# Orchestra BioMed Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Orchestra BioMed Holdings, Inc.](/companies/obio.md) (CIK 1814114)
- Form: 10-Q
- Filed: 2024-11-12
- Accepted by EDGAR: Nov 12, 2024, 16:06 ET
- Period: 2024-09-30
- Accession: 0001558370-24-015313
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1814114/000155837024015313/obio-20240930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1814114/000155837024015313/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $987.0k | us-gaap:Revenues |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $2.4m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $68.0k | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $146.0k | us-gaap:CostOfRevenue |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $11.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $31.8m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $5.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $18.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$16.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$47.6m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$15.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$44.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.41 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$1.23 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.41 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$1.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 37,621,495 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 36,406,635 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$37.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $183.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $25.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $68.6m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $75.3m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $16.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $29.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $46.2m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 77,949 characters.

*Unless otherwise indicated or the context otherwise requires, references to “Orchestra,” “Orchestra’s,” “the Company,” “we,” “its” and “our” refer to Orchestra BioMed Holdings, Inc. and its consolidated subsidiaries. All references to years, unless otherwise noted, refer to the Company’s fiscal years, which end on December 31.*

*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.*

### Closing of Business Combination

Prior to January 26, 2023, the Company was a special purpose acquisition company formed for the purpose of entering into a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. On January 26, 2023, we consummated the business combination contemplated by the Agreement and Plan of Merger, dated as of July 4, 2022 (as amended by Amendment No. 1 to Agreement and Plan of Merger, dated July 21, 2022, and Amendment No. 2 to Agreement and Plan of Merger, dated November 21, 2022, the “Merger Agreement”) by and among Health Sciences Acquisitions Corporation 2, a special purpose acquisition company incorporated as a Cayman Islands exempted company in 2020 and Orchestra’s predecessor (“HSAC2”), HSAC Olympus Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of HSAC2 (“Merger Sub”), and Orchestra BioMed, Inc. (“Legacy Orchestra”). Pursuant to the Merger Agreement, (i) HSAC2 deregistered in the Cayman Islands in accordance with the Companies Act (2022 Revision) (As Revised) of the Cayman Islands and domesticated as a Delaware corporation in accordance with Section 388 of the Delaware General Corporation Law (the “Domestication”) and (ii) Merger Sub merged with and into Legacy Orchestra, with Legacy Orchestra as the surviving company in the merger and, after giving effect to such merger, continuing as a wholly owned subsidiary of Orchestra (the “Merger” and, together with the Domestication and the other transactions contemplated by the Merger Agreement, the “Business Combination”). As part of the Domestication, we changed our name from “Health Sciences Acquisitions Corporation 2” to “Orchestra BioMed Holdings, Inc.” On January 27, 2023, our common stock (“Company Common Stock”) began trading on the Nasdaq Global Market under the symbol “OBIO.” For additional information, see Note 3 to the Consolidated Financial Statements.

### Reverse Recapitalization

The Business Combination is accounted for as a reverse recapitalization (the “Reverse Recapitalization”) in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Under this method of accounting, HSAC2 is treated as the “acquired” company and Legacy Orchestra is treated as the acquirer for financial reporting purposes. As a result, the consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of Legacy Orchestra. Additionally, the shares and corresponding capital amounts and losses per share, prior to the Business Combination, have been retroactively restated based on the exchange ratio established in the Merger Agreement (the “Exchange Ratio”). For additional information on the Business Combination and the Exchange Ratio, see Note 3 to the Consolidated Financial Statements.

### Overview

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 flagship product candidates are 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, 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.

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.

Legacy Orchestra, our wholly owned subsidiary, was incorporated in Delaware in 2017 and completed a recapitalization and mergers with Caliber Therapeutics, Inc., a Delaware corporation that has, among other things, the rights to the Virtue SAB product candidate and BackBeat Medical, Inc., a Delaware Corporation that has, among other things, the rights to the Backbeat CNT product candidate, in 2018. Legacy Orchestra completed the conversions of Caliber Therapeutics, Inc. to Caliber Therapeutics, LLC, a Delaware limited liability company, and BackBeat Medical, Inc. to BackBeat Medical, LLC, a Delaware limited liability company, in 2019.

### Recent Developments

#### At the Market Offerings

On May 15, 2024, we entered into an Open Market Sale AgreementSM (the “Prior Agreement”) with Jefferies LLC (“Jefferies”), pursuant to which we were able to offer and sell, from time to time through Jefferies, up to $100 million of shares of Company Common Stock 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. In connection with the entry into the Sales Agreement (as defined below), on August 12, 2024, we terminated the Prior Agreement with Jefferies (the “Termination”), in accordance with its terms and with the mutual agreement of Jefferies. The purpose of the Termination was to eliminate restrictions under certain SEC rules relating to the publication or dissemination of new research reports on our business by Jefferies in light of its role as sales agent under the Prior Agreement. Prior to the Termination, $15.5 million of shares of Company Common Stock had been sold under the Prior Agreement, with $84.5 million remaining available under the Prior Agreement. We cannot make any further sales of Company Common Stock pursuant to the Prior Agreement.

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.

#### 2024 Loan and Security Agreement

On November 6, 2024 (the “Closing Date”), we and certain of our subsidiaries (together with us, the “Borrower”) entered into a Loan and Security Agreement (the “2024 LSA”), by and among the Borrower, the several banks and other financial institutions or entities party thereto, as lenders (collectively, the “Lenders”), and Hercules Capital, Inc. (“Hercules”), as administrative agent and collateral agent for itself and the Lenders. The 2024 LSA provides a secured term loan facility of up to $50.0 million available in up to four tranches (collectively, the “Term Loans”), with the first tranche of $15.0 million that was drawn on the Closing Date, a second and third tranche of up to an aggregate of $15.0 million available upon achievement of certain performance and financing milestones. Additionally, we may have access to a fourth tranche of $20.0 million subject to future approval.

The Term Loans accrue interest at a floating per annum rate equal to the greater of (i) (x) the Prime Rate (as reported in *The Wall Street Journal*) plus (y) 2.0%, and (ii) 9.50%. The repayment terms of the Term Loans include monthly payments over a 4-year period, consisting of an initial two year interest-only period, followed by 24 monthly principal payments plus interest, although the interest-only period can be extended under certain circumstances set forth in the 2024 LSA. In addition, we will pay an end of term charge of 6.35% upon the prepayment or repayment of the Term Loans and a facility charge of 0.75% upon any draws of the Term Loans.

In connection with the entry into the 2024 LSA, on the Closing Date, we issued each of the Lenders a warrant to purchase Company Common Stock (each a “Warrant” and, collectively, the “Warrants”). Pursuant to the terms of the Warrants, each Lender may purchase that number of shares of Company Common Stock equal to (i)(x) 0.02, multiplied by (y) the aggregate principal amount of all Term Loan Advances (as defined in the 2024 LSA) made to us by the applicable Lender, divided by (ii) $5.74, which is the Exercise Price of the Warrants. Each Warrant is exercisable for seven years from the Closing Date.

#### BACKBEAT Pivotal Study Amendment

We are currently implementing an amendment to the BACKBEAT global pivotal study protocol with existing and newly activated study sites that was approved by the U.S. FDA during the third quarter of 2024. The protocol amendment is intended to improve patient engagement processes and significantly expand the window for screening and enrolling patients. Specifically, the updated protocol allows patients to consent and have initial blood pressure assessment prior to pacemaker implant and be screened and enrolled 30 days prior to and up to 365 days post-implant procedure. Previously, patients could not consent prior to implant and could only be screened and enrolled up to 90 days post-implant, substantially limiting the pool of eligible patients. The updated protocol also streamlines site coordinator and patient visit activities. We are evaluating the impact of the protocol amendment on the rate of enrollment and anticipate providing an update on the timeline for completion of enrollment at the time of filing of our Annual Report on Form 10-K for the year ending December 31, 2024, which we expect to file at the end of the first quarter of 2025.

### Registration Statement

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 the Company Common Stock.

### Components of Our Results of Operations

### Partnership Revenue

To date, our partnership revenues have related to the Terumo Agreement described below. In future periods, partnership revenues may also include revenues related to the Exclusive License and Collaboration Agreement, dated as of September 30, 2022, by and among, Legacy Orchestra, BackBeat Medical, LLC and Medtronic, Inc. (an affiliate of Medtronic plc) (the “Medtronic Agreement”), discussed in Note 5 to the Consolidated Financial Statements.

Legacy Orchestra entered into the Terumo Agreement in June 2019, and has determined that the arrangement represents a contract with a customer and is therefore in scope of ASC 606, *Revenues from Contracts with Customers (“*ASC 606”). Under the Terumo Agreement, Legacy Orchestra received an upfront payment of $30.0 million in 2019 and an equity commitment of up to $5 million of which $2.5 million was invested in June 2019 as part of the Legacy Orchestra Series B-1 financing and $2.5 million was invested in June 2022 as part of the Legacy Orchestra Series D-2 financing.

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.

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.

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.

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

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.

### Product Revenue

Product revenues related to sales of FreeHold’s intracorporeal organ retractors and such revenues are recognized at a point-in-time upon the shipment of the product to the customer given payment terms are typically 30 days. FreeHold products are currently only sold in the United States.

### Cost of Product Revenue and Gross Margin

Cost of product revenue consists primarily of costs of finished goods components for use in FreeHold’s products and assembled, warehoused and inventoried by a third-party vendor. We expect the cost of finished goods product revenue to increase in absolute terms as our revenue grows.

Our gross margin has been, and will continue to be, affected by a variety of factors, including finished goods manufactured component parts, as well as the cost to assemble and warehouse the FreeHold product finished goods inventory.

### Research and Development Expenses

Research and development expenses consist of applicable personnel, consulting, materials and clinical study expenses. Research and development expenses include:

- Certain personnel-related expenses, including salaries, benefits, bonus, travel and stock-based compensation;
- Cost of clinical studies to support new products and product enhancements, including expenses for clinical research organizations and site payments;
- Product device materials and drug supply, and manufacturing used for internal research and development, and clinical activities;
- Allocated overhead including facilities and information technology expenses; and
- Cost of outside consultants who assist with device and drug development, regulatory affairs, clinical affairs and quality assurance.

Research and development costs are expensed as incurred. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical studies. In the future, we expect research and development expenses to increase in absolute dollars as we continue to develop new products, enhance existing products and technologies, initiate clinical studies, manufacture drug supply for internal research and development and clinical trial supply and perform activities related to obtaining additional regulatory approvals. We do not track expenses by product candidate, unless tracking such expenses is required pursuant to the revenue recognition model for a collaborative arrangement.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of personnel-related expenses, including salaries, benefits, bonus, travel and stock-based compensation. Other selling, general and administrative expenses include professional services fees, including legal, audit, investor/public relations, and insurance costs, outside consultants costs, employee recruiting and training costs, and non-income taxes. Moreover, we incur and expect to continue to incur additional expenses associated with operating as a public company, including legal, accounting, insurance, exchange listing and SEC compliance and investor relations. We expect quarterly selling, general and administrative expenses, excluding stock-based compensation expense, to continue to increase as a public company.

### Interest Income, Net

Interest income reflects the income generated from marketable securities during the year. Interest expense is attributable to loan interest.

In June 2022, Legacy Orchestra entered into a loan and security agreement (the “2022 Loan and Security Agreement”) with Avenue Venture Opportunities Fund, L.P. (“Avenue I”) and Avenue Venture Opportunities Fund II, L.P. (“Avenue II,” and, collectively with Avenue I, “Avenue”). As part of the 2022 Loan and Security Agreement, Legacy Orchestra paid off the balance of the 2019 Loan and Security Agreement (as defined below) with Silicon Valley Bank. The terms of the 2022 Loan and Security Agreement included a term loan of up to $20 million available in two tranches with the first tranche of $10 million that was drawn at closing in June of 2022, and a second tranche of $10 million available at closing of the Series D-2 Financing that was not drawn. Additionally, we may have had access to a third tranche of $30 million subject to certain financing milestones. The term loan had a maturity date of June 1, 2026 and accrued interest at a floating per annum rate equal to the Wall Street Journal prime rate plus 6.45%. On October 6, 2023, the 2022 Loan and Security Agreement was repaid in full and terminated. Refer to Note 14 to our Consolidated Financial Statements.

In December 2019, Legacy Orchestra entered into a Loan and Security Agreement with Silicon Valley Bank for a term loan as described in Note 14 to our Condensed Consolidated Financial Statements (the “2019 Loan and Security Agreement”). The 2019 Loan and Security Agreement provided Legacy Orchestra with capital for development and general corporate purposes. On December 31, 2020, Legacy Orchestra borrowed $10.0 million under the 2019 Loan and Security Agreement which was repaid in connection with entering into the 2022 Loan and Security Agreement.

### Loss on Fair Value Adjustment of Warrant Liability

Certain of Legacy Orchestra’s outstanding warrants contained features that required the warrants to be accounted for as liabilities. The warrants were subject to re-measurement at each balance sheet date with gains and losses reported through Legacy Orchestra’s condensed consolidated statements of operations and comprehensive loss as loss on fair value adjustment of warrant liability. Upon closing of the Business Combination, all liability classified warrants of Legacy Orchestra became equity classified on that date as they are now considered “fixed for fixed.”

### Loss on Debt Extinguishment

The loss on debt extinguishment represents charges incurred as a result of the payoff of each of the 2019 Loan and Security Agreement and the 2022 Loan and Security Agreement.

### Loss on Fair Value of Strategic Investments

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.

### Results of Operations

### Comparison of the Nine Months Ended September 30, 2024 and 2023

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):

| ​ ​ ​ Revenue: | ​ ​ | ​ ​ Nine Months Ended September 30, 2024 ​ | ​ ​ | ​ ​ 2023 ​ | ​ ​ | ​ ​ Change $ ​ | ​ ​ | ​ Change % ​ | ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | --- | ---: |
| Partnership revenue | ​ | $1,928 | ​ | $2,018 | ​ | $(90) | ​ | ​ | (4)% |
| Product revenue | ​ | 457 | ​ | 480 | ​ | (23) | ​ |  | (5)% |
| Total revenue | ​ | 2,385 | ​ | 2,498 | ​ | (113) | ​ |  | (5)% |
| **Expenses:** | ​ |  | ​ |  | ​ |  | ​ |  | ​ ​ |
| Cost of product revenues | ​ | 146 | ​ | 139 | ​ | 7 | ​ |  | 5% |
| Research and development | ​ | 31,833 | ​ | 25,311 | ​ | 6,522 | ​ |  | 26% |
| Selling, general and administrative | ​ | 18,030 | ​ | 16,073 | ​ | 1,957 | ​ |  | 12% |
| Total expenses | ​ | 50,009 | ​ | 41,523 | ​ | 8,486 | ​ |  | 20% |
| **Loss from operations** | ​ | (47,624) | ​ | (39,025) | ​ | (8,599) | ​ |  | (22)% |
| **Other income (expense):** | ​ |  | ​ |  | ​ |  | ​ |  | ​ ​ |
| Interest income, net | ​ | 2,834 | ​ | 2,741 | ​ | 93 | ​ |  | 3% |
| Loss on fair value adjustment of warrant liability | ​ | — | ​ | (294) | ​ | 294 | ​ |  | 100% |
| (Loss) gain on fair value of strategic investments | ​ | (68) | ​ | 276 | ​ | (344) | ​ |  | (125)% |
| Other expense | ​ | (11) | ​ | ​ — | ​ | ​ (11) | ​ | ​ | NM \* |
| Total other income | ​ | 2,755 | ​ | 2,723 | ​ | 32 | ​ |  | 1% |
| **Net loss** | ​ | $(44,869) | ​ | $(36,302) | ​ | $(8,567) | ​ | ​ | (24)% |

\*Note: NM denotes that the computed amount is not meaningful.

### Partnership Revenue

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.

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.

While we believe we have estimated total costs associated with the Terumo Agreement through completion, these estimates encompass a broad range of expenses over a multi-year period and, as such, are subject to periodic changes as new information becomes available.

### Product Revenue

Product revenue decreased by $23,000, or approximately 5%, to $457,000 in the nine months ended September 30, 2024 from $480,000 for the nine months ended September 30, 2023.

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 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.

### Cost of Product Revenue

Cost of product revenue increased by $7,000, or approximately 5%, to $146,000 in the nine months ended September 30, 2024 from $139,000 for the nine months ended September 30, 2023. The increase was primarily due to higher production costs per unit of FreeHold Duo and Trio intracorporeal organ retractors.

### Research and Development Expenses

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

| ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ ​ Nine Months Ended September 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: | --- | ---: |
| Personnel and consulting costs | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $14,416 | ​ | $12,928 |
| Non-clinical development costs | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ 13,424 | ​ | 9,377 |
| Clinical development costs | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 3,993 | ​ | 3,006 |
| Total research and development expenses | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $31,833 | ​ | $25,311 |

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.

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.

### Selling, General and Administrative Expenses

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.

### Interest Income, Net

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.

### Loss on Fair Value Adjustment of Warrant Liability

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 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 for the nine months ended September 30, 2024.

### (Loss) Gain on Fair Value of Strategic Investments

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.

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.

### Comparison of the Three Months Ended September 30, 2024 and 2023

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

| ​ ​ ​ Revenue: | ​ ​ | ​ ​ Three Months Ended September 30, 2024 ​ | ​ ​ | ​ ​ 2023 ​ | ​ ​ | ​ ​ Change $ ​ | ​ ​ | ​ ​ ​ ​ Change % ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Partnership revenue | ​ | $803 | ​ | $271 | ​ | $532 | ​ | $196% |
| Product revenue | ​ | 184 | ​ | 148 | ​ | 36 | ​ | 24% |
| Total revenue | ​ | 987 | ​ | 419 | ​ | 568 | ​ | 136% |
| **Expenses:** | ​ |  | ​ |  | ​ |  | ​ | ​ ​ |
| Cost of product revenues | ​ | 68 | ​ | 41 | ​ | 27 | ​ | 66% |
| Research and development | ​ | 11,595 | ​ | 8,558 | ​ | 3,037 | ​ | 35% |
| Selling, general and administrative | ​ | 5,666 | ​ | 6,344 | ​ | (678) | ​ | (11)% |
| Total expenses | ​ | 17,329 | ​ | 14,943 | ​ | 2,386 | ​ | 16% |
| **Loss from operations** | ​ | (16,342) | ​ | (14,524) | ​ | (1,818) | ​ | (13)% |
| **Other income (expense):** | ​ |  | ​ |  | ​ |  | ​ | ​ ​ |
| Interest income, net | ​ | 916 | ​ | 915 | ​ | 1 | ​ | 0% |
| Gain on fair value of strategic investments | ​ | — | ​ | 293 | ​ | (293) | ​ | (100)% |
| Total other income | ​ | 916 | ​ | 1,208 | ​ | (292) | ​ | (24)% |
| **Net loss** | ​ | $(15,426) | ​ | $(13,316) | ​ | $(2,110) | ​ | $(16)% |

### Partnership Revenue

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.

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.

While we believe we have estimated total costs associated with the Terumo Agreement through completion, these estimates encompass a broad range of expenses over a multi-year period and, as such, are subject to periodic changes as new information becomes available.

### Product Revenue

Product revenue increased by $36,000, or approximately 24%, to $184,000 in the three months ended September 30, 2024 from $148,000 for the three months ended September 30, 2023.

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.

### Cost of Product Revenue

Cost of product revenue increased by $27,000, or approximately 66%, to $68,000 in the three months ended September 30, 2024 from $41,000 for the three months ended September 30, 2023. The increase was primarily due to increased sales and increased production costs per unit of FreeHold Duo and Trio intracorporeal organ retractors.

### Research and Development Expenses

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

| ​ ​ ​ | ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended September 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: | --- | ---: |
| Personnel and consulting costs | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $4,800 | ​ | $4,839 |
| Non-clinical development costs | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ 5,349 | ​ | 2,776 |
| Clinical development costs | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 1,446 | ​ | 943 |
| Total research and development expenses | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $11,595 | ​ | $8,558 |

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.

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.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by $678,000, or approximately 11%, to $5.7 million for the three months ended September 30, 2024, from $6.3 million of expense for the three months ended September 30, 2023. The decrease was primarily due to a decrease in stock-based compensation of $827,000 and a decrease in outside consulting expense of $198,000, partially offset by an increase in personnel related expenses of $375,000 due to increased headcount.

### Interest Income, Net

Interest income, net, increased by $1,000 to $916,000 of income for the three months ended September 30, 2024, from

$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.

### Gain on Fair Value of Strategic Investments

There was no adjustment to strategic investments for the three months ended September 30, 2024, as compared to a gain of $293,000 for the three months ended September 30, 2023, which was related to the change in fair value in our common stock holdings of Motus GI.

During the three 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.

### Liquidity and Capital Resources

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.

On August 12, 2024, we entered into the Sales Agreement with 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 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. As of September 30, 2024, all of the $100 million shares are available under this Sales Agreement. In connection with the entry into the Sales Agreement, on August 12, 2024, we terminated our Prior Agreement with Jefferies, in accordance with its terms and with the mutual agreement of Jefferies of which $15.5 million of shares of Company Common Stock were sold. We cannot make any further sales of the Company Common Stock pursuant to the Prior Agreement.

On November 6, 2024, the Company and certain of its subsidiaries entered into the 2024 LSA. The 2024 LSA provides a secured term loan facility of up to $50.0 million available in up to four tranches (collectively, the “Term Loans”), with the first tranche of $15.0 million that was drawn on the Closing Date, a second and third tranche of up to an aggregate of $15.0 million available upon achievement of certain performance and financing milestones. Additionally, the Company may have access to a fourth tranche of $20.0 million subject to future approval.

The Term Loans accrue interest at a floating per annum rate equal to the greater of (i) (x) the Prime Rate (as reported in *The Wall Street Journal*) plus (y) 2.0%, and (ii) 9.50%. The repayment terms of the Term Loans include monthly payments over a 4-year period, consisting of an initial two-year interest-only period, followed by 24 monthly principal payments plus interest, although the interest-only period can be extended under certain circumstances set forth in the 2024 LSA. In addition, the Company will pay an end of term charge of 6.35% upon the prepayment or repayment of the Term Loans and a facility charge of 0.75% upon any draws of the Term Loans.

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, 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.

As a result, we have neither included nor intend to include any potential cash proceeds from the exercise of our warrants in our short-term or long-term liquidity projections. We will continue to evaluate the probability of warrant exercise over the life of our warrants and the merit of including potential cash proceeds from the exercise in our liquidity projections. We do not expect to rely on the exercise of our warrants to fund our operations.

### Funding Requirements

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..

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.

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.

### Cash Flows

The following table summarizes our cash flow data for the periods indicated (in thousands):

| ​ ​ ​ | ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2024 | ​ | ​ ​ 2023 |
| --- | --- | --- | --- | --- | --- | --- | --- | ---: | --- | ---: |
| Net cash used in operating activities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $(37,020) | ​ | $(35,153) |
| Net cash provided by (used in) investing activities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 16,842 | ​ | (22,464) |
| Net cash provided by financing activities | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 15,224 | ​ | 56,911 |
| Net decrease in cash and cash equivalents | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $(4,954) | ​ | $(706) |

### Comparison of the Nine Months Ended September 30, 2024 and 2023

### Net Cash Flows from Operating Activities

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.

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.

### Net Cash Flows from Investing Activities

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.

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.

### Net Cash Flows from Financing Activities

Net cash provided by financing activities of $15.2 million for the nine months ended September 30, 2024 was primarily attributable to the proceeds of $15.0 million, net of issuance costs, from the at-the-market offering under the Prior Agreement with Jefferies.

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.

### Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of September 30, 2024 (in thousands):

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Payments Due by Period ​ ​ Total | ​ ​ | ​ ​ Less than 1 Year | ​ ​ | ​ ​ 1-3 Years | ​ ​ | ​ ​ 3-5 Years | ​ ​ | ​ ​ More than 5 Years |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Operating lease obligations | ​ | $2,179 | ​ | $556 | ​ | $1,345 | ​ | $278 | ​ | $— |
| Total | ​ | $2,179 | ​ | $556 | ​ | $1,345 | ​ | $278 | ​ | $— |

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.

### Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. GAAP. The preparation of the financial statements in conformity with U.S. GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including estimates related to the total costs expected to be incurred though the completion of the combined performance obligation of the Terumo Agreement, research and development prepayments, accruals and related expenses and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. For further information, see Note 2 to the Consolidated Financial Statements.

### Revenue Recognition

We recognize revenue under the core principle according to ASC 606 to depict the transfer of control to our customers in an amount reflecting the consideration we expect to be entitled to. In order to achieve that core principle, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when a performance obligation is satisfied.

Our revenues are currently comprised of partnership revenues under the Terumo Agreement related to the development and commercialization of Virtue SAB, and product revenue from the sale of FreeHold’s intracorporeal organ retractors.

### Partnership Revenues

To date, our partnership revenues have related to the Terumo Agreement described below. In future periods, partnership revenues may also include revenues related to the Medtronic Agreement, discussed in Note 5 to the Consolidated Financial Statements.

Legacy Orchestra entered into the Terumo Agreement as further described in Note 4 to the Consolidated Financial Statements. We assessed whether the Terumo Agreement fell within the scope of ASC 808 based on whether the arrangement involved joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. We determined that the Terumo Agreement did not fall within the scope of ASC 808. We then analyzed the arrangement pursuant to the provisions of ASC 606 and determined that the arrangement represents a contract with a customer and is therefore within the scope of ASC 606.

The promised goods or services in the Terumo Agreement include (i) license rights to our intellectual property and (ii) research and development services. We also have optional additional items in the Terumo Agreement, which are considered marketing offers and are accounted for as separate contracts with the customer if such option is elected by the customer, unless the option provides a material right which would not be provided without entering into the contract. Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer. Promised goods or services are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources or (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct in the Terumo Agreement, we considered factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own or whether the required expertise is readily available.

We estimate the transaction price for the Terumo Agreement performance obligations based on the amount expected to be received for transferring the promised goods or services pursuant to the Terumo Agreement. The consideration includes both fixed consideration and variable consideration. At the inception of the Terumo Agreement, as well as at each reporting period, we evaluate the amount of potential payment and the likelihood that the payments will be received. We utilize either the most likely amount method or expected amount method to estimate the amount expected to be received based on which method better predicts the amount expected to be received. If it is probable that a significant revenue reversal would not occur, the variable consideration is included in the transaction price.

The Terumo Agreement contains development and regulatory milestone payments. At contract inception and at each reporting period, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect partnership revenues and earnings in the period of adjustment.

The Terumo Agreement also includes sales-based royalties and the license is deemed to be the predominant item to which the royalties relate. Accordingly, we will recognize royalty revenue when the related sales occur. To date, we have not recognized any royalty revenue under the arrangement.

We have determined that intellectual property licensed to Terumo and the research and development services to be provided to support the premarket approval by the FDA for the ISR indication represent a combined performance obligation that is satisfied over time, which is currently estimated to be completed in 2029, and that the appropriate method of measuring progress for purposes of recognizing revenues relates to a proportional performance model that measures the proportional performance based on the costs incurred to date relative to the total costs expected to be incurred through the completion of the performance obligation. We evaluate the measure of progress at each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

In the nine months ended September 30, 2024, we updated our estimates of the total costs expected to be incurred through the completion of the combined performance obligation. The impact of the changes in estimates resulted in a reduction in partnership revenues of $371,000, which resulted in a $0.01 effect on net loss per share, basic and diluted. In the nine months ended September 30, 2023, the impact of the changes in estimates resulted in a reduction of partnership revenues of $882,000, which resulted in a $0.03 effect on net loss per share, basic and diluted.

We receive payments from Terumo based on billing schedules established in the contract. Such billings for milestone related events have 10-day terms from the date the milestone is achieved, royalty payments are 20-day terms after the close of each quarter, any optional services are 20 days after receipt of an invoice and sales of SirolimusEFR are within 30 days after receipt of the shipping invoices. Upfront payments are recorded as deferred revenue upon receipt or when due until we perform our obligations under these arrangements. Amounts are recorded as accounts receivable when the right to consideration is unconditional.

In June 2022, Legacy Orchestra, BackBeat Medical, LLC and Medtronic 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 determined that the arrangement is a collaboration within the scope of ASC 808. In addition, we concluded Medtronic is a customer for a good or service that is a distinct unit of account, and therefore the transactions in the 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.

### Product Revenues

Product revenues related to sales of FreeHold’s intracorporeal organ retractors are recognized at a point-in-time upon the shipment of the product to the customer, and there are no significant estimates or judgments related to estimating the transaction price. The product revenues consist of a single performance obligation, and the payment terms are typically 30 days. Product revenues are recognized solely in the United States.

### Research and Development Prepayments, Accruals and Related Expenses

We incur costs of research and development activities conducted by our third-party service providers, which include the conduct of preclinical and clinical studies. We are required to estimate our prepaid and accrued research and development costs at each reporting date. These estimates are made as of the reporting date of the work completed over the life of the individual study in accordance with agreements established with our service providers. We determine the estimates of research and development activities incurred at the end of each reporting period through discussion with internal personnel and outside service providers, as to the progress or stage of completion of trials or services, as of the end of the reporting period, pursuant to contracts with the third parties and the agreed upon fees to be paid for such services. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are accepted by us or the services are performed. Accruals are recorded for the amounts of services provided that have not yet been invoiced.

### Warrants

We evaluate our warrants to determine if the contracts qualify as liabilities in accordance with ASC 480-10, *Distinguishing Liabilities from Equity,* and ASC 815, *Derivatives and Hedging*. If the warrant is determined to meet the criteria to be liability classified, the warrant liability is marked-to-market each balance sheet date and recorded as a liability, with the change in fair value recorded in our condensed consolidated statements of operations and comprehensive loss as gain (loss) on fair value adjustment of warrant liability within other income or expense.

In bundled transactions, the proceeds received from any debt instruments and liability classified warrants are allocated to the warrant at fair value first, and the residual value is then allocated to the debt instrument. Upon conversion or exercise of a warrant that is subject to liability treatment, the instrument is marked to fair value at the conversion or exercise date and the fair value is reclassified to equity. Equity classified warrants are recorded within additional paid-in capital at the time of issuance at fair value as of the issuance date and are not subject to subsequent remeasurement.

### Stock-Based Compensation

We account for share-based payments at fair value. The fair value of stock options is measured using the Black-Scholes option-pricing model and the fair value of restricted stock is measured based on the fair value of the Company Common Stock underlying the award as of the grant date, described further below. For share-based awards that vest subject to the satisfaction of a service requirement, the fair value measurement date for stock-based compensation awards is the date of grant and the expense is recognized on a straight-line basis, over the vesting period. We account for forfeitures as they occur.

Prior to the Business Combination, due to the absence of an active market for Legacy Orchestra’s common stock, Legacy Orchestra utilized methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants’ Audit and Accounting Practice Guide: Valuation of Privately-Held Company Equity Securities Issued as Compensation to estimate the fair value of its common stock. The fair value of Legacy Orchestra’s common stock was determined based upon a variety of factors, including valuations of Legacy Orchestra’s common stock performed with the assistance of independent third-party valuation specialists; Legacy Orchestra’s stage of development and business strategy, including the status of research and development efforts of its product candidates, and the material risks related to its business and industry; Legacy Orchestra’s business conditions and projections; Legacy Orchestra’s results of operations and financial position, including its levels of available capital resources; the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies; the lack of marketability of Legacy Orchestra’s common stock as a private company; the prices of Legacy Orchestra’s convertible preferred stock sold to investors in arm’s length transactions and the rights, preferences and privileges of its convertible preferred stock relative to those of its common stock; the likelihood of achieving a liquidity event for the holders of Legacy Orchestra’s common stock, such as an initial public offering or a sale of Legacy Orchestra given prevailing market conditions; trends and developments in its industry; the hiring of key personnel and the experience of management; and external market conditions affecting the life sciences and biotechnology industry sectors. Significant changes to the key assumptions underlying the factors used could result in different fair values of Legacy Orchestra’s common stock at each valuation date. In determining the exercise prices for options granted and fair value of restricted stock, we have considered the fair value of the common stock as of the grant date.

Prior to the Business Combination, valuation analyses were conducted utilizing a probability weighted expected return method, in which the probability of a public company scenario was considered via either an initial public offering or special purpose acquisition company transaction. Subsequent to the Business Combination, fair value was determined by market prices of the Company Common Stock.

We classify stock-based compensation expense in our condensed consolidated statements of operations and comprehensive loss in the same manner in which the award recipients’ payroll costs are classified or in which the award recipients’ service payments are classified.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model, which is based on the assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment and estimation by management.

- *Expected Term —* The expected term represents the period that stock-based awards are expected to be outstanding. Our historical share option exercise information is limited due to a lack of sufficient data points and does not provide a reasonable basis upon which to estimate an expected term. The expected term for option grants is therefore determined using the “simplified” method, as prescribed in the SEC’s Staff Accounting Bulletin (SAB) No. 107. The simplified method deems the expected term to be the midpoint between the vesting date and the contractual life of the stock-based awards.
- *Expected Volatility —* We consummated the Business Combination on January 26, 2023 and lack sufficient company-specific historical and implied volatility information. Therefore, we derived expected stock volatility using a weighted average blend of historical volatility of comparable peer public companies and our own historical volatility, over a period equivalent to the expected term of the stock-based awards.
- *Risk-Free Interest Rate —* The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the stock-based awards’ expected term.
- *Expected Dividend Yield —* The expected dividend yield is zero as neither we nor Legacy Orchestra has paid, and we do not anticipate paying, any dividends on the Company Common Stock in the foreseeable future.
- *Common Stock Valuation —* Prior to the Business Combination, given the absence of a public trading market for Legacy Orchestra’s common stock, Legacy Orchestra’s board of directors considered numerous subjective and

objective factors to determine the best estimate of fair value of Legacy Orchestra’s common stock underlying the stock options granted to its employees and non-employees. In determining the grant date fair value of Legacy Orchestra’s common stock, Legacy Orchestra’s board considered, among other things, contemporaneous valuations of its common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, *Valuation of Privately-Held-Company Equity Securities Issued as Compensation*. Following the Business Combination, our board of directors determines the fair value of the Company Common Stock based on the closing price of the Company Common Stock on or around the date of grant.

During the three months ended September 30, 2024 and 2023, stock-based compensation was $2.4 million and $3.5 million, respectively. During the nine months ended September 30, 2024 and 2023, stock-based compensation was $7.7 million and $6.7 million, respectively. As of September 30, 2024, we had approximately $19.4 million of total unrecognized stock-based compensation, which we expect to recognize over a weighted-average period of approximately 2.3 years.

### Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements.

### Emerging Growth Company and Smaller Reporting Company Status

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933 (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our Consolidated Financial Statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year following the fifth anniversary of the closing of the initial public offering of HSAC2, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of the Company Common Stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) the market value of our voting and non-voting Company Common Stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or (ii)(a) our annual revenue is less than $100.0 million during the most recently completed fiscal year and (b) the market value of our voting and non-voting Company Common Stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

## Controls and procedures

As filed, 2,519 characters.

#### Evaluation of Disclosure Controls and Procedures.

We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024, the end of the period covered by this Quarterly Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.

#### Changes in Internal Control Over Financial Reporting.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

#### Inherent Limitation on the Effectiveness of Internal Control.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures, or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

## Risk factors

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Our operations and financial results are subject to various risks and uncertainties, including those described under the heading “Item 1A. Risk Factors” in the 2023 10-K, which could adversely affect our business, financial condition, results of operations, liquidity and the trading price of Company Common Stock. There have been no material changes to the risk factors previously disclosed in the 2023 10-K, except as set forth below.

**We may not be able to borrow additional funds under the 2024 LSA, and the terms of the 2024 LSA place restrictions on our operating and financial flexibility.**

In November 2024, we entered into the 2024 LSA pursuant to which a term loan facility in an aggregate principal amount up to $50.0 million is available to us in four tranches, with the first tranche of $15.0 million drawn on the Closing Date, and a second and third tranche of up to an aggregate of $15.0 million available upon achievement of certain performance and financing milestones. Additionally, we may have access to a fourth tranche of up to $20.0 million subject to the sole discretion of the Lenders. There is no assurance that we will be able to achieve the performance and financing milestones necessary to draw additional amounts under the 2024 LSA or that the Lenders will provide funds under the fourth tranche.

The 2024 LSA is secured by a lien on substantially all of our assets, including our intellectual property. The 2024 LSA includes affirmative and negative covenants that limit our operating flexibility and events of default applicable to us. The affirmative covenants include, among others, covenants requiring us to permit representatives of Hercules and the Lenders to, among other things, inspect the collateral for the 2024 LSA, keep such collateral clear from any legal process or liens, deliver certain financial reports and maintain insurance coverage. The negative covenants include, among others, restrictions on making changes to the nature of our business, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, and engaging in transactions with affiliates. The 2024 LSA also includes a liquidity covenant that commences on April 1, 2025, or, if certain financing milestones are satisfied, December 1, 2025. There is no guarantee that we will be able to comply with this financial covenant or pay the principal and interest on the 2024 LSA when due.

Events of default under the 2024 LSA include, among other things and subject to customary exceptions: (i) insolvency, liquidation, bankruptcy or similar events; (ii) failure to pay any debts due under the 2024 LSA or other related loan documents on a timely basis; (iii) failure to observe certain covenants under the 2024 LSA; (v) occurrence of a "material adverse effect” as set forth in the 2024 LSA; (vi) material misrepresentation by us; (vii) occurrence of any default under any other agreement involving material indebtedness; and (viii) certain material money judgments. If we default under the 2024 LSA, Hercules may accelerate all of our repayment obligations and take control of our pledged assets, potentially requiring us to renegotiate the 2024 LSA on terms less favorable to us or to immediately cease operations. Further, if we are liquidated, the Lenders’ right to repayment would be senior to the rights of the holders of Company Common stock to receive any proceeds from the liquidation. Any declaration by Hercules of an event of default could significantly harm our business and prospects and could cause the price of the Company Common Stock to decline. If we raise any additional debt financing in the future, the terms of such additional debt could further restrict our operating and financial flexibility.

Filed Nov 12, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-015313. Last ingested by Listed: Nov 5, 2026, 16:23 ET. No prices; not investment advice.