Orchestra BioMed Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial statements are unaudited. Unless noted otherwise, dollar amounts are in millions. The January 26, 2023 business combination was accounted for as a reverse recapitalization; prior-period share data was retrospectively adjusted.
Business context
Orchestra is a biomedical innovation company developing medical-device products through partnerships. Its main candidates are BackBeat CNT for hypertension and Virtue SAB for artery disease. It also earns modest product revenue from FreeHold surgical retractors. The company remains loss-making and relies on external financing and partnership funding.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $0.915 | $0.401 | $2.079 | $1.267 |
| Operating expenses | $13.871 | $8.035 | $26.580 | $14.029 |
| Operating loss | $(12.956) | $(7.634) | $(24.501) | $(12.762) |
| Net loss | $(12.046) | $(7.847) | $(22.986) | $(13.576) |
| Net loss per share | $(0.35) | $(0.77) | $(0.74) | $(0.74) |
- Six-month partnership revenue was $1.747 million, primarily recognized over time under the Terumo agreement; product revenue was $0.332 million. Product gross margin, calculated from product revenue less cost of product revenues, was approximately 71% for the six months versus 68% in 2022; this excludes partnership economics and does not represent a consolidated gross margin.
- Research and development expense rose 97% to $16.753 million for the six months, reflecting work advancing BackBeat CNT and Virtue SAB toward pivotal studies, higher personnel costs, and development, testing, and clinical activity. Selling, general and administrative expense increased 79% to $9.729 million, including higher stock compensation and public-company costs.
- Cash and cash equivalents were $16.409 million and short-term marketable securities were $101.295 million at June 30, for combined resources of approximately $117.7 million. Current assets were $119.590 million and current liabilities $11.860 million; working capital was approximately $107.7 million.
- Six-month operating cash use was $24.871 million. Investing cash use was $35.411 million, chiefly net purchases of marketable securities; financing provided $56.907 million, primarily from the business combination. Cash declined $3.375 million from year-end.
- Debt payable was $9.563 million. The Avenue loan bears a floating rate of prime plus 6.45% (14.7% at June 30), matures June 2026, and is secured by company assets other than intellectual property and certain other assets. It has restrictive covenants but no financial covenants. Reported total liabilities were $36.444 million, including deferred revenue and lease liabilities.
Changes, outlook, and key risks
- Compared with the first half of 2022, revenue increased 64%, but operating expenses rose 89% and net loss widened 69%. Operating cash use increased from $13.289 million to $24.871 million. Interest income benefited from marketable securities, while the prior-year period included a Vivasure investment gain and warrant remeasurement losses.
- Management expects operating costs to rise as clinical and development work progresses. It estimates cash and marketable securities will fund operations into 2026, subject to changes in study pace, costs, results, and potential collaboration receipts. Management also concluded funds available were sufficient for at least one year after the financial statements’ issuance.
- On August 8, 2023, after quarter-end, FDA granted conditional investigational device exemption approval to initiate the Virtue ISR-US pivotal study. Enrollment may begin after standard site-startup steps, including institutional review board approvals; the FDA also requires additional information.
- Terumo milestone risk is significant: two $5 million time-based milestone dates had passed without achievement, and the company said it was unlikely to meet remaining time-based milestones totaling $25 million by their specified dates. Orchestra is negotiating revised dates, but there is no assurance of agreement. Terumo may terminate the agreement or certain obligations if milestones are missed. Terumo deferred revenue was $17.792 million; approximately $4.3 million is expected to be recognized over the next 12 months, with the remainder currently expected through 2026–2027.
- Medtronic has exclusive global commercialization rights for BackBeat CNT in the pacemaker-indicated field after regulatory approval; Orchestra funds the pivotal study and reimburses certain costs. No Medtronic revenue had been recognized through June 30.
- Management reports ongoing losses since inception and expects substantial future losses and a need for capital beyond the near-term runway. Financing availability, clinical outcomes, regulatory requirements, supply chain execution, and partner relationships remain important uncertainties. No material legal proceedings were reported. Disclosure controls were assessed as effective at June 30.
Important facts for investors to verify
- Progress of negotiations with Terumo, revised milestone dates, termination rights, and the effect of missed milestones on funding and Virtue SAB development.
- Clinical-study initiation, enrollment, timelines, costs, and regulatory conditions for Virtue SAB and BackBeat CNT.
- Cash burn versus the stated runway into 2026, including the impact of planned pivotal studies and any need for additional financing.
- Key assumptions behind Terumo revenue recognition and estimated remaining development costs, which affect recognized partnership revenue.
- Avenue loan interest-rate exposure, repayment schedule, covenants, and any future financing or potential dilution. The filing reported 35,743,742 common shares outstanding as of August 7, 2023.