Orchestra BioMed Holdings, Inc.
For the period ended Dec 31, 2025. Filed Mar 12, 2026.
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FY2025 · Filed Mar 12, 2026
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Item 8. Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Orchestra BioMed Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Orchestra BioMed Holdings, Inc. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| Critical Audit Matters | ||
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| The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. | ||
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| | | Subsequent Measurement of Royalty Purchase Agreement Liability |
| Description of the Matter | | As described in Note 15 of the consolidated financial statements, the Company entered into a revenue participation right purchase and sale agreement (the “Royalty Purchase Agreement”) with Ligand. The Company accounted for its sale of revenue participation rights as debt, initially recorded at the proceeds received. Subsequently, the liability is measured using the effective interest method over the expected term of the arrangement. Each reporting period, management estimates the amount and timing of future revenues that need to be paid to Ligand and applies the interest method to determine the measurement of the liability and interest expense to be recognized. The carrying amount of the Royalty Purchase Agreement liability was $16.5 million as of December 31, 2025 and the interest expense recorded was $2.0 million for the period ended December 31, 2025. Auditing the subsequent measurement of the Royalty Purchase Agreement liability and related interest expense was complex and involved a high degree of subjectivity, as the recorded amounts were dependent on management’s estimates of the timing and amount of future royalty payments. These estimates were based on significant assumptions related to the probability of success of the related product candidates and the future projected revenues, which involved significant judgment and estimation uncertainty. |
| How We Addressed the Matter in Our Audit | | To test the subsequent measurement of the Royalty Purchase Agreement liability and related interest expense, our audit procedures included, among others, evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by management in its analysis. For example, we corroborated certain of management’s assumptions to publicly available information and third-party market research studies. In addition, we performed sensitivity analyses over the significant assumptions to evaluate the changes in the measurement of the Royalty Purchase Agreement liability and related interest expense that would result from changes in the significant assumptions. |
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| | | Valuation of Series A Preferred Stock and Embedded Derivative Liability |
| Description of the Matter | | As described in Notes 3, 8 and 9 of the consolidated financial statements, the Company issued Series A Preferred Stock in November 2025 to Terumo. Series A Preferred Stock provides Terumo options to redeem the preferred stock for cash or convert it into common stock upon occurrence of certain events or conditions. The Company classified Series A Preferred Stock as mezzanine equity and recorded the preferred stock initially at its fair value of $12.6 million. In addition, the options required bifurcation as a derivative liability measured at fair value each reporting period, with changes in the fair value reported in earnings. The Company utilized an option pricing model to determine the fair value of the Series A Preferred Stock at issuance, which required the use of significant unobservable inputs such as the expected life of Series A Preferred Stock, expected volatility, discount rate and probability-weighted outcomes. At each reporting date, management performs a “with-and-without” scenario analysis to determine the fair value of the derivative liability by comparing the value of the preferred stock including the bifurcated embedded derivatives to the value of the preferred stock excluding them. The embedded derivative liability is classified as level 3 in the fair value hierarchy because it is valued using significant unobservable inputs mentioned above. At December 31, 2025, the fair value of the embedded derivative liability was $2.7 million. Auditing the valuation of the Series A Preferred Stock and the bifurcated derivative liability was challenging as the Company uses complex valuation methodologies that use significant unobservable inputs discussed above and includes significant assumptions about economic and market conditions with uncertain future outcomes. |
| How We Addressed the Matter in Our Audit | | To test the estimated fair value of the Series A Preferred Stock at issuance as well as the fair value of the bifurcated derivative liability on each reporting date, we performed audit procedures that included, among other procedures, assessing the valuation methodologies and the significant inputs and assumptions discussed above, and testing the completeness and accuracy of the underlying data used by management in its estimates. For example, we compared the significant assumptions used by management to current market information and performed sensitivity analyses of significant inputs and assumptions to evaluate the changes in the fair value of the Series A Preferred Stock and the bifurcated derivative liability that would result from changes in the inputs and assumptions. We also involved internal valuation specialists to assist in our evaluation of the significant inputs and assumptions and methodologies used by management and to develop an independent valuation of the preferred stock and the bifurcated derivative liability. |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2020.
Philadelphia, Pennsylvania
March 12, 2026
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