Orchestra BioMed Holdings Inc

Previous wording

The following discussion should be read together with “Special Note Regarding Forward-Looking Statements” and the Company’s unaudited condensed consolidated financial statements, together with the related notes thereto, included elsewhere in this Quarterly Report on Form 10-Q (the “Consolidated Financial Statements”), and the Company’s audited consolidated financial statements, together with the related notes thereto, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2024.

Current wording

The following discussion should be read together with “Special Note Regarding Forward-Looking Statements” and the Company’s unaudited condensed consolidated financial statements, together with the related notes thereto, included elsewhere in this Quarterly Report (the “Consolidated Financial Statements”), and the Company’s audited consolidated financial statements, together with the related notes thereto, included in the 2023 10K.

Previous wording

We are a biomedical innovation company accelerating high-impact technologies to patients through risk-reward sharing partnerships with leading medical device companies. Our partnership-enabled business model focuses on forging strategic collaborations with leading medical device companies to drive successful global commercialization of products we develop. We are led by a highly accomplished, multidisciplinary management team and a board of directors with extensive experience in all phases of therapeutic device development. Our business was formed in 2018 by assembling a pipeline of multiple late-stage clinical product candidates originally developed by our founding team. Our lead product candidate is atrioventricular interval modulation (“AVIM”) therapy (also known as BackBeat Cardiac Neuromodulation Therapy (“BackBeat CNT”)), for the treatment of hypertension (“HTN”), a significant risk factor for death worldwide.

Current wording

We are a biomedical innovation company accelerating high-impact technologies to patients through risk-reward sharing partnerships with leading medical device companies. Our partnership-enabled business model focuses on forging strategic collaborations with leading medical device companies to drive successful global commercialization of products we develop. We are led by a highly accomplished, multidisciplinary management team and a board of directors with extensive experience in all phases of therapeutic device development. Our business was formed in 2018 by assembling a pipeline of multiple late-stage clinical product candidates originally developed by our founding team.

Previous wording

We have an exclusive license and collaboration agreement with Medtronic, Inc. for the development and commercialization of AVIM therapy for the treatment of HTN in patients indicated for a cardiac pacemaker. We are also developing the Virtue Sirolimus AngioInfusion Balloon (“Virtue SAB”) for the treatment of atherosclerotic artery disease, the leading cause of mortality worldwide. We have a strategic collaboration with Terumo Medical Corporation (“Terumo”) for the development and commercialization of Virtue SAB for the treatment of coronary and peripheral artery disease.

Current wording

factor for death worldwide, and Virtue Sirolimus AngioInfusion Balloon (“Virtue SAB”) for the treatment of artery disease, the leading cause of mortality worldwide. We have an exclusive license and collaboration agreement with Medtronic, Inc. for the development and commercialization of AVIM therapy for the treatment of pacemaker-indicated patients with uncontrolled HTN despite the use of antihypertensive medications, and we have a strategic collaboration with Terumo Medical Corporation (“Terumo”) for the development and commercialization of Virtue SAB for the treatment of coronary and peripheral artery disease.

Previous wording

Since Legacy Orchestra’s inception, we have devoted the substantial majority of our resources to performing research and development and clinical activities in support of our product development and collaboration efforts. We have funded our operations primarily through the issuance of convertible preferred stock and proceeds from the Business Combination, as well as through proceeds from our distribution agreement with Terumo (the “Terumo Agreement”), borrowings under debt arrangements and, to a lesser extent, from product revenue from our subsidiary, FreeHold Surgical, LLC. (“FreeHold”). We have raised a cumulative $166.8 million in gross proceeds through the issuance of convertible preferred stock, $70.0 million in gross proceeds from the Business Combination, and have received $30.0 million from the Terumo Agreement through June 30, 2024. We have incurred net losses each year since inception. Our net losses were $29.4 million and $23.0 million for the six months ended June 30, 2024 and 2023, respectively. We expect to continue to incur significant losses for the foreseeable future. As of June 30, 2024, we had an accumulated deficit of $278.3 million.

Current wording

Since Legacy Orchestra’s inception, we have devoted the substantial majority of our resources to performing research and development and clinical activities in support of our product development and collaboration efforts. We have funded our operations primarily through the issuance of convertible preferred stock and proceeds from the Business Combination, as well as through proceeds from our distribution agreement with Terumo (the “Terumo Agreement”), borrowings under debt arrangements and, to a lesser extent, from product revenue from our subsidiary, FreeHold Surgical, LLC. (“FreeHold”). Through September 30, 2024, we have raised a cumulative $252.3 million in gross proceeds through the issuance of convertible preferred stock, proceeds from the Business Combination and other equity sales, and have received $30.0 million from the Terumo Agreement. We have incurred net losses each year since inception. Our net losses were $44.9 million and $36.3 million for the nine months ended September 30, 2024 and 2023, respectively. We expect to continue to incur significant losses for the foreseeable future. As of September 30, 2024, we had an accumulated deficit of $293.7 million.

Previous wording

On May 15, 2024, we entered into an Open Market Sale Agreement SM (“Sale Agreement”) with Jefferies LLC (the “Agent”), pursuant to which we may offer and sell, from time to time through the Agent, up to $100 million of shares of Company Common Stock (the “ATM Shares”) by any method permitted by law and deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act. On the same day, we filed a shelf registration statement on Form S-3 with the SEC (the “Shelf Registration Statement”), which contains a base prospectus, covering up to a total aggregate offering price of $300 million of Company Common Stock, preferred stock, debt securities, warrants, right and/or units, and a prospectus supplement covering the offering, issuance and sale of the ATM Shares, which are included in the $300 million of securities that may be offered, issued and sold by the Company pursuant to the Shelf Registration Statement. As of June 30, 2024, no sales had been made under the Sale Agreement or the Shelf Registration Statement. However, on July 11, 2024, we sold 2,000,000 shares of Company Common Stock under the Sale Agreement resulting in aggregate gross proceeds to us of approximately $15.5 million and net proceeds to us of approximately $15.0 million.

Current wording

On August 12, 2024, we entered into a sales agreement (the “Sales Agreement”) with TD Securities (USA) LLC, as agent (“TD Cowen”), pursuant to which we may offer and sell, from time to time through TD Cowen, up to $100 million of shares of Company Common Stock (the “Offering”) by any method permitted by law and deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act. The Offering is being made pursuant to a shelf registration statement on Form S-3, filed with the SEC on May 15, 2024 and declared effective on May 24, 2024 (the “Shelf Registration Statement”), a base prospectus, dated May 24, 2024, included as part of the Shelf Registration Statement, and a prospectus supplement, dated August 12, 2024, filed with the SEC pursuant to Rule 424(b)(5) on August 12, 2024. As of September 30, 2024, no sales had been made under the Sales Agreement.

Previous wording

Due to the significant number of redemptions of HSAC2’s ordinary shares in connection with the Business Combination, there was a significantly lower number of HSAC2 ordinary shares that converted into shares of Company Common Stock in connection with the Business Combination. Pursuant to the Amended and Restated Registration Rights Agreement we entered into in connection with the closing of the Business Combination and certain warrant agreements, we filed a registration statement (the “Registration Statement”), which was declared effective on May 9, 2024, that registers, among other things, the resale of an aggregate of 18,586,201 shares of Company Common Stock, which constitutes approximately 49% of the outstanding Company Common Stock as of August 7, 2024. Additionally, some of the shares of the Company Common Stock being registered for resale were originally purchased by selling stockholders pursuant to investments in Legacy Orchestra or HSAC2 at prices considerably below the current market price of the Company Common Stock. These selling stockholders may realize a positive rate of return on the sale of their shares of Company Common Stock covered by the Registration Statement and therefore will have an incentive to sell their shares. Public shareholders may not experience a similar rate of return on shares of Company Common Stock they purchased. This discrepancy in purchase prices may have an impact on the market perception of the Company Common Stock’s value and could increase the volatility of the market price of the Company Common Stock or result in a significant decline in the public trading price of the Company Common Stock. The registration of these shares of Company Common Stock for resale creates the possibility of a significant increase in the supply of the Company Common Stock in the market. The increased supply, coupled with the potential disparity in purchase prices, may lead to heightened selling pressure, which could negatively affect the public trading price of our Common Stock.

Current wording

Due to the significant number of redemptions of HSAC2’s ordinary shares in connection with the Business Combination, there was a significantly lower number of HSAC2 ordinary shares that converted into shares of Company Common Stock in connection with the Business Combination. Pursuant to the Amended and Restated Registration Rights Agreement we entered into in connection with the closing of the Business Combination and certain warrant agreements, we filed a registration statement (the “Registration Statement”), which was declared effective on May 9, 2024, that registers, among other things, the resale of an aggregate of 18,586,201 shares of Company Common Stock, which constitutes approximately 49% of the outstanding Company Common Stock as of August 7, 2024. Additionally, some of the shares of the Company Common Stock being registered for resale were originally purchased by selling stockholders pursuant to investments in Legacy Orchestra or HSAC2 at prices considerably below the current market price of the Company Common Stock. These selling stockholders may realize a positive rate of return on the sale of their shares of Company Common Stock covered by the Registration Statement and therefore will have an incentive to sell their shares. Public shareholders may not experience a similar rate of return on shares of Company Common Stock they purchased. This discrepancy in purchase prices may have an impact on the market perception of the Company Common Stock’s value and could increase the volatility of the market price of the Company Common Stock or result in a significant decline

Previous wording

Under the Terumo Agreement, we were initially eligible for certain milestone payments in the amount of $65 million from Terumo upon completion of certain minimum enrollments in clinical studies, making certain filings and submissions, and obtaining certain regulatory approvals and certifications, and are also eligible to earn royalties on future sales by Terumo based on royalty rates ranging from 10 - 15%. Of these milestone payments, $35 million relate to achieving certain milestones by specified target achievement dates. As of the date of this Quarterly Report on Form 10-Q, we have already passed the target achievement dates for three $5 million milestone payments, in each case, without achieving the related milestones. In addition, due to delays in our Virtue SAB program resulting from the COVID-19 pandemic, supply chain issues and unexpected regulatory delays and requirements, including increased testing and other activities related to chemistry, manufacturing, and control, increased nonclinical and good laboratory practice preclinical data requirements, including biocompatibility, as well as a requirement to repeat good laboratory practice preclinical studies already performed based on changes to source of component materials and a change in manufacturing site, that caused us to amend our original project plan, we are unlikely to be able to complete the remaining time-based milestones by the specified target achievement dates to earn the remaining $20 million in time-based milestone payments pursuant to the Terumo Agreement. Further, Terumo has the right to terminate the agreement, or certain of its obligations thereunder, if certain milestones are not achieved.

Current wording

Under the Terumo Agreement, we were initially eligible for certain milestone payments in the amount of $65 million from Terumo upon completion of certain minimum enrollments in clinical studies, making certain filings and submissions, and obtaining certain regulatory approvals and certifications, and are also eligible to earn royalties on future sales by Terumo based on royalty rates ranging from 10 - 15%. Of these milestone payments, $35 million relate to achieving certain milestones by specified target achievement dates. As of the date of this Quarterly Report, we have already passed the target achievement dates for three $5 million milestone payments, in each case, without achieving the related milestones. In addition, due to delays in our Virtue SAB program resulting from the COVID-19 pandemic, supply chain issues and unexpected regulatory delays and requirements, including increased testing and other activities related to chemistry, manufacturing, and control, increased nonclinical and good laboratory practice preclinical data requirements, including biocompatibility, as well as a requirement to repeat good laboratory practice preclinical studies already performed based on changes to source of component materials and a change in manufacturing site, that caused us to amend our original project plan, we are unlikely to be able to complete the remaining time-based milestones by the specified target achievement dates to earn the remaining $20 million in time-based milestone payments pursuant to the Terumo Agreement. Further, Terumo has the right to terminate the agreement, or certain of its obligations thereunder, if certain milestones are not achieved.

Previous wording

As previously disclosed, we have been negotiating with Terumo for mutually agreeable adjustments to the Terumo Agreement with the purpose of restructuring milestone payments as well as making other potential material modifications to that agreement including additional financial commitments by Terumo to Orchestra and the Virtue SAB program. We have delayed initiation of our Virtue ISR-US pivotal study, for which we secured conditional IDE approval from the FDA on August 8, 2023, until such time as we and Terumo restructure the Terumo Agreement in a manner that provides us with a satisfactory amount of additional capital, whether from milestone payments or other financial arrangements. In addition, in light of the recent FDA approval of Boston Scientific Corporation’s AGENT™ paclitaxel-coated balloon for the treatment of coronary ISR, we and Terumo are reviewing the design of the Virtue ISR-US pivotal study and considering alternative clinical study designs with input from our clinical steering committee for Virtue SAB. If negotiations are not completed to our satisfaction or to the satisfaction of Terumo, clinical study, product development, and commercialization plans for Virtue SAB may continue to be adversely impacted.

Current wording

As previously disclosed, we and Terumo have been negotiating for mutually agreeable adjustments to the Terumo Agreement with the purpose of restructuring milestone payments as well as making other potential material modifications to that agreement including additional financial commitments by Terumo to Orchestra and the Virtue SAB program. If negotiations are not completed to our satisfaction or to the satisfaction of Terumo, clinical study, product development, and commercialization plans for Virtue SAB may continue to be adversely impacted.

Previous wording

We recorded the $30.0 million upfront payment received in 2019 from Terumo within deferred revenue and are recognizing the upfront payment over time based on a proportional performance model based on the costs incurred to date relative to the total costs expected to be incurred through the completion of the development of the Coronary in ISR indication, for which we are primarily responsible. We have recognized $13.7 million in cumulative partnership revenues from 2019 through June 30, 2024. There were no other proceeds received pursuant to the Terumo Agreement from 2019 through June 30, 2024.

Current wording

We recorded the $30.0 million upfront payment received in 2019 from Terumo within deferred revenue and are recognizing the upfront payment over time based on a proportional performance model based on the costs incurred to date relative to the total costs expected to be incurred through the completion of the development of the Coronary ISR indication, for which we are primarily responsible. We have recognized $14.5 million in cumulative partnership revenues from 2019 through September 30, 2024. There were no other proceeds received pursuant to the Terumo Agreement from 2019 through September 30, 2024.

Previous wording

In June 2022, Legacy Orchestra entered into the Medtronic Agreement for the development and commercialization of AVIM therapy for the treatment of HTN in patients indicated for a cardiac pacemaker. We have determined that the arrangement is a collaboration within the scope of ASC 808,* Collaborative Arrangements*(“ASC 808”). In addition, we concluded that Medtronic, Inc., an affiliate of Medtronic plc (“Medtronic”), is a customer for a good or service that is a

Current wording

In June 2022, Legacy Orchestra entered into the Medtronic Agreement for the development and commercialization of AVIM therapy for the treatment of pacemaker-indicated patients with uncontrolled HTN despite the use of antihypertensive medications. We have determined that the arrangement is a collaboration within the scope of ASC 808,* Collaborative Arrangements*(“ASC 808”). In addition, we concluded that Medtronic, Inc., an affiliate of Medtronic plc (“Medtronic”), is a customer for a good or service that is a distinct unit of account, and therefore, the transactions in the

Previous wording

distinct unit of account, and therefore, the transactions in the Medtronic Agreement should be accounted for under ASC 606. Through June 30, 2024, there have been no amounts recognized as revenue under the Medtronic Agreement.

Current wording

Medtronic Agreement should be accounted for under ASC 606. Through September 30, 2024, there have been no amounts recognized as revenue under the Medtronic Agreement.

Previous wording

The loss on fair value of strategic investments represents a change in the fair value of our investment in Motus GI Holdings, Inc. (“Motus GI”), a publicly-held company and related party, and preferred shares and convertible notes of Vivasure Medical Limited (“Vivasure”), a privately-held company and related party. The shares held of Motus GI represent equity securities with a readily determinable fair value and are required to be measured at fair value at each reporting period using readily determinable pricing available on a securities exchange, in accordance with the provisions of ASU 2016-01. The investments in Vivasure do not have readily determinable fair values and are recorded at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

Current wording

The loss on fair value of strategic investments represents a change in the preferred shares and convertible notes of Vivasure Medical Limited (“Vivasure”), a privately-held company and related party, and fair value of our investment in Motus GI Holdings, Inc. (“Motus GI”), a previously publicly-held company and a former related party. The investments in Vivasure do not have readily determinable fair values and are recorded at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The shares held of Motus GI represent equity securities with a readily determinable fair value and are required to be measured at fair value at each reporting period using readily determinable pricing available on a securities exchange, in accordance with the provisions of ASU 2016-01.

Previous wording

The following table presents our statement of operations data for the six months ended June 30, 2024 and 2023, and the dollar and percentage change between the two periods (in thousands):

Current wording

The following table presents our statement of operations data for the nine months ended September 30, 2024 and 2023, and the dollar and percentage change between the two periods (in thousands):

Previous wording

Partnership revenue decreased by $622,000, or approximately 36%, to $1.1 million in the six months ended June 30, 2024 from $1.7 million for the six months ended June 30, 2023. Partnership revenue relates to the recognition of the combined performance obligation for the license granted to Terumo and the ongoing research and development services over the estimated performance period for the Virtue SAB Coronary ISR indication, using a proportional performance model, based on the costs incurred relative to the total estimated costs of the research and development services. As of each quarterly reporting date, we evaluate our estimates of the total costs expected to be incurred through the completion of the combined performance obligation and update our estimates as necessary.

Current wording

Partnership revenue decreased by $90,000, or approximately 4%, to $1.9 million in the nine months ended September 30, 2024 from $2.0 million for the nine months ended September 30, 2023. Partnership revenue relates to the recognition of the combined performance obligation for the license granted to Terumo and the ongoing research and development services over the estimated performance period for the Virtue SAB coronary ISR indication, using a proportional performance model, based on the costs incurred relative to the total estimated costs of the research and development services. As of each quarterly reporting date, we evaluate our estimates of the total costs expected to be incurred through the completion of the combined performance obligation and update our estimates as necessary.

Previous wording

For the six months ended June 30, 2024 and 2023, the expenses incurred related to the Terumo Agreement were approximately $6.9 million and $8.3 million, respectively. The estimated total costs associated with the Terumo Agreement through completion increased by approximately 2.8% as of June 30, 2024 as compared to the estimates as of December 31, 2023, and increased by approximately 2.5% as of June 30, 2023, as compared to the estimates as of December 31, 2022.

Current wording

For the nine months ended September 30, 2024 and 2023, the expenses incurred related to the Terumo Agreement were approximately $10.5 million and $11.7 million, respectively. The estimated total costs associated with the Terumo Agreement through completion increased by approximately 2.6% as of September 30, 2024 as compared to the estimates as of December 31, 2023, and increased by approximately 7.0% as of September 30, 2023, as compared to the estimates as of December 31, 2022.

Previous wording

The following table summarizes our research and development expenses for the six months ended June 30, 2024 and 2023 (in thousands):

Current wording

The following table summarizes our research and development expenses for the nine months ended September 30, 2024 and 2023 (in thousands):

Previous wording

Research and development expenses increased by $3.4 million, or approximately 21%, to $20.2 million for the six months ended June 30, 2024 from $16.8 million for the six months ended June 30, 2023. This is primarily due to an increase in support of ongoing work to advance the BACKBEAT pivotal study and to advance Virtue SAB into a planned pivotal study and included an increase in personnel related expenses of $753,000 due to increased headcount and associated expenses, along with increased stock-based compensation of $774,000, an increase of $1.5 million in non-clinical development costs, and an increase of $483,000 in research and development program costs, supplies, and testing.

Current wording

Research and development expenses increased by $6.5 million, or approximately 26%, to $31.8 million for the nine months ended September 30, 2024 from $25.3 million for the nine months ended September 30, 2023. This is primarily due to an increase in support of ongoing work to advance the BACKBEAT pivotal study and to advance Virtue SAB into a planned pivotal study and included an increase in personnel related expenses of $1.0 million due to increased headcount and associated expenses, along with increased stock-based compensation of $456,000, an increase of $4.0 million in non-clinical development costs, and an increase of $986,000 in research and development program costs, supplies, and testing.

Previous wording

The total research and development expenses summarized above include $6.8 million for the six months ended June 30, 2024 and $8.2 million for the six months ended June 30, 2023 related to the Terumo Agreement. The decrease of $1.4 million is due to decreased expense activity related to the Terumo Agreement during the 2024 period.

Current wording

The total research and development expenses summarized above include $10.4 million for the nine months ended September 30, 2024 and $11.7 million for the nine months ended September 30, 2023 related to the Terumo Agreement. The decrease of $1.3 million is due to decreased expense activity related to the Terumo Agreement during the 2024 period.

Previous wording

Selling, general and administrative expenses increased by $2.6 million, or approximately 27%, to $12.4 million for the six months ended June 30, 2024, from $9.7 million of expense for the six months ended June 30, 2023. The increase primarily resulted from an increase in stock-based compensation of $1.4 million and an increase of $1.1 million of accounting, finance, legal, investor relations and public relations expenses incurred in connection with the overall growth of the business and being a public company.

Current wording

Selling, general and administrative expenses increased by $2.0 million, or approximately 12%, to $18.0 million for the nine months ended September 30, 2024, from $16.1 million of expense for the nine months ended September 30, 2023. The increase primarily resulted from an increase in personnel-related expenses of $673,000 due to increased headcount and associated expenses, along with increased stock-based compensation of $552,000 and an increase of $1.1 million of accounting, finance, legal, investor relations and public relations expenses incurred in connection with the overall growth of the business and being a public company.

Previous wording

Interest income, net, increased by $92,000, or approximately 5%, to $1.9 million of income for the six months ended June 30, 2024, from $1.8 million of income for the six months ended June 30, 2023. The net interest income in the 2024 period consisted primarily of interest earned from marketable securities while the net interest income in the 2023 period consisted primarily of interest earned from marketable securities offset by monthly interest expense incurred resulting from the 2022 Loan and Security Agreement.

Current wording

Interest income, net, increased by $93,000, or approximately 3%, to $2.8 million of income for the nine months ended September 30, 2024, from $2.7 million of income for the nine months ended September 30, 2023. The net interest income in the 2024 period consisted primarily of interest earned from marketable securities while the net interest income in the 2023 period consisted primarily of interest earned from marketable securities offset by monthly interest expense incurred resulting from the 2022 Loan and Security Agreement.

Previous wording

The loss on fair value adjustment of warrant liability was $294,000 for the six months ended June 30, 2023 and was the result of the final valuation of our outstanding warrants when they had become equity classified and no longer subject to market adjustment upon the close of the Business Combination. There were no additional charges for the adjustment of fair value for warrant liability after the six months ended June 30, 2023.

Current wording

The loss on fair value adjustment of warrant liability was $294,000 for the nine months ended September 30, 2023 and was the result of the final valuation of our outstanding warrants when they had become equity classified and no longer

Previous wording

The loss on fair value of strategic investments was $68,000 for the six months ended June 30, 2024, as compared to a loss of $17,000 for the six months ended June 30, 2023. The amounts recognized for the six months ended June 30, 2024 and 2023 related to the change in fair value in our common stock holdings of Motus GI.

Current wording

The loss on fair value of strategic investments was $68,000 for the nine months ended September 30, 2024, as compared a gain of $276,000 for the nine months ended September 30, 2023. The amounts recognized for the nine months ended September 30, 2024 and 2023 related to the change in fair value in our common stock holdings of Motus GI. During the nine months ended September 30, 2024, Motus GI announced a resolution to liquidate and dissolve, at which time we concluded the fair value to be zero and expensed the remaining carrying value of our investment in Motus GI.

Previous wording

On September 12, 2023, we and Motus GI entered into an agreement, pursuant to which royalty certificates previously issued to us and other holders were amended to terminate the rights of royalty certificate holders to receive royalties in exchange for shares of Motus GI common stock. As a result of the agreement, we received 701,522 shares of Motus GI common stock in exchange for our royalty certificates, which had a de minimis carrying value.

Current wording

During the nine months ended September 30, 2023, we and Motus GI entered into an agreement, pursuant to which royalty certificates previously issued to us and other holders were amended to terminate the rights of royalty certificate holders to receive royalties in exchange for shares of Motus GI common stock. As a result of the agreement, we received 701,522 shares of Motus GI common stock in exchange for our royalty certificates, which had a de minimis carrying value.

Previous wording

Partnership revenue decreased by $100,000, or approximately 14%, to $628,000 in the three months ended June 30, 2024 from $728,000 for the three months ended June 30, 2023. Partnership revenue relates to the recognition of the combined performance obligation for the license granted to Terumo and the ongoing research and development services over the estimated performance period for the Virtue SAB Coronary ISR indication, using a proportional performance model, based on the costs incurred relative to the total estimated costs of the research and development services. As of each quarterly reporting date, we evaluate our estimates of the total costs expected to be incurred through the completion of the combined performance obligation and update our estimates as necessary.

Current wording

Partnership revenue increased by $532,000, or approximately 196%, to $803,000 in the three months ended September 30, 2024 from $271,000 for the three months ended September 30, 2023. Partnership revenue relates to the recognition of the combined performance obligation for the license granted to Terumo and the ongoing research and development services over the estimated performance period for the Virtue SAB coronary ISR indication, using a proportional performance model, based on the costs incurred relative to the total estimated costs of the research and development services. As of each quarterly reporting date, we evaluate our estimates of the total costs expected to be incurred through the completion of the combined performance obligation and update our estimates as necessary.

Previous wording

For the three months ended June 30, 2024 and 2023, the expenses incurred related to the Terumo Agreement were approximately $4.0 million and $4.5 million, respectively. The estimated total costs associated with the Terumo Agreement through completion increased by approximately 1.6% as of June 30, 2024 as compared to the estimates as of March 31, 2024, and increased by approximately 3.2% as of June 30, 2023, as compared to the estimates as of March 31, 2023.

Current wording

For the three months ended September 30, 2024 and 2023, the expenses incurred related to the Terumo Agreement were approximately $3.6 million and $3.4 million, respectively. The estimated total costs associated with the Terumo Agreement through completion as of September 30, 2024 as compared to the estimates as of June 30, 2024 remained substantially the same however the estimated total costs increased by approximately 4.4% as of September 30, 2023, as compared to the estimates as of June 30, 2023.

Previous wording

recognized when product is shipped to customers. The decrease in product revenue was primarily due to a decrease in the purchase volume of FreeHold Duo and Trio intracorporeal organ retractors. There were no changes to the per unit sale price in either period presented.

Current wording

Product revenue consisted of the sale of FreeHold Duo and Trio intracorporeal organ retractors and revenue is recognized when product is shipped to customers. The increase in product revenue was primarily due to an increase in the purchase volume of FreeHold Duo and Trio intracorporeal organ retractors. There were no changes to the per unit sale price in either period presented.

Previous wording

Research and development expenses increased by $2.6 million, or approximately 31%, to $11.1 million for the three months ended June 30, 2024, from $8.5 million for the three months ended June 30, 2023. This is primarily due to an increase in support of ongoing work to advance BackBeat CNT and Virtue SAB into planned pivotal studies during 2024 and included an increase in personnel related expenses of $671,000 due to increased headcount and associated expenses, along with increased stock-based compensation of $370,000, an increase of $842,000 in non-clinical development costs, and an increase of $744,000 in research and development program costs, supplies, and testing.

Current wording

Research and development expenses increased by $3.0 million, or approximately 35%, to $11.6 million for the three months ended September 30, 2024, from $8.6 million for the three months ended September 30, 2023. This is primarily due to an increase in support of ongoing work to advance BackBeat CNT and Virtue SAB into planned pivotal studies during 2024 and included an increase of $2.6 million in non-clinical development costs and an increase of $503,000 in research and development program costs, supplies, and testing.

Previous wording

The total research and development expenses summarized above include $4.0 million for the three months ended June 30, 2024 and $4.4 million for the three months ended June 30, 2023 related to the Terumo Agreement. The decrease of $453,000 is due to decreased expense activity related to the Terumo Agreement during the 2024 period.

Current wording

The total research and development expenses summarized above include $3.6 million for the three months ended September 30, 2024 and $3.4 million for the three months ended September 30, 2023 related to the Terumo Agreement. The increase of $200,000 is due to increased expense activity related to the Terumo Agreement during the 2024 period.

Previous wording

Interest income, net, decreased by $39,000, or approximately 4%, to $902,000 of income for the three months ended June 30, 2024, from $941,000 of income for the three months ended June 30, 2023. The net interest income in the 2024 period consisted primarily of interest earned from marketable securities while the net interest income in the 2023 period consisted primarily of interest earned from marketable securities offset by monthly interest expense incurred resulting from the 2022 Loan and Security Agreement.

Current wording

$915,000 of income for the three months ended September 30, 2023. The net interest income in the 2024 period consisted primarily of interest earned from marketable securities while the net interest income in the 2023 period consisted primarily of interest earned from marketable securities offset by monthly interest expense incurred resulting from the 2022 Loan and Security Agreement.

Previous wording

From inception through June 30, 2024, we have incurred significant operating losses and negative cash flows from our operations. Our net losses were $29.4 million and $23.0 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $278.3 million. We have funded our operations primarily through the issuance of convertible preferred stock and proceeds from the Business Combination, as well as through proceeds from the Terumo Agreement, borrowings under debt arrangements and, to a lesser extent, from FreeHold product revenue. We have raised a cumulative $166.8 million in gross proceeds through the issuance of convertible preferred stock, $70.0 million in gross proceeds from the Business Combination, and have received $30.0 million under the Terumo Agreement through June 30, 2024. We had $23.7 million in cash and cash equivalents at June 30, 2024, which consisted primarily of bank deposits and money market funds. We also had $41.5 million of short-term marketable securities at June 30, 2024, which consisted primarily of our investments in corporate and government debt securities.

Current wording

From inception through September 30, 2024, we have incurred significant operating losses and negative cash flows from our operations. Our net losses were $44.9 million and $36.3 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $293.7 million. We have funded our operations primarily through the issuance of convertible preferred stock, proceeds from the Business Combination and other equity sales, as well as through proceeds from the Terumo Agreement, borrowings under debt arrangements and, to a lesser extent, from FreeHold product revenue. Through September 30, 2024, we have raised a cumulative $252.3 million in gross proceeds through the issuance of convertible preferred stock, proceeds from the Business Combination and other equity sales, and have received $30.0 million under the Terumo Agreement. We had $25.6 million in cash and cash equivalents at September 30, 2024, which consisted primarily of bank deposits and money market funds. We also had $41.3 million of short-term marketable securities at September 30, 2024, which consisted primarily of our investments in corporate debt securities.

Previous wording

In addition, the exercise price of our warrants, in certain circumstances, may be higher than the prevailing market price of the Company Common Stock and the cash proceeds to us associated with the exercise of our warrants are contingent upon the price of the Company Common Stock. The value of the Company Common Stock may fluctuate and may not exceed the exercise price of the warrants at any given time. As of the date of this Quarterly Report on Form 10-Q, a significant portion of our warrants are “out of the money,” meaning the exercise price is higher than the market price of the Company Common Stock. Holders of such “out of the money” warrants are not likely to exercise such warrants. As a result, we may not receive any proceeds from the exercise of such warrants. There can be no assurance that such warrants will be in the money prior to their respective expiration dates, and therefore, we may not receive any cash proceeds from the exercise of such warrants to fund our operations.

Current wording

may not exceed the exercise price of the warrants at any given time. As of the date of this Quarterly Report, a significant portion of our warrants are “out of the money,” meaning the exercise price is higher than the market price of the Company Common Stock. Holders of such “out of the money” warrants are not likely to exercise such warrants. As a result, we may not receive any proceeds from the exercise of such warrants. There can be no assurance that such warrants will be in the money prior to their respective expiration dates, and therefore, we may not receive any cash proceeds from the exercise of such warrants to fund our operations.

Previous wording

We continue to prioritize planned spending on our BackBeat CNT (AVIM therapy) program and the execution of our BACKBEAT pivotal study, for which we announced the commencement of enrollment on January 8, 2024. As previously disclosed, we have also reduced our 2024 planned spending related to our Virtue SAB program and the execution of our Virtue ISR-US pivotal study, for which we announced conditional IDE approval from the FDA on August 8, 2023. With regard to our Virtue SAB program and our planned Virtue ISR-US pivotal study, we have delayed initiation of this study until such time as we (1) consider the clinical study design implications of the recent FDA approval of BSC’s AGENT paclitaxel DCB for the treatment of coronary ISR; and (2) restructure our partnership agreement with Terumo in a manner that provides us with a satisfactory amount of additional capital, whether from equity investment, milestone payments or other financial arrangements, which additional capital we may not receive. With regard to our AVIM therapy program and

Current wording

We continue to prioritize planned spending on our AVIM therapy program and the execution of our BACKBEAT pivotal study, for which we announced the commencement of enrollment on January 8, 2024. With regard to our AVIM therapy program and our planned BACKBEAT pivotal study, we currently expect operating expenses to increase to support clinical study costs as well as additional research and development expenses in support of future potential regulatory approval and commercialization of AVIM therapy-enabled Medtronic pacemakers. As previously disclosed, we reduced our 2024 planned spending related to our Virtue SAB program and the execution of our Virtue ISR-US pivotal study, for which we announced conditional investigational device exemption approval from the FDA on August 8, 2023, in order to focus on (1) optimizing the design of our Virtue ISR-US study in light of the March 2024 FDA approval of BSC’s AGENT paclitaxel DCB for the treatment of coronary ISR; and (2) restructuring our partnership agreement with Terumo in a manner that provides us with a satisfactory amount of additional capital, whether from milestone payments or other financial arrangements, which additional capital we may not receive..

Previous wording

Based on internally prepared budget estimates that reflect our operating priorities, we anticipate that our cash, cash equivalents, marketable securities, and potential future proceeds described below are sufficient to fund our operations into the second half of 2026. The amount and timing of our future funding requirements may change from this current estimate and are dependent on many factors, including the cost and pace of execution of clinical studies and research and development activities, the strength of results from clinical studies and other research, development and manufacturing efforts, as well as the potential receipt of revenues or other payments or investments under a restructured Terumo Agreement, the Medtronic Agreement and/or future collaborations, and the realization of cash from the sale of some or all of our strategic holdings, most notably, Vivasure Medical. There are no assurances that any of these factors will be favorable to us, and we may need to seek additional sources of liquidity to meet our funding requirements earlier than current estimates, including further potential cost cutting associated with our Virtue SAB program, the issuance of new equity, drawdowns on new loan facilities, and/or other financing structures. In this regard, as of the date of this Quarterly Report on Form 10-Q, we may sell from time to time, up to approximately $84.5 million of additional ATM Shares under the Sale Agreement.

Current wording

Based on current internally prepared budget estimates that reflect our operating plans, including the assumptions that we proceed with an optimized Virtue ISR-US study in the first half of 2025 and we successfully restructure the agreement with Terumo, we anticipate that our cash, cash equivalents, marketable securities, and potential future proceeds described below are sufficient to fund our operations into the second half of 2026. The amount and timing of our future funding requirements may change from this current estimate and are dependent on many factors, including the cost and pace of execution of clinical studies and research and development activities, the strength of results from clinical studies and other research, development and manufacturing efforts, as well as the potential receipt of revenues or other payments or investments under a restructured Terumo Agreement, the Medtronic Agreement and/or future collaborations, and the realization of cash from the potential sale of our holdings in Vivasure. There are no assurances that any of these factors will be favorable to us, and we may need to seek additional sources of liquidity to meet our funding requirements earlier than current estimates, including the issuance of new equity, additional drawdowns under the 2024 LSA to the extent we meet the financing and performance requirements to be eligible for such drawdowns, drawdowns on new loan facilities that we may enter into, and/or other financing structures. In this regard, as of the date of this Quarterly Report, we may sell from time to time, up to approximately $100.0 million of shares of Company Common Stock under the Sales Agreement.

Previous wording

As noted above, the sale of Company Common Stock pursuant to the Registration Statement may result in a decline in the value of our common stock, which may make it more difficult and more dilutive to the existing holders of our common stock to raise funds from the sale of our equity securities.

Current wording

As noted above, the sale of Company Common Stock pursuant to the Registration Statement may result in a decline in the value of the Company Common Stock, which may make it more difficult and more dilutive to the existing holders of Company Common Stock to raise funds from the sale of our equity securities.

Previous wording

Net cash used in operating activities for the six months ended June 30, 2024 was $23.3 million and primarily consisted of our net loss of $29.4 million and changes in net operating assets and liabilities of $1.2 million, which was partially offset by non-cash charges of $4.9 million. Our non-cash charges primarily consisted of stock-based compensation of $5.3 million, partially offset by $914,000 related to accretion and interest of marketable securities. The net change in operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses of $2.4 million and a decrease in deferred revenue of $1.1 million.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2024 was $37.0 million and primarily consisted of our net loss of $44.9 million, partially offset by non-cash charges of $7.3 million and changes in net operating assets and liabilities of $598,000. Our non-cash charges primarily consisted of stock-based compensation of $7.7 million, partially offset by $1.3 million related to accretion and interest of marketable securities. The net change in operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses of $3.7 million and a decrease in deferred revenue of $1.9 million.

Previous wording

Net cash used in operating activities for the six months ended June 30, 2023, was $24.9 million and primarily consisted of our net loss of $23.0 million, and changes in net operating assets and liabilities of $3.8 million, which was partially offset by non-cash charges of $1.9 million. Our non-cash charges primarily consisted of a loss on fair value adjustment of warrant liability of $294,000 and stock-based compensation of $3.2 million, partially offset by $2.1 million related to accretion and interest of marketable securities. The net change in operating assets and liabilities were primarily due to a decrease in accounts payable and accrued expenses of $1.0 million, an increase in prepaid expenses and other assets of $723,000, and a decrease in deferred revenue of $1.7 million and various other immaterial changes.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2023 was $35.2 million and primarily consisted of our net loss of $36.3 million, and changes in net operating assets and liabilities of $3.2 million, which was partially offset by non-cash charges of $4.3 million. Our non-cash charges primarily consisted of a loss on fair value adjustment of warrant liability of $294,000 and stock-based compensation of $6.7 million, offset by $3.2 million related to accretion and interest of marketable securities. The net change in operating assets and liabilities was primarily due to a decrease in accounts payable and accrued expenses of $348,000, an increase in prepaid expenses and other assets of $458,000, and a decrease in deferred revenue of $2.0 million.

Previous wording

Net cash provided by investing activities for the six months ended June 30, 2024 was $16.3 million, which primarily consisted of marketable securities purchases of $42.4 million offset by the maturities of marketable securities of $58.8 million.

Current wording

Net cash provided by investing activities for the nine months ended September 30, 2024 was $16.8 million, which primarily consisted of the sale of $69.4 million of marketable securities, partially offset by the purchase of $52.4 million of marketable securities.

Previous wording

Net cash used in investing activities for the six months ended June 30, 2023 was $35.4 million, which primarily consisted of the purchase of $99.5 million of marketable securities, offset by the sale of $64.2 million of marketable securities.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2023 was $22.5 million, which primarily consisted of the purchase of $138.1 million of marketable securities offset by the sale of $115.7 million of marketable securities.

Previous wording

Net cash provided by financing activities of $56.9 million for the six months ended June 30, 2023 was primarily attributable to net proceeds from the Business Combination. For additional information, see Note 3 to the Consolidated Financial Statements.

Current wording

Net cash provided by financing activities of $56.9 million for the nine months ended September 30, 2023 was primarily attributable to net proceeds from the Business Combination. For additional information, see Note 3 to the Consolidated Financial Statements.

Previous wording

In addition, we enter into agreements in the normal course of business with clinical research organizations for work related to clinical trials and with vendors for preclinical studies and other services and products for operating purposes, which are cancelable at any time by us, generally upon 30 days prior written notice. These payments are not included in the above table of contractual obligations and commitments.

Current wording

We enter into agreements in the normal course of business with clinical research organizations for work related to clinical trials and with vendors for preclinical studies and other services and products for operating purposes, which are cancelable at any time by us, generally upon 30 days prior written notice. These payments are not included in the above table of contractual obligations and commitments. In addition, the above table does not include our obligations to make interest and principal payments under the 2024 LSA, which was entered into after September 30, 2024.