Significant uncertainty exists as to the coverage and reimbursement status of our products and any productsproduct candidates for which we may obtain regulatory approval. Sales of any of our products and product candidates, if approved, will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government healthcare programs such as Medicare and Medicaid, and private payors, such as commercial health insurers and managed care organizations. Third-party payors determine which drugs they will cover and the amount of reimbursement they will provide for a covered drug. In the U.S., there is no uniform system among payors for making coverage and reimbursement decisions. In addition, the process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication.

In order to secure coverage and reimbursement for our products we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costly studies required to obtain FDA or other comparable regulatory approvals. Even if we conduct pharmacoeconomic studies, our products and product candidates may not be considered medically necessary or cost-effective by payors. Further, a payor's decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved.

In the past, payors have implemented reimbursement metrics and periodically revised those metrics as well as the methodologies used as the basis for reimbursement rates, such as average sales price or ASP,(ASP), average manufacturer price or AMP,(AMP), and actual acquisition cost. The existing data for reimbursement based on these metrics is relatively limited, although certain states have begun to survey acquisition cost data for the purpose of setting Medicaid reimbursement rates. The Centers for Medicare and Medicaid Services or CMS,(CMS) surveys and publishes retail pharmacy acquisition cost information in the form of National Average Drug Acquisition Cost or NADAC, files to provide state Medicaid agencies with a basis of comparison for their own reimbursement and pricing methodologies and rates.

Federal law requires that any manufacturer that participates in the Medicaid Drug Rebate programProgram also participate in the 340B programProgram in order for federal funds to be available for the manufacturer's drugs under Medicaid and Medicare Part B. The 340B programProgram, which is administered by the Health Resource and Services Administration

(HRSA) requires participating manufacturers to agree to charge statutorily defined covered entities no more than the 340B "ceiling price" for the manufacturer's covered outpatient drugs. These 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low-income patients. The 340B ceiling price is calculated using a statutory formula, which is based on the AMP and rebate amount for the covered outpatient drug as calculated under the Medicaid Drug Rebate program.Program. Any changes to the definition of AMP and the Medicaid rebate amount under the Affordable Care Act or otherfederal legislation could affect our 340B ceiling price calculations and negatively impact our results of operations. Health care reform also made changes to the 340B program by expanding the list of covered entities eligible for 340B participation to include certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals. Health care reform obligates the Secretary of the U.S. Department of Health and Human Services, (HHS), to create regulations

In the U.S. Medicare program, outpatient prescription drugs may be covered under Medicare Part D. Medicare Part D is a voluntary prescription drug benefit, through which Medicare beneficiaries may enroll in prescription drug plans offered by private entities for coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans provided for under Medicare Part C.

Coverage and reimbursement for covered outpatient drugs under Part D are not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Although Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, they have some flexibility to establish those categories and classes and are not required to cover all of the drugs in each category or class. Medicare Part D prescription drug plans may use formularies to limit the number of drugs that will be covered in any therapeutic class and/or impose differential cost sharing or other utilization management techniques.

The availability of coverage under Medicare Part D may increase demand for our products and any product candidates for which we receive marketing approval. However, in order for the products that we market to be included on the formularies of Part D prescription drug plans, we likely will have to offer pricing that is lower than the prices we might otherwise obtain. Changes to Medicare Part D that give plans more freedom to limit coverage or manage utilization, and other cost reduction initiatives in the program could decrease the coverage and price that we receive for any approved products and could seriously harm our business.

In order to be eligible to have our products or any future products paid for with federal funds under the Medicaid and Medicare Part B programs, as applicable, and purchased by certain federal agencies and grantees, we expect toalso participate in the U.S. Department of Veterans Affairs or VA,(VA) Federal Supply Schedule or FSS,(FSS) pricing program. Under this program, we would beare obligated to make our "innovator" drugs available for procurement on an FSS contract and charge a price to four federal agencies — the VA, U.S. Department of Defense or DoD,(DoD) Public Health Service and U.S. Coast Guard — that is no higher than the statutory Federal Ceiling Price or FCP.(FCP). The FCP is based on the non-federal average manufacturer price or Non-FAMP,(Non-FAMP), which we calculate and report to the VA on a quarterly and annual basis. We also expect to participate in the Tricare Retail Pharmacy program, under which we would pay quarterly rebates on utilization of innovator products that are dispensed through the Tricare Retail Pharmacy network to Tricare beneficiaries. The rebates are calculated as the difference between the annual Non-FAMP and FCP.

Pricing and rebate calculations vary across products and programs, are complex, and are often subject to interpretation by manufacturers,us, governmental or regulatory agencies, and the courts. CivilSignificant civil monetary penalties can be applied if a manufacturer iswe are found to have knowingly submitted any false AMP, best price, or Non-FAMP information to the government or failsfail to submit the required price data on a timely basis. Such conduct also could be grounds for CMS to terminate the manufacturer's Medicaid drug rebate agreement, in which case federal payments may not be available under

Medicaid or Medicare Part B for the manufacturer'sour covered outpatient drugs. Civil monetary penalties could also be applied if we are found to have charged 340B covered entities more than the statutorily mandated ceiling price. In addition, claims submitted to federally-funded healthcare programs, such as Medicare and Medicaid, for drugs priced based on incorrect pricing data provided by a manufacturer can implicate the federal Civil False Claims Act.

The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures, and foreign governments have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement, and requirements for substitution of generic products for branded prescription drugs. For example, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs (including then-President Trump's executive order issued in November 2020 that, if it is found enforceable, is intended to tie drug prices in Medicare to lower prices abroad), and reform government program reimbursement methodologies for drug products.

Beginning April 1, 2013, Medicare payments for all items and services, including drugs, were reduced by 2% per fiscal year under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012. Subsequent legislation extended theSuch 2% reduction on average, to 2025. Ifhas been extended through fiscal year 2030 (with the exception of a temporary suspension from May 1, 2020 through March 31, 2021) unless Congress does not take actiontakes additional action. As long as these cuts remain in the future to modify these sequestrations, Medicare Part D planseffect, they could seek to reduce their negotiated pricesadversely impact payment for drugs.any of our products that are reimbursed under Medicare.. Other legislative or regulatory cost containment legislation could have a similar effect.

Further, the Affordable Care Act may reduce the profitability of drug products. It expanded manufacturers' rebate liability under the Medicaid program from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well, and increased the minimum Medicaid rebate due for most innovator drugs, and capped the total rebate amount for innovator drugs at 100% of AMP.drugs. The Affordable Care Act and subsequent legislation also changed the definition of AMP. On February 1, 2016, CMS issued final regulations to implement the changes to the Medicaid drug rebate programDrug Rebate Program under the Affordable Care Act. These regulations became effective on April 1, 2016.

The Affordable Care Act requires pharmaceutical manufacturers of branded prescription drugs to pay a branded prescription drug fee to the federal government. Each such manufacturer pays a prorated share of the branded prescription drug fee of $4.1$2.8 billion in 2018,fee year 2020 and subsequent fee years, based on the dollar value of its branded prescription drug sales to certain federal programs identified in the law. The Affordable Care Act also expanded the Public Health Service's 340B programProgram to include additional types of covered entities. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with healthcare practitioners, and a significant number of provisions are not yet, or have only recently become, effective.practitioners. It appears likely that the Affordable Care Act will continue the pressure on pharmaceutical pricing, especially under the Medicare and Medicaid programs, and may also increase our regulatory burdens and operating costs.

LegislativeAdditional legislative changes, to and regulatory changes underand judicial challenges related to the Affordable Care Act remain possible, in the 115th U.S. Congress and under the Trump Administration, as discussed above under the heading "U.S. Healthcare Reform." In addition, there likely will continue to be proposals by legislators at both the federal and state levels, regulators, and third-party payors to contain healthcare costs. Thus, even if we obtain favorable coverage and reimbursement status for our products and any productsproduct candidates for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

In addition to FDA restrictions on marketing of pharmaceutical products, our business will beis subject to healthcare fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business, particularly once third-party reimbursement becomes available for one or more of our products.business. These laws include, but are not limited to, anti-kickback and false claims statutes.the following:

Compliance with such laws and regulations will requirerequires substantial resources. Because of the breadth of these various fraud and abuse laws, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Such a challenge could have material adverse effects on our business, financial condition and results of operations. In the event governmental authorities conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations, they may impose sanctions under these laws, which are potentially significant and may include civil monetary penalties, damages, exclusion of an entity or individual from participation in government health care programs, criminal fines and imprisonment, additional reporting requirements if we become subject to a corporate integrity agreement or other settlement to resolve allegations of violations of these laws, as well as the potential curtailment or restructuring of our operations. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity.

We may be subject to laws and regulations covering data privacy and the protection of health-related and other personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues which may affect our business. Numerous federal and state laws and regulations, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure, and protection of personal information. Failure to comply with such laws and regulations could result in government enforcement actions and create liability for us (including the imposition of significant penalties), private litigation and/or adverse publicity that could negatively affect our business. In addition, healthcare providers who prescribe our products and research institutions we collaborate with are subject to privacy and security requirements under HIPAA.

In addition, the U.S. Foreign Corrupt Practices Act of 1997 prohibits corporations and individualstheir intermediaries from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to any official of another country, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in that capacity.

As of March 1, 2017,February 28, 2021, we had a total of 78204 full-time employees (including 3and three part-time employees. All of our employees are located in the United KingdomU.S., with the exception of two employees located in Norway. 61% of our US employees are field-based, in customer-facing roles. Among our employees, 59% are female and 1 in Norway) and 4 part-time employees.41% are male. We have no collective bargaining agreements withand none of our employees and none are represented by labor unions.

Our principal office is located in Yardley, Pennsylvania, where we lease approximately 30,000 square feet of office space pursuant to a lease that expires in May 2021.2024. We also lease facilities in Ewing, New Jersey, and Oslo, Norway and Swindon, England.Norway. We believe our facilities are adequate to meet our current needs, although we may seek to negotiate new leases or evaluate additional or alternate space for our operations. We believe appropriate alternative space will be readily available on commercially reasonable terms.

We are not currently a party to any material pending legal proceedings.

We expect to incur losses for the foreseeable future and we expect these losses to increase as we:

Because of the numerous risks and uncertainties associated with drug development and commercialization, we are unable to accurately predict the timing or amount of expenses or when, or if, we will be able to achieve profitability. If we are required by regulatory authorities to perform studies in addition to those expected, or if there are any delays in the initiation and completion of our clinical trials or the development of any of our product candidates, our expenses could increase.

Our ability to become and remain profitable will depend on our ability to generate revenue. Although we may be entitledOur ability to future milestone payments and royalties under the AVP-825 License Agreement, to date we have not commercialized any of our other product candidates and will therefore dependgenerate revenue depends upon our ability to successfully commercialize XHANCE and any of our other product candidates, or any other product candidatesif approved, that we may in-license or acquire in the future. We do not know when XHANCE orfuture, as well as from our ability to successfully out-license any of our other product candidates, if approved, will generate revenue for us, if at all.products or technology. Our ability to generate revenue from our current or future products and product candidates will depend on a number of factors, including:

XHANCE, as well as any of our other product candidates if approved for commercial sale, may not gain market acceptance or achieve commercial success. If our addressable market is not as significant as we estimate or the treatment population is narrowed by competition, physician choice or clinical practice guidelines, we may not generate significant revenue from sales of XHANCE. In addition, we would anticipate incurring significant costs associated with commercializing any approved product. We may not achieve profitability soon after generating product sales, if ever.profitability. If we are unable to generate enough product revenues to cover our operating expenses and service our debt, we will not become profitable and may be unable to continue operations without continued funding.

Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our development efforts, obtain drug approvals, diversify our offerings or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

Our operations have consumed substantial amounts of cash. To date, we have financed our operations primarily through the sale and issuance of common and preferred stock, debt, licensing revenues, under the AVP-825 License AgreementXHANCE revenue and research grants. We expect to continue to spend substantial amounts to commercialize XHANCE and to advance the clinical development of XHANCE for the treatment of chronic sinusitis and our other product candidates.candidates, including OPN-019. As of December 31, 2017,2020, we had cash and cash equivalents of $234.9$144.2 million. We believeAlthough it is difficult to predict our existing cash and cash equivalentsfuture liquidity requirements, we will be sufficientlikely require additional capital in the future secured through equity or debt financings, partnerships, collaborations, or other sources in order to fundmeet our operations and debt service obligations through the end of 2019. During this period, we expectunder our debt, and to launch XHANCE in the United States, continuecarry out our clinicalplanned development plans to seek approval for XHANCE for the treatment of chronic sinusitis and continue our early-stage development efforts with respect to our other product candidates. Our estimate of the period of time through which our financial resources will be adequate to support our operations is based on assumptions that may prove to be wrong, and we could deplete our available capital resources sooner than we currently expect.commercial activities.

Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

We cannot be certain that additional funding will be available when needed on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts, when required or on acceptable terms, we also could be required to:

Subject to certain exceptions, the Issuerswe are required to make mandatory prepayments of the Notes, with the proceeds of assetsasset sales, extraordinary receipts and prohibited debt issuances, and upon the occurrence of a change of control.control (as defined in the Note Purchase Agreement). In addition, the Issuerswe may make voluntary prepayments of the Notes, in whole or in part. All mandatory and voluntary prepayments of the Notes are subject to the payment of prepayment premiums as follows: (i) if prepayment occurs prior to the secondthird anniversary of the applicable date of issuance,Closing Date, an amount equal to the amount by which (a) the present value2% of 102% of the principal prepaid plus all interest that would have accrued on such principal through such second anniversary exceeds (b) the amount of principal prepaid, (ii) if prepayment occurs on or after the secondthird anniversary of the applicable date of issuanceClosing Date but prior to the thirdfourth anniversary of such issuance,the Closing Date, an amount equal to 2%1% of the principal prepaid, and (iii) if prepayment occurs on or after the thirdfourth anniversary of the applicable dateClosing Date, no prepayment premium is due. We are also required to pay a "make-whole" amount in respect of issuance butany principal payments (whether mandatory or voluntary) made prior to the fourth30-month anniversary of suchthe issuance of the applicable Note, in an amount equal to 1%the interest that would have accrued through the 30-month anniversary in respect of thesuch Note but for such principal prepaid. No prepayment premium is due on any principal prepaid after the fourth anniversary of the applicable date of issuance of any Notes.repayment. These provisions may make it more costly for a potential acquirer to engage in a business combination transaction with us. Provisions that have the effect of discouraging, delaying or preventing a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

We do not have any committed external source of funds other than potential milestone payments and royalties under the AVP-825 License Agreement and the additional $25$20.0 million that may become available under the Note Purchase Agreement between April 1, 2019 and August 14, 2019,in 2021, subject to usthe achievement of minimum XHANCE net sales and our consolidated subsidiaries achieving trailing four quarter net revenues (as calculated pursuant to the terms of the Note Purchase Agreement) of $15 million, a pro forma ratio of total debt to trailing four quarter net revenues not exceeding 6.50 to 1.00royalties and certain other specified conditions. Until such time, if ever, as we can generate substantial revenue, we may seek additional capital through a combination of private and public equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financings may be coupled with an equity component, such as warrants to purchase shares, which could also result in dilution of our existing stockholders' ownership. The incurrence of additional indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on such indebtedness, we could lose such assets and intellectual property.

If we raise additional funds through collaborations, or strategic alliance, grants, marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, product candidates or future revenue streams or grant licenses on terms that are not favorable to us.us or at an earlier stage than would otherwise be desirable.

As of December 31, 2017,2020, we had U.S. federal net operating loss or NOL, carryforwards(NOL) carry forwards of approximately $30.3$241.4 million available to offset future U.S. taxable income and U.S. federal research and development (R&D) tax credits of $2.4 million. These amounts are potentially subject to annual utilization limits under Sections 382 and 383While some of the Internal Revenue Codeour federal NOL carry forwards will carry forward indefinitely, some of 1986, as amended. Ourour U.S. NOL carryforwardsand credit carry forwards will begin to expire in 2030 if not utilized. In addition, we have total foreignutilized with the first expiration occurring in 2030. We also had state NOL carryforwardscarry forwards of $96.6$172.1 million as of December 31, 20172020. These state NOL carry forwards can only offset income in the same state in which they were generated and thus there is a possibility that they may not be utilized. The carry forward period varies among the states, with the first expiration in 2028. In addition, our Norwegian and United Kingdom subsidiaries.UK subsidiaries had total foreign NOL carry forwards of $60.9 million as of December 31, 2020. These foreign NOL carryforwardscarry forwards do not expire but can only be used to offset profits generated in Norway or the United Kingdom, respectively.respectively, and may be limited in use based on the laws of those countries.

Our U.S. NOL and tax credit carryforwardscarry forwards could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of other restrictions under U.S. tax law. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the Code), if a corporation undergoes an “ownership change”, generally defined as a greater than 50% change, by value, in equity ownership during a three-year period, the corporation’s ability to offset pre-change tax attributes, such as NOLs and R&D tax credits, against post-change income or tax may be limited. We have not performed an analysis under Section 382 of the Code and cannot predict or otherwise determine whether utilization of our federal tax attribute carryforwardscarry forwards may be limited. As a result, if we have taxable income in the future, our ability to use existing U.S. NOL and R&D tax

We may have ownership changes in the future due to furtheradditional changes in our stock ownership. Some of these ownership changeswhich could be outside of our control. If an ownership change occurs and our ability to use our historical net operating loss and tax credit carryforwardscarry forwards is limited, it could adversely impact our future operating results by increasing our tax obligations.

Although our predecessor and subsidiary, OptiNose AS, commenced operations in 2000, our operations to date have beenuntil the launch of XHANCE in March 2018 were largely focused on raising capital and developing AVP-825Onzetra Xsail and XHANCE, including undertaking preclinical studies and conducting clinical trials. While we conducted the pre-approval stages of clinical development for AVP-825,Onzetra Xsail, Avanir Pharmaceuticals, Inc. was responsible for completing the clinical development of, obtaining regulatory approval for, and initiating the initial commercial launch of that product under our former license agreement with them. To date,Further, while we have manufactured the initial commercial supply for the launch ofbeen commercializing XHANCE butsince March 2018, we have not yet demonstrated our ability to successfully manufacture for on-going commercial scale or, with the exception of AVP-825, arrange for a third party to do so on our behalf, or conductlimited history regarding sales, marketing, distribution and distributionother activities necessary for successful product commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer history of successfully developing and commercializing drugs.

Our ability to successfully commercialize XHANCE depends on many factors, including:

Many of these matters are beyond our control and are subject to other risks described elsewhere in this "Risk Factors" section. Accordingly, we cannot assure you that we will be able to successfully commercialize or generate enough revenue from XHANCE.XHANCE to achieve profitability. If we cannot do so, or are significantly delayed in doing so, our business, financial condition and results of operations may be materially adversely affected and the price of our common stock may decline.

Physicians may not prescribe XHANCE, in which case we would not generate the revenues we anticipate. The degree of market acceptance of XHANCE will depend on a number of factors, including:

If XHANCE does not achieve an adequate level of acceptance by physicians, patients and healthcare payors, we may not generate sufficient revenue in order to become or remain profitable.

Our ability to commercialize XHANCE successfully will dependdepends in part on the extent to which coverage and adequate reimbursement for XHANCE will be available in a timely manner and remains available from third-party payors, including governmental healthcare programs such as Medicare and Medicaid, commercial health insurers and managed care organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. Reimbursement decisions by particular third-party payors depend upon a number of factors, including each third-party payor's determination that use of a product is:

Obtaining coverage and reimbursement approval for XHANCE from government authorities or other third-party payors may beis a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data, including expensive pharmacoeconomic studies beyond the data required to obtain marketing approval, for the use of XHANCE to each government authority or other third-party payor. We may not be able to provide data sufficient to gain or maintain acceptance with respect to coverage and reimbursement from government authorities or other third-party payors.

Third-party payors may deny reimbursement for covered products if they determine that a medical product was not used in accordance with cost-effective diagnosis methods, as determined by the third-party payor, or was used for an unapproved indication. Third-party payors also may refuse to reimburse for procedures and devices deemed to be experimental. Third-party payors may also limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication.

Third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for medical products and services. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Levels of reimbursement may also decrease in the future, and future legislation, regulation or reimbursement policies of third-party payors may adversely affect the demand for and reimbursement available for XHANCE, which in turn, could negatively impact pricing. Further, payors, including healthcare insurers, pharmacy benefit managers and group purchasing organizations, increasingly seek ways to reduce their costs. Many payors continue to adopt benefit plan changes that shift a greater portion of prescription costs to patients. Such measures include more limited benefit plan designs, higher patient co-pay or co-insurance obligations and limitations on patients’ use of commercial manufacturer co-pay payment assistance programs (including through co-pay accumulator adjustment or maximization programs). Payors also increasingly seek price discounts or rebates in connection with the placement of our products on their formularies or those they manage. Payors may also control costs by imposing restrictions on access to or usage of our products, such as by requiring prior authorizations or "step-edits," and may choose to exclude certain indications for which our products are approved or even choose to exclude coverage entirely. For example, some insurers may establishhave established a step-edit system that requires a patient to first use a lower price alternative product prior to becoming eligible for reimbursement of a higher pricepriced product. Some providers may not complete the burdensome administrative process required to demonstrate or document that the patients for whom XHANCE has been prescribed meet the payors’ utilization management criteria (i.e., prior authorizations or step-edits) and, as a result, patients will not gain access to XHANCE treatment. Further, other patients may obtain coverage for XHANCE but abandon their prescriptions rather than pay their co-pay payment which would result in a significant shortfall in achieving our revenue expectations and negatively impact our business, prospects, results of operations and financial condition.

Significant consolidation in the health insurance industry has resulted in a few large insurers and pharmacy benefit managers exerting greater pressure in pricing and usage negotiations with drug manufacturers, significantly increasing discounts and rebates required of manufacturers and limiting patient access and usage. Further consolidation among insurers, pharmacy benefit managers and other payors, including through integrated delivery systems, would increase the negotiating leverage such entities have over us and other drug manufacturers. Ultimately, further discounts, rebates, coverage or plan changes, restrictions or exclusions as described above could have a material adverse effect on sales of our affected products.

Our initial targetWe believe there is a market opportunity for XHANCE will consistconsisting of ENT physicians, allergists and high-decile INS-prescribing primary care physicians that we believe treat an estimated 3.5 million U.S. patients with chronic rhinosinusitis, an estimated 1.2 million of whom have chronic rhinosinusitis with nasal polyps. If we are able to obtain a follow-on indication of XHANCE for the treatment of chronic sinusitis, we intend to broaden our reach and target primary care physicians that we believe treat an additional estimated 6.25 million patients with chronic rhinosinusitis, an estimated one-third of whom have chronic rhinosinusitis with nasal polyps.

Our projections of both the number of people who suffer from chronic rhinosinusitis with and without nasal polyps, as well as the subset of people with these diseases who have the potential to benefit from the use of XHANCE, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys we commissioned, prescription data or other market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of chronic rhinosinusitis or nasal polyps. The number of patients may turn out to be lower than expected. Additionally, the potentially addressable patient population for XHANCE may be limited or may not be amenable to treatment with XHANCE, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.

Government agencies may promulgate clinical practice guidelines directly applicable to XHANCE. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the healthcare and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Recommendations or guidelines suggesting the reduced use of XHANCE or the use of competitive or alternative products as the standard of care to be followed by patients and healthcare providers could result in decreased use of XHANCE.

We have also contracted with certain PBMs and other payors to secure formulary status and reimbursement for XHANCE, which generally require us to pay administrative fees and rebates to the PBMs and other payors for qualifying prescriptions. While we have agreements with three of the largest PBMs, as well as other PBMs and payors, in order to facilitate formulary status for XHANCE, we cannot guarantee that we will be able to agree to terms with other PBMs and payors, or that such terms will be commercially reasonable to us. Additionally, our contracts with PBMs and payors are of limited duration and PBMs and payors with whom we contract may seek to renegotiate more favorable terms prior to the expiration of such contracts or in connection with renewals. Despite our agreements with PBMs, the extent of formulary status and reimbursement will ultimately depend to a large extent upon individual healthcare plan formulary decisions. If healthcare plans that contract with PBMs with which we have agreements do not adopt formulary changes recommended by the PBMs with respect to XHANCE, we may not realize the expected access and reimbursement benefits from these agreements. Consequently, the success of our PBM contracting strategy will depend not only on our ability to expand formulary adoption among healthcare plans, but also upon the relative mix of healthcare plans that have PBM-chosen formularies versus custom formularies. If we are unable to maintain agreementsrealize the expected benefits of our contractual arrangements with third partiesthe PBMs the adoption of XHANCE by physicians and patients may decline. If we are unable to marketincrease adoption of PPN partners for filling prescriptions of XHANCE by physicians or to secure formulary status and sellreimbursement through arrangements with PBMs and other payors, particularly with healthcare plans that use custom formularies, our ability to achieve net sales growth for XHANCE wewould be impaired.

We may encounter difficulty in forming and maintaining relationships with pharmacies that participate in our PPN and patient affordability programs. We currently depend on a limited number of PPN partners to fulfill patient prescriptions. If these PPN partners are unable to process and fulfill the volume of patient prescriptions directed to them, our ability to maintain or may otherwise fail in itsincrease prescriptions for XHANCE will be impaired. The commercialization dueof XHANCE and our operating results could be affected should any of the PPN partners choose not to factors beyond our control. Additionally, our CSO may failcontinue to complyfulfill XHANCE prescriptions or by any adverse market events at any of the PPN partners. For example, pharmacies that dispense XHANCE could lose contracts that they currently maintain with applicable legal or regulatory requirements, or maymanaged care organizations (MCOs), including PBMs. Pharmacies often enter into agreements with other parties that have productsMCOs. They may be required to abide by certain terms and servicesconditions to maintain access to MCO networks, including terms and conditions that could competelimit their ability to participate in patient affordability programs like ours. Failure to comply with XHANCE.the terms of their agreements with MCOs could result in a variety of penalties, including termination of their agreement, which could negatively impact the ability of those pharmacies to dispense XHANCE and collect reimbursement from MCOs for such medicines.

If the cost of maintaining our patient affordability programs increases relative to our sales revenues, we could be forced to reduce the amount of patient financial assistance that we failoffer or otherwise scale back or eliminate such programs, which could in turn have a negative impact on physicians’ willingness to successfully launchprescribe and commercializepatients’ willingness to fill prescriptions of XHANCE. While we believe that our arrangements with PBMs will result in broader inclusion of XHANCE throughon healthcare plan formularies, and lower our CSO, we may also enter intocost of providing patient affordability programs, these arrangements generally require us to pay administrative and rebate payments to the PBMs and/or other payors and their effectiveness will ultimately depend to a strategic collaboration with a third party. We face significant competition in seeking appropriate strategic collaborators, and these strategic collaborations can be intricate and time-consuming to negotiate and document. We may not be able to negotiate strategic collaborations on acceptable terms, or at all. Welarge extent upon individual healthcare plan formulary decisions that are unable to predict when, if ever, we will enter into any strategic collaborations becausebeyond the control of the numerous risksPBMs. If our arrangements with PBMs and uncertainties associated with establishing strategic partnerships.other payors do not result in increased prescriptions and reductions in our costs to provide our patient affordability programs that are sufficient to

If we or others identify adverse events, or AEs associated with XHANCE, a number of potentially significant negative consequences could result, including:

Any of these events could prevent us from achieving or maintaining market acceptance of XHANCE.

Even though we have obtained regulatory approval in the United StatesU.S. for XHANCE, the FDA and state regulatory authorities may still impose significant restrictions on the indicated uses or marketing of XHANCE, or impose

ongoing requirements for potentially costly post-approval studies or post-marketing surveillance. For example, as part of its approval of XHANCE for the treatment of nasal polyps in adults, the FDA requiredis requiring that we conduct a randomized, double-blind, placebo controlled clinical studytrial in children and adolescents 12 to 17 years of age with nasal polyposis to assess the safety, efficacy, and pharmacokinetics of XHANCE in this population. The FDA originally indicated the study was to be conductedWe have contracted with various clinical trial sites and begun patient enrollment in children and adolescents 6 to 17 years of age. On October 30, 2017, the FDA notified us that in response to our request it had modified the required age range to 12 to 17 years of age.this trial. We submitted our final protocol to the FDA with respect to the pediatric study by January 2018 as required, and we are required to complete the studytrial by January 2022 and to submit a final report with respect to the studytrial by July 2022. Because2022, however, due to enrollment rates, we will need to submit a request to the Optinose EDS for XHANCE was designed for use in adult patients,FDA to extend these deadlines. If the FDA declines our request, we may discover that the dimensionsbe in violation of this EDS make it unsuitablerequirement relating to the FDA's approval of our NDA for use in pediatric patient populations. As such, this pediatric study may also require us to undergo a costly and time-consuming development process to design and manufacture as appropriate a modified EDS to conduct these studies.XHANCE.

We are also subject to ongoing FDA requirements governing the labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record-keeping and reporting of safety and other post-marketing information. The holder of an approved NDA is obligated to monitor and report AEs and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA regulations and may be subject to other potentially applicable federal and state laws. The applicable regulations in countries outside the United StatesU.S. grant similar powers to the competent authorities and impose similar obligations on companies.

In addition, manufacturers of drug products and their facilities are subject to payment of substantial user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with current Good Manufacturing Practice, or cGMP regulations and adherence to commitments made in the NDA. Since XHANCE is a combination product, we will also need to comply with some of the FDA's manufacturing regulations for devices. In addition to cGMP, the FDA requires that our drug-device combination product comply with the Quality System Regulation or QSR,(QSR), which sets forth the FDA's manufacturing quality standards for medical devices, and other applicable government regulations and corresponding foreign standards. If we, or a regulatory authority, discover previously unknown problems with XHANCE, such as AEs, of unanticipated severity or frequency, or problems with a facility where the product is manufactured, a regulatory authority may impose restrictions relative to XHANCE or the manufacturing facility, including requiring recall or withdrawal of the product from the market, suspension of manufacturing, or other FDA action or other action by foreign regulatory authorities.

If we fail to comply with applicable regulatory requirements following approval of XHANCE, a regulatory authority may:

Our current and future operations with respect to the commercialization and further development of XHANCE, including the commercialization of XHANCE by our co-promotion partner, as well as potential future development programs, are subject to various U.S. federal and state healthcare laws and regulations. These laws impact, among other things, our proposed sales, marketing, support and education programs and constrain our business and financial arrangements and relationships with third-party payors, healthcare professionals, pharmacies and others who may prescribe, recommend, purchase or provide XHANCE, and other parties through which we market, sell and distribute XHANCE. Finally, our current and future operations are subject to additional healthcare-related statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. The laws are described in greater detail in the previous section under "Business — Government Regulation — Healthcare Fraud and Abuse Laws," and include, but are not limited to:

The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions increase the possibility that a healthcare or pharmaceutical company may fail to comply fully with one or more of these requirements. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices, including those of our co-promotion partner, do not comply with applicable fraud and abuse or other healthcare laws and regulations or guidance. If our operations or those of our co-promotion partner with respect to their promotion of XHANCE are found to be in violation of any of these laws or any

other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, additional oversight and reporting requirements if we become subject to a corporate integrity agreement or other settlement agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to the same criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our financial condition and divert resources and the attention of our management from operating our business.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity in addition to the aforementioned potential regulatory actions. The occurrence of any event or penalty described above may inhibit our ability to commercialize and further develop XHANCE and generate revenues which would have a material adverse effect on our business, financial condition and results of operations.

We participate in the Medicaid Drug Rebate Program, and other governmental pricing programs, and therefore we will beare obligated to pay certain specified rebates and report pricing information with respect to XHANCE. Pricing and rebate calculations vary across product and programs, are complex and are often subject to interpretation by us, governmental orand regulatory agencies and the courts. We cannot assure you that our submissions will not be found by the Centers for Medicare & Medicaid Services, or CMS to be incomplete or incorrect. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. The Medicaid rebate amount is computed each quarter based on our submission to CMS of our current average manufacturer price or AMP,(AMP) and best priceBest Price for the quarter.

We will also beare liable for errors associated with our submission of pricing data. In addition to retroactive rebates and the potential for 340B programProgram refunds, if we are found to have knowingly submitted false AMP or best priceBest Price information to the government, we may be liable for significant civil monetary penalties in the amount of $181,071 per item of false information. If we are found to have made a misrepresentation in the reporting of our average sales price, we may be liable for civil monetary penalties of up to $13,066 for each misrepresentation for each day in which the misrepresentation was applied. Our failure to submit monthly/quarterly AMP and best price data on a timely basis could result in a civil monetary penalty of $18,107 per day for each day the information is late beyond the due date.penalties. Such failure also could be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant to which we participate in the Medicaid program.Drug Rebate Program. In the event that CMS terminates our rebate agreement, federal payments may not be available under Medicaid or Medicare Part B for XHANCE. On January 5, 2017, the U.S. Health Resources and Services Administration (HRSA), an agency of the HHS that administers the 340B drug pricing program

HRSA issued a final regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities. Theentities, which became effective date of the regulation has been delayed until Julyon January 1, 2018. Implementation of this final rule and the issuance of any other final regulations and guidance could affect our obligations2019. It is currently unclear how HRSA will apply its enforcement authority under the regulation. HRSA also has implemented a ceiling price reporting requirement related to the 340B programProgram under which we are required to report 340B ceiling prices to HRSA on a quarterly basis, and HRSA then publishes that information to covered entities. Moreover, under a final regulation effective January 13, 2021, HRSA newly established an administrative dispute resolution, or ADR, process for claims by covered entities that a manufacturer has engaged in waysovercharging, and by manufacturers that we cannot presently anticipate.a covered entity violated the prohibitions against diversion

or duplicate discounts. Such claims are to be resolved through an ADR panel of government officials rendering a decision that could be appealed only in federal court. An ADR proceeding could subject us to onerous procedural requirements and could result in additional liability. In addition, legislation may be introduced that, if passed, would further expand the 340B programProgram to additional covered entities or would require participating manufacturers to agree to provide 340B discounted pricing on drugs used in thean inpatient setting.

Federal law requires that a company must participate in the U.S. Department of Veterans Affairs or VA,(VA) Federal Supply Schedule or FSS,(FSS) pricing program to be eligible to have its products paid for with federal funds. As part of this program, we would beare obligated to make XHANCE available for procurement on an FSS contract under which we must comply with standard government terms and conditions and charge a price that is no higher than the statutory Federal Ceiling Price or FCP,(FCP) to four federal agencies (VA, U.S. Department of Defense or DOD,(DOD) Public Health Service, and U.S. Coast Guard). The FCP is based on the Non-Federal Average Manufacturer Price or Non-FAMP,(Non-FAMP), which we calculate and report to the VA on a quarterly and annual basis. If we overcharge the government in connection with our FSS contract or Section 703 Agreement, whether due to a misstated FCP or otherwise, we are required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against us under the U.S. civil False Claims Act and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Our promotional materials, statements and training methods must comply with applicable laws and regulations, including FDA's prohibition of the promotion of unapproved, or off-label, use. Physicians may use our products off-label, as the FDA does not restrict or regulate a physician's independent choice of treatment within the practice of medicine. As healthcare professionals frequently prescribe corticosteroids for the treatment of chronic nasal inflammatory diseases, such as chronic rhinosinusitis, doctors couldoften prescribe XHANCE for the treatment of chronic sinusitisrhinosinusitis and other chronic nasal inflammatory diseases, even though the FDA has granted approval of XHANCE only for the treatment of nasal polyps and we promote the use of XHANCE only for the treatment of nasal polyps. If the FDA determines that our promotional materials, statements or activities constitute promotion of an off-label use, we could be required to modify our promotional materials, statements or training methods or subject us to regulatory or enforcement actions, such as the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine, disgorgement of money, operating restrictions or criminal penalties. We may also be subject to actions by other governmental entities or private parties, such as the U.S. civil False Claims Act, civil whistleblower or "qui tam" actions. It is also possible that other federal, state or foreign enforcement authorities might take action if they consider our promotional materials or activities to constitute promotion of an off-

In order to market XHANCE outside of the United States,U.S., we must obtain marketing authorizations and comply with numerous and varying regulatory requirements of other countries regarding quality, safety and efficacy. Clinical trials conducted in one country may not be accepted by foreign regulatory authorities, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional non-clinical studies or clinical trials, which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of XHANCE in those countries. While our management team has experience in obtaining foreign regulatory approvals at other companies, we do not have any product candidates approved for sale in any foreign jurisdiction, and we, as a company, do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approval in international markets is delayed, our target market for XHANCE will be reduced and we would not be able to realize the full market potential of XHANCE. Furthermore, in addition to the costs to commercialize XHANCE in international markets, the pricing of XHANCE outside of the U.S. at levels acceptable to patients, prescribing physicians or a foreign

The United StatesU.S. and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could restrict or regulate post-approval activities and affect our ability to profitably sell XHANCE. The United StatesU.S. government, state legislatures and foreign governments also have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the Affordable Care Act was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. These intended reforms are described in greater detail in the previous section under "Business — Government Regulation — U.S. Healthcare Reform."

Among the provisions of the Affordable Care Act that have been implemented since enactment and are of importance to the commercialization of XHANCE are the following: