patients and sort of using non-traditional promotional mechanisms to engage those patients, get them access to providers able to make an appropriate diagnosis.

Speaker 5: and if appropriate, prescribe the product for them, and to fill that prescription in ways that include our current pharmacy network, or potentially other mechanisms for fulfillment that may increase efficiency and outreach for a broader population that's not sort of within our current specialty universe.

Speaker 5: I don't want to define what that looks like yet because as I said a minute ago It's something that we are beginning to actively explore It looks like there are some potential Mechanisms by which this may be possible and I want to be clear that we are not We're not closed minded. We are open minded to a variety of potential mechanisms

Speaker 3: If you guys are going to be focusing more on profitability this year, is that mostly volume driven or, you know, there are different programs that you're factoring into that. And could we expect. You, if this is just going to be a transition year with the indication to get it back up to the levels we saw last year. Thanks.

Speaker 3: That's a really good question and it is a significant decrease in our projected average revenue prescription. Jonathan, would you like to comment on that? Yes, sure. Gary, thanks for the question. The guidance that we put out of approximately $200 for average net revenue prescription, it incorporates some changes in business mix.

Speaker 3: as well as higher gross net deductions within lines of business. And a belief that I think in a rising interest rate environment that may lead to customers carrying less inventory at the end of 2023 than they did in 2021, 2022. So yeah, I think.

Speaker 3: Some of where we ended up, I think, in 2022, was a result, I think, of some benefits that you wouldn't necessarily plan for at the start of a year. As a reminder, last year we started out with guidance for the year of approximately 210,000 people.

to certain government lines of business, which is driving mix into those lines of business, which are relatively less profitable that still good lines of business can have halo effect with physicians who also serve commercial patients.

Those things are all kind of in the mix for our initial guidance here for an expectation of $200 per TRX.

Okay, but it sounds like this might be more of the new normal. So even with CS, it'll be more in this level or could it get back up a little bit, even if not to the 224.

Yeah, I think probably the other thing that I would note is that, you know, at the start of the last two years, we made some changes to our co-pay assistance program. You know, in 2021, you know, we made a change to the co-pay assistance program that was focused on, you know, reducing the number proportion of prescriptions that were

with a high deductible, which cover a chance. Both of those kinds of lines of business are relatively less profitable for us or in certain cases can actually be unprofitable lines of business for us. We haven't made a similar kind of profitability optimizing, change to copay assistance.

Our next question comes from Gullin, Santangelo with Jeffries. Your line is now open.

Oh yeah, thanks for taking my question. Now I just wanted to talk about the balance sheet a little bit. I mean, you're ending the year with $94 million in cash and sort of based on that new revenue guide, just $8 million versus the outlook for operating expense, that's your providing. You gave us enough of the pieces here, but I just wonder if you could just summarize that. Thank you.

and give us your expected sort of cash burn in 2023. Thank you for the question. I'll turn that one over to Jonathan also. Yeah, sure. Thanks, Glenn. Yeah, I think you kind of hit the nail on the head. I think we've given you enough pieces to maybe put the math together yourself or yourselves. But obviously, we ended the year with 94 million in cash.

As you point out, we structured our business to reduce the use of cash in 2023. Again, while preserving the infrastructure and capabilities important to a rapid and successful launch in CS following potential approval, the midpoint of our revenue and operating expense ranges, they imply approximately a $20 million improvement to operating income robust.

open later on. Our use of cash in 2022 was approximately $67 million.

Right, right. So that's so I'm correct, sort of assuming that burn kind of comes down in the 30 to 40 degree.

Yeah, I mean, I think the kind of midpoint of the operating expense and revenue view would apply approximately $20 million if you want to kind of range it out with a high and low So those things, it's probably somewhere between $15 and $25 million improvement. I think as an organization, we would try to aim for the higher end of that range, not pair up.

leave you right i mean i think he's always been pretty much leaning towards you know the opportunity to enter into some type of commercial partnership right in in anticipation of the c-s indication i mean any thoughts with respect to timing around that i mean you sort of laying out

a timeframe for hopefully a pedoof in mid-December. I mean, have those conversations started? Do you think we could expect to see something in the second half of the year? You think that kind of more would come in 2024, post-approval? So, Gwen, I'll comment on that. So, it's very difficult in advance of reaching an agreement to say.

whether those organizations will prove to be interested in closing an arrangement prior to the PDUFA date, whether they may be interested in seeing the PDUFA approval before closing an arrangement, and what exactly the terms of such an arrangement might be. Those are uncertain. I don't know the answer to those questions yet.

But with regard to whether we'll be engaged in active conversations during the course of this year, the answer is definitely yes.

Okay, thanks. We stand by for our next question.

Our next question comes from David Anselm with Piper Sandler. Your line is now open.

Thanks. So I guess I'll just sort of put to baby an obvious question, but I think an important one. You're.

entertaining a co-promote here, I know that's something you talked about going back to the IPO, but just given where things are with the business and given the potential challenges regarding

interest in owning a piece of the asset here, why don't you just entertain a sale of the company and do you think that that may be the the better alternative here just given all the moving parts? How do you think about that? So David, I'll I'll comment on that and then Johnson I'll invite you to comment if you have anything to add but for all the reasons that you've described David and others you

We are evaluating a wide range of strategic options and I think sales of the company is within the range of options that we are considering. It always has been and it will continue to be. It's certainly not the only possibility we are considering. As I said earlier, we are actively planning to engage in.

conversations about a primary care promotional partnership, and plan to do everything necessary to continue to operate the company independently, but in no way does that preclude the possibility of conversations about M&A type transaction either. So we will continue to entertain all strategic options as we go forward through 2023.

And then as a follow up, as you look at the launch and CSU, you've talked about the potential for greater penetration within your existing prescriber base. So is it fair to say that that's where at least early on in... in...

the role that that's where most of your growth is going to come from. And if that is certainly the case, then what is the urgency to entertain a primary care partnership ahead of approval or around the approval?

So, David, the potential for the product, we think, is very substantial within our current commercially contacted, our direct selling audience and indirect selling, our specialty audience.

has a lot of new potential with the new indication. And we do intend to go after that assertively with our own infrastructure. But that doesn't mean that there's not a lot of additional potential outside of the audience that we're currently calling on.

And we really don't have the resources to go after that, certainly not with a traditional direct selling model. So, it means that if we are able to reach a primary care partnership, starting on day one after the approval.

There is potential in a very large audience that we're just not going to be able to efficiently access ourselves. And primary care partnership would give us a vehicle for being able to increase the potential value available to us and increase the number of patients who are able to be treated. So it would be incremental value very much worth having for a variety of reasons that we'd like to see.

But that doesn't mean that we're not going to see substantial incremental value within our current audience. So I'm not sure if I've answered your question, David. Did that address what you asked? It did. I'm just struggling with the urgency to find a primary care partner. Don't you call on a certain death?

But the sooner we can get a primary care partner, the sooner we can access an otherwise untapped large potential audience. And while it's true that we do have a small number of, I'll call it a specialist-like primary care physicians in our call non-universe, it's a very small number in comparison to the number of primary care physicians.

We're talking about a number that's a few thousand as opposed to when you look at the broader opportunity in primary care, I think historically we've looked at potentially an audience of somewhere around 50,000 physicians who are kind of the...

higher value prescribers in the chronic sinusitis space. And so, you know, it's just a completely different order of magnitude in terms of the number of physicians that somebody with appropriate infrastructure, you know, that would be leverageable with this opportunity could reach if we were to partner with them.

Thank you. I show no further questions at this time. I would now like to turn the conference back to Rami for closing remarks. Thank you.

I'd like to thank you all very much for joining us this morning for our review of the full year performance in 2022 and our forward look into what we expect may be coming in 2023. And we look forward to talking to you again in a few months with our first quarter results. Hope everyone has a wonderful day.

This concludes today's conference call. Thank you for participating. You may now disconnect. The conference will begin shortly.

To raise and lower your hand during Q&A, you can dial star 1-1.

I.

The.

to the Optinose fourth quarter 2022 earnings call. At this time, all participants are in the list and only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 111 on your telephone.

You will then hear an automated message abiding your hand as raised. To withdraw your question, please press star 111 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Jonathan Nealy, vice president of Investor Relations, please go ahead.

portion of today's call. Rami, Paul, and I will host the question and answer session.

Besides, it will be presented on this call. It can be viewed on our website, Optimus.com, and the Investor section. Before we start, I would like to remind you that our discussion is during this conference call will include forward-looking statements. All statements that are not historical facts are here by identified as forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause the actual results to differ materially from those indicated by such statements.

at scc.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 on 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 the question and answer session.

With that, I will now turn the call over to Joseph. Thanks, Jonathan. Good morning, everyone. You've all had the opportunity to interact with Browne over the years in his prior position as President and Chief Operating Officer of the company. But given the recent decision to name him, CEO , I'm taking this opportunity to introduce him and to share some perspectives about him on behalf of the Board of Directors. Thank you.

As you know, Peter recently made the decision to step down on CEO . In that context, the board confronted the question of CEO's succession. Obviously, a very important decision for any company, private or public.

As the board discussed this decision, we recognized that we were in this somewhat unique position for a company of our size to have a ready-now candidate to promote into the position.

As you know, Rami has been a part of building up to notes from its very beginning and has been a very close working partner with Peter. The fact that he can step into the CEO position given that history is an incredible benefit to the company, it shareholders, the management team, all of our people and the customers and patients we serve. I've known Rami for more than 20 years, dating from the time that we overlap. I know Rami has been a very close working partner with Peter.

while we were both employed by Johnson & Johnson. In this case, while Romney served as a member of the management team at Jamson, Pharmaceutical Cup, and I served as company group chairman and later worldwide chairman of the Pharmaceutical Secretary. During that period, in the very robust succession planning processes within J&J, Romney was consistently viewed as a rising star with significant upward potential for senior leadership roles.

both within and beyond medical affairs and R&D. Over the past five years as chairman of the board for Optino's, I've had the chance to work more closely with him and further recognize his leadership skills. We all recognize Rami when developing the development of a chance for chronic rhinocinusitis, but he brings much more to the senior leadership roles he has occupied.

been an integral part of building optinos into what it is today. And notwithstanding the challenges the industry and the company has faced in the last few years, Rami is ready now to lead the company into its next chapter of growth. With the filing of the supplemental NDA for the Chronic Rhino Sign you've got a syndication now behind us.

Romney will lead the effort to ensure the company is ready to launch exams for this very important application. As you know, there is currently no FDA approved therapy for this disease and a high level of patient satisfaction with the therapy the adoption is currently available. The planning is already underway to get the company into the position.

to successfully launch exchange into a marketplace with significant unmet medical need in the not too distant future. I can speak on behalf of the entire Board of Directors when I say that we are thrilled that this executive transition has already occurred from the prior to the new CEO .

We anticipate the hotness of deep and that Rami will lead this team to the next level of success, while maintaining the culture and values that have contributed to the company winning awards for being a great place to work.

Thank you all for listening and now I'll turn it over to Ronnie. Ronnie? Thank you very much, Joe, for your kind remarks and thank you to everyone listening for joining us this morning. We appreciate you joining us for our fourth quarter update. Before we get started with our business update, I would like to introduce our new chief commercial officer, Paul Spence.

Paul was recently, most recently, the senior vice president of the US pharmaceutical commercial organization at AMU and therapeutics, a division of Nestle Health Sciences, and has nearly 30 years of experience in the life science and pharmaceuticals industry as a commercial leader, including responsibility for marketing sales, market access, and commercial operations. History of Relentless Focus on Commercial Execution.

and like the experience, building successful commercial organizations and brands out of product with profiles similar to exams is a big part of why we believe he will be successful in his role as the new leader of our commercial team. So starting 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, we remain enthusiastic about the potential addition of an indication to treat patients who have chronic sinusitis. Claims data suggest that CS is currently being diagnosed by healthcare providers approximately 10 times more frequently than nasal polyps.

and 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 multi-fold larger patient audience and therefore drive significant growth. Second, we announced the submission of our supplemental new drug application in February for ex-hands as a treatment for patients with chronic sinusitis.

This was consistent with our previous guidance and is an important milestone on the road to a potential approval of the new indication in December 2023. Third, we have refocused our strategy to prioritize the potential launch of Xhance as the first ever FDA approved drug treatment for CS. Because of important differences in patient prevalence, frequency of diagnosis, and payer dynamics, we believe the potential for return on investment that can be produced by promoting Xhance.

following the potential label expansion for CS is significantly greater than the return available from promotion of exams as a treatment for nasal polyps. Because of this, we have, as we enter 2023, structured our business to reduce the use of cash during 2023 and to increase our focus on profitability, while preserving the infrastructure and capabilities that will be important to a rapid and successful launch in CS following the potential approval.

These principles have shaped our expectations for 2023 and we will discuss those expectations later in the presentation. Turning to slide 4, we believe the 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 10 fold.

Because claims data suggests that an order of magnitude more patients are currently diagnosed and treated for chronic sinusitis than are diagnosed and treated for needle polyps. We expect the greatly expanded universal potential patients to include those that are currently cared for by physicians in our existing commercial footprint, which would significantly grow our potential within the scope of our current activities.

We also expect the expanded University of Patients to include patients who are cared for by physicians outside of our current commercial reach. And we are already exploring a number of ways that future outreach to those physicians and patients is possible, including through commercial partnerships, alternative selling models,

modest future expansion of our direct selling efforts, or by other means. The fact that claims data show a very large number of patients are being diagnosed with CS today, up to 10 million office visits per year are coded for chronic sinusitis related diagnoses.

gives us optimism that it will not be necessary to engage in educational efforts around the prevalence or recognition of chronic sinusitis. The diagnosis is already being made and documented frequently, much more frequently than nasal polyps in the course of ordinary clinical practice.

In addition, you are aware that we believe payer friction is one of the chief hindrances to product uptake, and the fact that a diagnosis of chronic sinusitis is commonly documented in routine practice may help address one of the most important challenges to uptake created by payers today. Specifically, one of the challenges payers create for physicians prescribing exams today.

particularly allergists or primary care providers who do not routinely perform nasal endoscopy, is asking for attestation to an on-label diagnosis, which today, of course, is a diagnosis of nasal polyps. The new CS indication may be better aligned with current physician practice behaviors and with payer requirements in addition to addressing a larger patient population. As a reminder, today approximately 80 percent of commercial lives are in a plan that covers exams and of those approximately half are in a plan that requires a primary.

or at all. And of course our promotional efforts today are constrained to nasal polyps.

With a CS indication, we believe there's significant potential for more physicians to be willing to write for a broader group of their patients because it will be comparatively much more straightforward to a test to a diagnosis that they are routinely documenting today. Turning to slide 6.

On February 16th, we submitted our supplemental new drug application in pursuit of the additional exant indication for treatment of patients with chronic rhinosinusitis. This is a novel indication for which no drug has ever been approved by FDA. Accordingly, the specific language of this potential future indication is a bit uncertain and may be chronic sinusitis, chronic rhinosinusitis, chronic

Chronic rhinocinusitis without nasal polyps or other similar language. From a promotional perspective, we view these terms as interchangeable. Focusing on what's next, we are now in a 74-day window during which FDA will decide whether to accept the SNDA submission for filing. Based on the submission date, we expect that to occur by the start of May.

If accepted, the Standard FDA Review Period, where this type of application is 10 months, 10 months from the submission date, which would result in an expected FDA action date in mid-December 2023. I will not review data from a reopen program in detail during prepared remarks, however we have included summaries of the co-primary endpoints in an appendix to today's presentation. We open with a landmark program and a major accomplishment for our organization.

plan to operate moving forward. Our initial changes, already implemented, will focus on reducing total expenses while concentrating our commercial investments for growth on our most productive territories and programs.

In addition, our new Chief Commercial Officer, Paul Spence, and his team are evaluating and acting on a number of key factors that we believe underlie the revenue trends observed in the second half of 2022. He's taken on this challenge energetically and with an eye on both improving the tactical quality of our commercial execution.

and on a variety of potential strategic changes during the coming months. Specific examples of areas receiving attention include improving the efficiency with which active physician interest in prescribing exams is converted to fill the prescriptions that drive net revenue.

The rate at which prior authorization paperwork is submitted, the structure and implementation of our COPE program, and the size and management of our pharmacy distribution network, and our payer strategy.

Our commercial team is aware that these and other areas where we are evaluating and considering action this year have potential ramifications, not only for our promotional efforts in nasal polyps in 2023, but also for how we are setting the organization up for a successful launch of the much larger new CS indication. I'd like to note that we'll be looking for evidence of performance improvement in the next few weeks.

before we allow our commercial changes to influence our outlook for the full year 2023. As for results, in fourth quarter 2022, there were approximately 27,700 new prescriptions for exams, a decrease of 7% compared to fourth quarter 2021. While a market defined by INS prescriptions written by any physician for any condition and a decrease of 7% compared to fourth quarter 2021, there were approximately 27,700 new prescriptions for exams, a decrease of 7% compared to fourth quarter 2021. While a market defined by INS prescriptions written by any physician for any condition and a decrease of 7% compared to fourth quarter 2021,

a large component of which our prescriptions for allergic rhinitis increased by 5% over the same period. For the full year 2022, there were approximately 113,100 new prescriptions for exams, a slight increase compared to full year 2021, while the INS market I just described increased by 7% over the same period. Turning to slide 9, in fourth quarter 2022, there were approximately 86,200 new prescriptions for exams, a slight increase compared to full year 2021,

increased compared to full year 2021, while the INS market previously described increased by 4% over the same period.

Turning to slide 10. Exhance market share of 5.7% of in fourth quarter of 2022 decreased when compared to the 5.9% share in fourth quarter 2021. In the future we may eliminate or replace this measure, measure, because the denominator will be used to calculate this fraction has limitations. As a reminder, the denominator for this share

includes all intranasal steroid prescriptions written by an audience of approximately 21,000 physicians, which includes a substantial number of prescriptions for indications such as allergic rhinitis, and which does not include prescriptions for the several biologics that are indicated to treat nasal polyps. Brett and Depth of Physician Prescribing, as measured by the total number of physicians who have patients filling exams prescriptions, had mixed results from 4th quarter 21 to 4th quarter 22.

Regarding breadth in fourth quarter of 22, there were 8104 physicians who had a fill, a patient fill at least one prescription for exams, an increase of 8% compared to fourth quarter of 2021.

Regarding depth, the number of physicians who had more than 15 exams prescriptions filled by their patients in a quarter decreased by 8% from fourth quarter 21 to fourth quarter 22, with approximately 1,450 physicians in this segment. I will now turn the call over to Jonathan to discuss fourth quarter and full year financial performance. I will now turn the call over to Jonathan to discuss fourth quarter and full year financial performance.

and guidance. Thank you, Rami. Turning to slide 12. As we reported, often those recognize $20.9 million of ex-ante net revenue in the fourth quarter of 2022, a decrease of 7% compared to fourth quarter 2021 net revenues of $22.5 million.

The primary driver of the year of your decrease in fourth quarter is the prescription demand that Rami just discussed. Full year 2022, a chance net revenue was $76.3 million dollars in the increase of 4% compared to the prior year, turning to side 13. Based on available prescription data purchase from third parties and on data we received directly from a preferred pharmacy network.

Sandnet's average net revenue per prescription from the fourth quarter of 2022 was $242, an increase of 1% compared to $240 of revenue per prescription in fourth quarter of 2021. Full year 2022, average net revenue per prescription was $224 and reflects an increase of approximately 2% compared to $219 for the full year of 2021.

As we discussed on prior calls, we made a change to our copay assistance program at the start of 2022 that was intended to increase average net revenue per prescription by reducing the number of proportion of prescription fills by commercially insured patients and plans that have a high deductible. We believe this change had the intended effect to reduce our copay assistance expense and increase average net revenue per prescription in the early part of the year. We believe the increase in average net revenue per prescription due to the change in copay assistance helped offset effects of an increasing proportion of our prescription volumes through government plans.

and increases to contracted rebates and commercial plans, both of which has the effect of decreasing average net revenue per prescription. Turning to slide 15. Today we announced our initial financial guidance for 2023. Our guidance reflects our commitment to refocus our strategy to prioritize the potential launch of the SAMHSA, the first ever FDA approved drug treatment for chronic

we expect total operating expenses to be in the range from 90 to 95 million dollars, of which approximately 8 million dollars is stock based compensation. There's a reduction of approximately 30 million dollars or 25 percent compared to the 123 million dollars reported for the full year of 2022. It reflects the actions taken to reduce both.

employee-related and third-party expenses. Approximately half of the $30 million reduction is attributable to sales and marketing, and the remainder is available to General Administrative expenses and reduce research and development to polish from the conclusion of the Reopen

As part of action, intended to reduce total operating expenses for a full year 2023, the company reduced its number of territory managers by approximately 15% at the end of 2022.

Second, bearing in mind, the level of sales and marketing expense reductions and our second half, 2022 prescription trends. Our expectation for ExxanceNet revenue for the full year of 2023 is between $62 million to $68 million.

is important note that we are not assuming revenues from a CS launch in our full year 2023 guidance. Third, as part of our expectation for full year 2023, we expect first quarter 2023 tax-sant-net revenue to be approximately $10 million. The year-over-year decrease to a tax-sant-net revenue for the first quarter 2023 is consequence of an expected increase in gross net deductions and an expected decrease in the unit ship. The expected increase in gross net deductions in the first quarter 2023 includes includes.

and forward-looking analyses to evaluate the alignment of the projected performance of our current business, our current liquidity in terms of our debt agreement. Under GAAP, the projections we are permitted to use and the analyses are generally based only on the business that we have today.

The chance that fruit is a treatment for chronic rhinocyanucitis with nasal polyps. On that accounting basis, we believe that it will not be able to maintain compliance with certain financial and liquidity covenants in the agreement. It is important to note that this assessment does not account for revenues from a CSO approval, the potential to out-of-partner for primary care. Another event that could lead to us achieving a co-op.

the first-ever chronic sinusitis indication will be a crucial driver of future value for patients and for our company. It's therefore our top priority. Second, we are dissatisfied with our commercial results in 2022.

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, we have taken and will continue to take action to efficiently generate a chance revenue with the current indication. Third, we must prepare our organization to seize the potential opportunity created by a new Quantic Signacy.

call for Q&A. As a reminder to ask a question, please press store 111 on your telephone and wait for your name to be announced. To withdraw your question, please press store 111 again. Please send by while we compile the Q&A roster. Our first question.

2024. And then, similarly, can you elaborate a bit more on the first sort of headwinds you're seeing in 2023? And why could those different 2024 with this year's indication in the label? Thank you. Hey, Brandon, and thank you.

So obviously we're not we're not sharing a CS forecast for 2024 at this time But I'll just share a couple of general thoughts about the nature of the launch for CS the first thing I'll say is that This is the launch of a new indication Notty-de-noval launch of a new product into the market

So we have the advantage of physicians who are already in established relationships with our commercial organization. We have the advantage of the distribution channels that are already in place. We have the advantage of many of the prescribers that we will be talking to already having a general familiarity with the product, which all of which may not be the same if we are launching a product de novo into the marketplace. So...

You know, I, as I noted earlier, there's a variety of reasons to think that the CS indication actually will be much easier to prescribe than the nasal polyp indication, you know, for the reasons I discussed earlier. So, those are just general thoughts that I think could suggest, you know, the rapid and successful launch of CS in 2024.

I don't know, Paul or Jonathan, if you wish to add anything. I think that's good. I think in terms of typical first quarter cadence for 2024, I think each year we talk a little bit about the start of year, reset on out pocket expenses for patients. I think typically that results in a lower revenue per prescription. In first quarter as patients meet that out of pocket minimum.

And there's kind of great reliance on our copay assistance program during that period. I think our expectations at the beginning and next year would be similar to what they are each year in terms of that dynamic. Great. Thank you very much.

Please stand by for our next question. Our next question comes from Gary Nachman with the MO Capital Market. Your line is now open.

Hi guys, good morning. So, you know, it's a lot of the evaluation of the commercial components and strategies that you highlighted that you're doing this year. It sounds like you're taking a close look at everything. So, you know, what are the areas where you think you need to have the greatest change and how long it'll take to affect those changes?

And then with the reduction in territory managers by 15%, where does that put the size of the sales force currently? So Gary, I'll start and then I'll ask Paul if he has any additional comments. And thank you, Gary, for your question. The first thing I'll address is the last question. The current number of territories that we have deployed is 77.

So with regard to the areas of action, you observed that it sounded to you, I think, like we were acting in every area of commercial. And I'm kind of glad that you reached that conclusion because we sort of opened the full book to reevaluate all aspects of our commercialization.

So, nothing is off the table for consideration. Having said that, the areas that I specifically mentioned as examples are areas where we think a greater focus or attention is likely to produce the greatest potential for a change, the greatest difference during 2023.

The timeline for the expectation for change varies depending on which of those areas we're talking about. So some of those things, Paul and his team have already acted to look for changes. Some of those things have been subjected to fairly intensive analysis and we expect action to be following here later during March or during the spring. And the timeframe for seeing the difference in the market, again, varies by which of those tactics we're talking about. Paul, would you like to add anything? Gary, thank you for the question.

So, to start the year, there's actually several areas that are receiving particular attention. As Rami mentioned, a particular note, we just came from our national sales meeting, where we were focused on several things. One, most importantly, was improving the efficiency with which active written ex-hance prescriptions are converted to built dispensed prescriptions.

COPE program, the size and management of our pharmacy distribution network, and our pair access strategy of all receiving particular attention as well.

Okay, that is helpful. Yeah, yeah, no, it didn't. I mean, it sounds like things are going to be evolving over the course of the year, and I'm sure we'll get updates on all these different areas. But when it comes to thinking about the CF launch, do you have any sense of how much of an effort you're going to need? Yeah.

behind that at this point and just, Rami, talk about some of the discussions you might be having with potential co-promote partners and what some other failed alternatives might be. You mentioned that in the prepared remarks. Yeah, sure. And thanks for that question. So we are doing a lot during 2023 to prepare to be able to have a rapid and successful launch as we head into 2020.

for next year. The overall commercial investment, the size and distribution, sort of a footprint of our direct selling structure and some other major selling efforts, I don't expect that to change substantially in size. It's not so much about

having to ramp up the size of it going into 24. It's more about changing the content and the strategy and the manner of execution in order to shift the focus to this newer, more commonly diagnosed, easier to see widespread uptake indication.

So it's not an issue so much of size as of style or quality of the work that we'll be doing. If that's sort of what you were getting out of regard to the plans for our commercial infrastructure. Is that getting at the issue you're asking about Gary?

Yeah, no, I mean, that's helpful. But as far as potential group promotes, and then you set other types of selling alternatives for chronic fatty cytos. And if you're not going to change the size of the footprint, then there's other ways that you'd be able to tap into that larger market, I presume.

Right, well, so Gary, here's the way we're thinking about this is that there's a substantially increased potential within our current specialty audience. And that's what I was talking about before, but as you said, there's a lot of potential outside of our current specialty audience also. And we have to think creatively about the ways in which our company can realize the benefits of getting the product in hands of patients who needed in that much larger audience.

The most obvious way, and one we would like to see if possible, of course, is if we're able to engage in some kind of commercial partnership with an organization that has an existing infrastructure that allows promotion into that primary care audience. And we are planning to continue to actively pursue conversations with organizations that have the necessary infrastructure and an interest in a product that creates leverage with that infrastructure. So that would be one way of our organization seeing potential benefit from that.

I also alluded to the possibility that there are other ways we might see those benefits, ways that might not involve having to share value in the same ways as we might have to in a primary care partnership. And those ways are a little less certain, but worthy of exploration right now during our lead time up to the new indication. For example, there appear to be emerging models in the marketplace for mechanisms of reaching out directly to patients and sort of using non-traditional promotional mechanisms to engage those patients, get them access to providers able to make an appropriate diagnosis.

and if appropriate, prescribe the product for them. And to fill that prescription in ways that include our current pharmacy network or potentially other mechanisms for fulfillment that may increase efficiency and outreach for a broader population that's not sort of within our current specialty universe. I don't want to define what that looks like yet because as I said a minute ago, it's something that we are beginning to actively explore. It looks like there are some potential mechanisms by which this may be possible.

And I want to be clear that we are not closed-minded. We are open-minded to a variety of potential mechanisms for getting the product in the hands of patients who may need it that are outside of our specialty care universe. Okay, great. And then just last one, you know, a little bit more on...

if this is just going to be a transition year with the CS indication to get it back up to the levels we saw last year. Thanks.

That's a really good question and it is a significant decrease in our projected average revenue prescription. John , would you like to comment on that? Yes, I mean Gary, thanks for the question. The guidance that we put out of approximately $200 for average net revenue for prescription, it incorporates some changes in business mix.

as well as higher to gross than that deductions within lines of business. And I believe that I think in a rising interest rate environment that may lead to customers carrying less inventory at the end of 2023, then they did in 2021-2022. Yeah, I think some of where we ended up, I think in 2022.

was a result, I think, of some benefits that you wouldn't necessarily plan for at the start of a year. As a reminder, last year we started out with guidance for the year of approximately $210 per TRX. And so we ended up the year at approximately $224. So I think in terms of looking at business trends around mix of business, also making some choices to contract a little bit further into certain government.

of it'll be more in this level or could it get back up a little bit, even if not to the hands.

I think probably the other thing that I would note is that the start of the last two years, we made some changes to our co-pay assistance program. In 2021, we made a change to the co-pay assistance program that was focused on reducing the number of proportion of prescriptions that were coming from patients who were in commercial plans that did not cover a chance.

In 2022, we made a change to the co-pay assistance program. Again, kind of intended to reduce the number of proportion of prescriptions at this time from patients who are in commercial plans with a high deductible, which cover a chance. Both of those kinds of lines of businesses are relatively less profitable for us, or in certain cases can actually be unprofitable lines of business for us.

We haven't made a similar kind of profitability optimizing change to copay assistance at the start of 2023. But that doesn't mean that we can't look at things like that as we move forward. Okay, that's helpful. Thank you. Please stand by for our next question.

Our next question comes from Glenn Santangelo with Jeffries. Your line is now open.

Thanks for taking my question. I just wanted to talk about the balance sheet a little bit. I mean, you're ending the year with $94 million in cash. It's sort of based on that new revenue guidance of $68 million versus the outlook for operating expenses that you're providing. I mean, you kind of gave us enough of the pieces here, but I was wondering if you could just sort of summarize that and give us your expected sort of cash burn in 2020.

As you point out, we structured our business to reduce use of cash in 2023, again, while preserving the infrastructure and capabilities important to a rapid and successful launch in CS following potential approval. The midpoint of our revenue and operating expense ranges. They imply approximately a $20 million improvement to operating costs.

the press release open or the 10K open later on. Are you a cash in 2022 was approximately $67 million? $1.??

Right, right. So that's so I'm correct, sort of assuming that burn kind of comes down in 30 to 43.

Yeah, I mean, I think the kind of midpoint of the operating expense and revenue view would apply approximately $20 million if you want to kind of range it out with the high and low ends of those things. It's probably somewhere between $15 and $25 million improvement. I think as an organization, we would try to aim for the higher end of that range, not para, low case revenues with high case operating expenses.

So, yeah, I think we would strive to be approximately 20, but maybe a little bit better than 20 within those ranges. All right, for fun. Yeah, Jonathan, that's fun. Then just sort of as a follow-up, I didn't want to talk about sort of where that will leave you, right? I mean, I think the company's always been pretty much leaning towards, you know, the opportunity to enter into some type of commercial partnership, right, in anticipation of the CS.

indication. I mean, any thoughts with respect to timing around that? I mean, you're sort of laying out, you know, a timeframe for hopefully a Padoofan in mid-December. I mean, you know, have those conversations started? Do you think we could expect to see something in the second half of the year? You think that kind of more, you know, would come in 2024 post-approval? So, Gwen, I'll comment on that. So, it's very difficult in advance of reaching an agreement to say exactly when an agreement might be reached. I can say that we have in the past, and I certainly...

I don't know the answer to those questions yet. But with regard to whether we'll be engaged in active conversations during the course of this year, the answer is definitely yes. Okay, thanks. Please stand by for our next question. Our next question comes from David Amselam with Piper Sandler.

Given where things are with the business and given the potential challenges regarding interest in owning a piece of the asset here, why don't you just entertain a sale of the company and do you think that may be the better alternative here?

No, we are evaluating a wide range of strategic options. And I think sale of the company is within the range of options that we're considering. It always has been and it will continue to be. It's certainly not the only possibility we're considering. As I said earlier, we are actively.

planning to engage in conversations about a primary care promotional partnership and plan to do everything necessary to continue to operate the company independently. But in no way does that preclude possibility of...

conversations about, you know, M&A type, type transaction either. So we will continue to entertain all strategic options as we go forward through 2023. And then as a follow-up, as you look at the launch and CSU, you've talked about the potential for greater penetration within your existing prescriber base. So is it fair to say that that's where at least early on in...

the role that that's where most of your growth is going to come from. And if that is certainly the case, then what is the urgency to entertain a primary care partnership ahead of approval or around the approval?

So, David, the potential for the product we think is very substantial within our current, you know, sort of commercially contacted, our direct selling audience and indirect selling. Our specialty audience has a lot of new potential with the new indication. And we do intend to go after that assertively with our own infrastructure. But that doesn't mean that there's not a lot of additional...

potential outside of the audience that we're currently calling on. And we really don't have the resources to go after that, certainly not with a traditional direct selling model. So, it means that if we are able to reach a primary care partnership, starting on day one after the approval, there is potential in a very large audience that we're just not going to be able to efficiently access ourselves. And primary care partnership would give us a vehicle for being able to.

increase the potential value available to us and increase the number of patients who are able to be treated. So it would be incremental value, very much worth having for a variety of reasons that we'd like to see, but that doesn't mean that we're not gonna see substantial incremental value within our current audience. So I'm not sure though if I've answered your question, David, did that address what you asked? It did, I guess I'm just struggling with the urgency to.

to find a primary care partner, and then don't you call on a certain basket of high volume general practitioners already, and if so, how many do you call on? Yeah, no, David, I think it's appropriate for us to have a sense of urgency around finding a primary care partner, and that's not because there's not a lot of potential in our current audience, there is. But the sooner we can get a primary care partner, the sooner we can access and otherwise untapped large potential audience. And while it's true that we do have a small number of, I'll call it a specialist like primary care physicians in our Caldon universe.

It's a very small number in comparison to the number of primary care physicians that one might ideally choose to engage if you had a primary care promotion or infrastructure. What's our current number right now? Yeah, I mean, David just for a sense of scale. I think when you think about the number of specialty-like primary care physicians in our current call on the universe, we're talking about a number that's a few thousand as opposed to when you look at a broader opportunity in primary care, I think historically we've looked at that there's potentially an audience of...

somewhere around 50,000 physicians who are kind of the higher value prescribers in the chronic sinusitis space. And so, you know, it's just a completely different order of magnitude in terms of the number of physicians that somebody with appropriate infrastructure that would be leveraged with this opportunity could reach if we were to partner with them.

Thank you. I show no further questions at this time. I would now like to turn the conference back to Rami for closing remarks. I'd like to thank you all very much for joining us this morning for our review of the full year performance in 2022 and our forward look into what we expect may be coming in 2023. We look forward to talking to you again in a few months with our first quarter results. I hope everyone has a wonderful day.

This concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.