Orchestra BioMed Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The company is a biomedical innovation business developing medical-device technologies through partnerships. Its lead programs are BackBeat CNT for hypertension, partnered with Medtronic, and Virtue SAB for artery disease, partnered with Terumo. The January 2023 business combination was accounted for as a reverse recapitalization.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0.42 million | $1.16 million | $2.50 million | $2.43 million |
| Operating loss | $14.52 million | $10.07 million | $39.03 million | $22.83 million |
| Net loss | $13.32 million | $10.28 million | $36.30 million | $23.86 million |
| Net loss per share | $0.38 | $0.51 | $1.11 | $1.80 |
- Q3 revenue comprised $0.27 million of partnership revenue and $0.15 million of product revenue. Nine-month revenue comprised $2.02 million and $0.48 million, respectively. Product revenue is from FreeHold retractors; partnership revenue to date is from Terumo.
- For the nine months, research and development expense was $25.31 million, up 76%, and selling, general and administrative expense was $16.07 million, up 50%. Higher development spending, staffing and public-company costs contributed to the increases.
- Net interest income was $2.74 million for the nine months, versus net interest expense of $0.42 million in 2022, principally reflecting interest earned on investments. Net loss nevertheless increased 52% year over year.
- At September 30, cash and cash equivalents were $19.08 million and marketable securities were $89.41 million. Current assets were $110.19 million and current liabilities $21.47 million. Accumulated deficit was $236.04 million.
- Nine-month operating cash use was $35.15 million; investing cash use was $22.46 million, largely reflecting net purchases of marketable securities; financing provided $56.91 million, mainly from the business combination. Cash and cash equivalents ended the period at $19.08 million.
- Debt carrying value was $9.60 million at September 30. On October 6, 2023, the company repaid $10 million principal and terminated the loan, paying about $0.85 million in net interest, prepayment and legal fees and issuing warrants instead of about $0.21 million in fees.
Changes, outlook and principal risks
- Q3 revenue fell 64% year over year, primarily as Terumo partnership revenue declined 73%; nine-month revenue rose 3%. Nine-month research and development and general and administrative costs increased substantially, widening the operating loss.
- The FDA granted IDE approval for the BackBeat CNT BACKBEAT pivotal study in September 2023. Management expected enrollment to begin before year-end, subject to trial-start activities and site approvals.
- The FDA granted conditional IDE approval for the Virtue ISR-US pivotal study in August, but the company delayed initiation pending a satisfactory restructuring of its Terumo agreement and additional capital. The study was targeted for 2024, subject to negotiations.
- Management prioritized BackBeat CNT and expected its expenses to increase as pivotal-study work advances, while planning to limit Virtue SAB spending over the next 12–18 months. Based on revised budgets, management expected cash, cash equivalents, marketable securities and potential future proceeds to fund operations into the second half of 2026; this estimate depends on execution, study costs and possible partnership or asset-sale proceeds.
- Terumo milestone risk is material: two $5 million milestone target dates had passed without achievement, and the company said it was unlikely to meet remaining time-based targets for $25 million. Terumo may terminate the agreement or certain obligations if milestones are missed. No royalties under the agreement had been recognized.
- The company reported recurring losses, negative operating cash flow and a need for additional capital to advance development. Financing availability, clinical outcomes, regulatory requirements, manufacturing and supply-chain execution, and partnership negotiations could affect plans and liquidity.
- Other notable items: the company recognized a $0.29 million Q3 gain on its Motus GI investment after exchanging royalty certificates for shares; management attributed earlier Virtue SAB delays to pandemic effects, supply-chain issues and added regulatory and testing requirements. No material legal proceedings were reported. A director resigned effective November 9, 2023, without disagreement with the company.
Important facts for investors to verify
- Whether Terumo negotiations produce revised milestone terms or additional funding, and whether Terumo retains or exercises termination rights.
- Whether the BackBeat pivotal study starts on the expected schedule and whether the Virtue study can proceed in 2024.
- The assumptions behind the projected runway into the second half of 2026, including the treatment of potential partnership proceeds and strategic-asset sales.
- The impact of continued operating cash use, increased clinical spending, stock-based compensation and potential future financing on liquidity and shareholder dilution.
- Whether rising estimated Terumo completion costs, which reduced nine-month partnership revenue by $0.88 million, change further.