ReShape Lifesciences Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 7 speakers on the call.

Operator

Good afternoon, and thank you for joining the ReShape Lifesciences Third Quarter 2023 Conference Call. I would now like to turn the call over to Michael Miller from Rx Communications.

Speaker 1

Good afternoon, and thank you for joining the ReShape Lifesciences' Q3 2023 earnings call. Austin. I'm pleased to be joined today by Paul Hickey, President and Chief Executive Officer and Tom Stankovich, Chief Financial Officer. Paul will provide an overview and update on the company's activities, which will include a discussion with Doctor. Carolina Covian, R and D, a member of ReShape's Scientific Advisory Board.

Speaker 1

Then Tom will review the financial results for the period. OXXO. As a reminder, this conference call as well as ReShape Lifesciences' SEC filings and website, our Investor Information section of the website contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our Investor Relations. Actual results could differ materially from those discussed due to known and unknown risks, uncertainties and other factors.

Speaker 1

Our

Speaker 2

Investor Relations Officer. These and

Speaker 1

additional risks and uncertainties are described more fully in the company's filings with the Securities and Exchange Commission,

Speaker 2

our Investor Relations Officer, including those

Speaker 1

factors identified as risk factors in the company's most recent annual report on Form 10 ks. R and D. As an additional reminder, ReShape stock is listed on NASDAQ trading under the symbol RSLS. I'll now turn the call over to Paul Hickey, President and CEO of ReShape. Paul?

Speaker 3

O'Reilly. Thank you, Mike, and thanks to all of you for joining us this afternoon for our Q3 2023 earnings call.

Speaker 2

O. C.

Speaker 3

After I provide an overview and update on ReShape's activities, we will be joined by a member of our Scientific Advisory Board, our Investor Relations Officer. Doctor. Caroline Apovian, Co Director at the Center For Weight Management and Wellness in the division of Endocrinology, Diabetes and Hypertension Brigham and Women's Hospital in Boston and a professor of medicine at Harvard Medical School. As an expert and key opinion leader in her field, I've asked Doctor. Provian to provide her clinical viewpoint related to GLP-1s and their impact on a care continuum for obesity.

Speaker 3

The most important takeaway from this call is for all of our investors to understand that we remain dedicated to O. K. We're executing our growth strategies and maintaining our emphasis on creating a shareholder value.

Speaker 2

Our Investor Relations website. Yesterday, I

Speaker 3

visited with surgeons from one of our centers of excellence in Louisville, Kentucky, now as LAP BAND of Louisville. This site has implemented the Hyve platform and also as part of our co op marketing program. Despite the pressures from GLP-one adoption, R and D. This center is on pace to have year over year LAP BAND procedural growth in 2023, validating that our marketing initiatives are working. Austin.

Speaker 3

There is much to look forward to as we move towards 2024 and we are optimistic about the growth potential for the company. Before I recap our Q3 and subsequent highlights, I'd like to comment on important events occurring within the obesity market today. OXXO. As most of you already understand, the global obesity market is growing at an alarming rate and carries with it our Investor Relations Officer. Obesity remains a complex lifelong disease OXXO that requires personalized treatment to ensure long term weight loss goals are achieved.

Speaker 3

I'm sure you are also aware our Investor Relations team of the growing popularity of GLP-one agonists that have brought significant benefits to those suffering from Type 2 diabetes and have helped those who are obese. OXXO. We believe that GLP-one adoption is expanding the medical weight loss market by vastly reducing the stigma our Investor Relations website that often occurs around obesity and medical intervention, including bariatric surgery. The GLP-one related big pharma marketing efforts Austin and resulting adoption has helped increase the numbers of people seeking medical attention for this disease, especially by those who have avoided surgery in the past. Given the increasing body of evidence pointing to the fact that weight loss due to GLP-one usage has limitations related to comorbidities R and D.

Speaker 3

We believe that the market opportunity for the LAP BAND will increase. From a continuum of care perspective, our Investor Relations. Individuals with obesity on GLP-one therapy are likely potential candidates for LAP BAND bariatric surgery as the next viable Anatomy Preserving Weight Loss Treatment. Shortly, I will have Doctor. Apovian speak to her personal experience, which is representing what we are hearing from physicians across the U.

Speaker 3

S. That the GLP-one adoption, while potentially delaying surgical consults in the short term, is increasing the number of patients

Operator

OXXY, who would consider bariatric surgery.

Speaker 3

In other words, once GLP-one agonist patients get a taste of weight loss, R and D. Yet have issues with the drug's accessibility, durability or tolerance, they will contemplate bariatric surgery, especially a minimally invasive surgery our procedure like the LAP BAND. Now before I introduce Doctor. Povian, let me take a few minutes to update you on our progress related to our 3 primary growth pillars. As you recall, our first pillar is to operate our business with a disciplined metrics driven approach to drive predictable revenue expansion R and D through a sustainable and scalable business model.

Speaker 3

The second is to continue to expand our product portfolio and pipeline across the Care Continuum. R and D. And our last or third pillar is to continue to validate our evidence based weight loss solutions, leveraging our scientific advisory board for key insights O'Connor's Chief Financial Officer. Our first pillar remains paramount for ReShape to deliver shareholder value and ultimately R and D profitability. As we consider the impact of GLP-one adoption for weight loss treatment, which has put pressure on several markets, including bariatrics, Austin.

Speaker 3

It was necessary to take a hard look at our operations, make significant cost reductions while ensuring growth R and D and that our company adheres to key P and L metrics. Tom will later detail the expense savings we have identified, realized and are planning for. OXXO. But in summary, we have identified and implemented effective November 1, cost reductions totaling approximately $8,000,000 R and D, representing more than a 40% reduction in operating expenses for 2024. We are optimizing our marketing spending, Oracle and Company.

Speaker 3

While making additional reductions in consulting services totaling approximately $2,400,000 we have also executed a reduction in force R and D expenses of approximately $1,200,000 We have decided to temporarily pause our ReShape Care program R and D expenses and achieved an estimated savings of $800,000 while we continued our efforts to O'Connor's office and other payroll related amounts, all part of streamlining our team significantly, but without affecting revenue. Our Investor Relations. Our Board is aligned with our strategy and will also take a 50% reduction in their compensation. O. R.

Speaker 3

Taken together, these reductions will allow us to focus and invest in our growth drivers, while at the same time extending our cash runway. OXXO. These changes are bold, necessary and indicative to our commitment to our first growth pillar I established late in 2022. OXXO. In point of fact, with these 2024 reductions, the company's core operating expense reductions between 2022 2024 our Investor Relations team, are estimated at $22,000,000 or 70%.

Speaker 3

In addition to the necessary cost reduction initiatives related to our 1st growth pillar, R and D. We made significant progress with our newly improved digital lead generation and patient engagement campaign. Our Investor Relations Officer. As I mentioned earlier with Flat Band of Louisville, we have seen an increase in the quality of patient leads while successfully reducing costs in targeted markets OAR, where our surgeon advocates operate. In particular, our exclusive partnership with Hyve Medical allows us to advance our lead optimization software that can enhance patient engagement and increase patient volume.

Speaker 3

This software utilizes AI SMS our patient self-service technology, which in combination with our targeted direct to consumer marketing campaign helps individuals Austin to discuss our progress. As a result, patients can easily book appointments with medical professionals at any time. Let's now discuss our progress executing our second growth pillar. We are well positioned with our current FDA approved LAP BAND O'Reilly's System, which provides a minimally invasive long term treatment for obesity and a safer surgical alternative to more invasive weight loss surgeries. OAR.

Speaker 3

This past June, we filed a PMA supplement with the FDA for the next generation LAP BAND 2.0 Flex. OXX. This product has been designed with physician feedback in order to improve the patient experience. Like the current LAP BAND, the LAP BAND 2.0 Flex R and D expenses. This can be adjusted postoperatively to increase or decrease the band opening depending on the patient's tolerance to band therapy.

Speaker 3

Additionally, LAP BAND 2.0 Flex has a new feature called Flex technology, which acts as a relief valve, Enabling Larger Pieces of Food to Pass Through the Narrowed Passage More Easily. Specifically, the ban momentarily relaxes before returning to its resting diameter, R and D. While minimizing discomfort caused by

Speaker 2

swallowing large pieces of food,

Speaker 3

we anticipate approval from the FDA by year end or early 2024. Our company. We believe based on surgeon feedback that our LAP BAND 2.0 Flex will be a growth catalyst for the company's LAP BAND franchise once approved. Also of note, in September, we signed an exclusive royalty bearing license agreement with Bio Rad to manufacture, our Investor Relations team to commercialize and distribute the Obalon Gastric Balloon System in India, Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka and the Maldives. The license agreement provides for $200,000 in upfront payments from Bio Rad to ReShape and ongoing license payments our Investor Relations team.

Speaker 3

The agreement is important as it represents the first step towards reintroducing our our patented Obalon Balloon System. And we believe that Bio Rad, with decades of experience manufacturing and distributing medical devices our Investor Relations. The vast South Asia market potentially reaching approximately 20% to 25% of the world's population is an ideal partner to expand the reach of our technology. O'Neill. We expect this agreement will lay the groundwork to catalyze the successful relaunch and commercialization of the Balloon System in markets worldwide.

Speaker 3

Given the scope of our second growth pillar to expand our portfolio and global distribution, we have recently engaged the Maxim Group on an exclusive basis to identify strategic merger and acquisition opportunities that provide synergistic partnerships. R and D. Engaging Maxim and executing on this initiative is very high priority for me and ReShape Lifesciences. As for our 3rd growth pillar, we continue to work closely with our Scientific Advisory Board or SAB comprised of internationally recognized experts and surgeons R and D, our suite of weight loss solutions. Now at this time, I'd like to introduce Carolina Povian from Brigham and Women's Hospital Harvard Medical School.

Speaker 3

As previously mentioned, Doctor. Provian is a member of our Scientific Advisory Board and has been a key opinion leader and an expert in the field of bariatric Oral Surgery for decades. She is also nationally recognized experts on nutrition, metabolism and obesity medicine. Caroline, I'd like to ask you give to everyone your background and then discuss your view on the recent changes in the field of obesity treatment, R and D, including the adoption of GLP-1s and the overall impact you feel they will have on the surgical procedures available today. We'd also like to hear about your experience with combination therapies comprising GLP-1s and other gastric surgeries, including LAP BAND OXXO to help those who plateaued with their weight loss.

Speaker 3

Doctor. Provian?

Speaker 4

Thanks, Paul. Good afternoon. As Paul mentioned, I am the Co Director of the Center For Weight Management Wellness in the division of OrthoVirginia. And I'm a professor of medicine at Harvard Medical School. My interest in obesity began 35 years ago when I was a fellow in nutrition and metabolism at the New England Deaconess Hospital.

Speaker 4

After completing my internal medicine residency there, I was lucky and honored to have studied under George Blackburn, Who is considered the father of nutrition and obesity medicine. And since that time, I have our Investor Relations team, focused completely on obesity and nutrition. Obesity is a disease and its many serious complications exert a heavy toll in both human and economic terms. More than a third of adults in the United States have obesity. In fact, it's our Investor Relations team.

Speaker 4

And they are subject to elevated rates of type 2 diabetes, hypertension, dyslipidemia OXXY and Cardiovascular Disease. The 42% of Americans who suffer from obesity our company. With a BMI over 30, we'll likely go on to develop Type 2 diabetes and heart disease. The negative effect on quality of life is enormous. GLP-1s and other, we call them NUCs, Nutrient Stimulated Hormonal Therapies, are having a tremendous positive impact and that more people than ever are asking about our treatment for their obesity.

Speaker 4

We have learned almost all that we know about GLP-1s and other gut hormones from our experience with bariatric Alteryx surgery, which works by altering the secretion of gut hormones. In addition, we've learned from laparoscopic banding our Investor Relations team that the use of GLP-1s and other new shifts would be complementary with the LAP BAND to facilitate long lasting weight loss. OXXY. We're utilizing as many of the GLP agonists as we can since they're analogs of naturally occurring gut hormones that can be helpful In reducing body weight by now up to 20% and even more since today's approval by the FDA of ZEP bound. Unfortunately, insurance companies and the government haven't kept up with the science and don't really embrace obesity as a disease.

Speaker 4

R. So these powerful drugs are not ubiquitously covered and they're certainly not covered by Medicare or Medicaid. In just the last year at our Center For Weight Management and Wellness at Brigham, we've seen more than 10,000 unique patients Just on the medical end, so not bariatric surgery or bariatric endoscopy, but the medical weight management end saw 10,000 patients. I believe that the utilization of GLP-1s and new shoes will ultimately increase the number of patients Who would consider surgery? In other words, well, first of all, we're the 10,000 patients are certainly coming in seeking Medical treatment, but I'm able to convince those patients with BMI over 40, over 35.

Speaker 4

A better option for them. And I'm seeing this anecdotally over the past 6 months. And also, once patients on NUCs get Understand that they can lose weight by altering the gut hormone And they feel so much better, yet have issues with accessibility, durability, tolerability, if there are, They may contemplate bariatric surgery more often and we are seeing this to be true. And that includes minimally invasive procedures like the lap band. And we have been able to convince many patients with BMIs over 40 that surgery remains their best option.

Speaker 4

And we're seeing this again in the last 6 months or so since Certainly, since the advent of Wegovy and Manjaro. Now even though this is true, bariatric surgery 250,000 procedures done annually. If the same thing happened with cardiac surgery, We would say this was negligence, but the problem is overlooked with Coping City. Bariatric surgery is like getting your gallbladder out, When patients feel they have the erroneous idea that this is aggressive surgery OXXY and that people regain their weight, which of course is not true. Many patients also don't see their obesity as a disease.

Speaker 4

The new shares are helping patients understand that they have a disease Because they take the medication and they feel full for the first time in their lives. And if they want to continue feeling that way And losing more weight, they understand now that they're understanding more and more to consider bariatric surgery including the last one. In order to effectively treat obesity, it's imperative The combination of interventions such as diet, exercise, medications like our new shoes, endoscopy and bariatric surgery including the lap O. C. And be employed at different stages of a patient's weight loss journey.

Speaker 4

Combination therapy, including GLP-1s and new OCC. It's crucial for medical and surgical societies to collaborate on the development of guidelines that stratify patients based on BMI OI and determine which medications and procedures can be used alone or in combination. I certainly hope that these insights that I have gotten now from my 35 years of experience and our Investor Relations team. Most importantly, over the past few years, I hope these insights have been helpful. I look forward to answering questions later

Speaker 3

O'Reilly. Thank you, Carolyn. That was, I think you hit the spot and I think that was appreciated by the listeners and I'm sure there will be questions for you. But as a leader in your field, I truly appreciate your participation And hearing your opinions firsthand. So before I turn over the time, just a few more thoughts.

Speaker 3

Based on what you heard so far, we OXXO. We do remain very confident that with our LAP BAND and expected future offering in the LAP BAND 2.0 Flex that we as a company are uniquely positioned R and D with the least invasive, safest and most durable weight loss option for those patients that have historically had an aversion to medically managed weight loss and surgery. Given the growing body of evidence pointing to the fact that weight loss due to GLP-one usage has limitations related to comorbidities and accessibility, our Investor Relations team. We believe that the market opportunity for LAP BAND will increase. And from a continuum of care perspective, these patients are likely potential candidates for bariatric surgery

Speaker 2

Rx America as a next viable

Speaker 3

weight loss treatment. I'd now like to turn the call over to Tom Stankovich to provide a recap of our financial performance. Tom?

Speaker 5

Thanks, Paul. And once again, thank you all for joining our webcast this afternoon. R and D. As a reminder, a full discussion of our financials is available in our press release and 10 Q. As Paul mentioned earlier, in November O.

Speaker 5

P. Morgan Stanley. And in response to continued pressure on the company's revenue caused by the adoption of GLP-1s, we are reorganizing the company Austin and have identified cost reductions of approximately $8,000,000 or more than 40% just for 2024 alone. Specifically, a reduction in force of approximately $1,200,000 in November December and $300,000 more budgeted cost Officephasing in early 2024 as well as $900,000 of reductions in incentive compensation and other payroll related amounts have been implemented our Investor Relations team across all expense categories. Core operating costs in total have been reduced by approximately 5,400,000 R and D expenses.

Speaker 5

We continue to expect to continue marketing spend optimization. R and D expenses related to the cost of ReShape Care totaled $800,000 Expenses related to G and A totaled $1,300,000 primarily R and D expense was $900,000 which primarily included consulting and reduced patent fees. OXXO. Additionally, Q3 2023 core operating expenses were 37% lower than the Q3 of 2022. R and D.

Speaker 5

Taken altogether with actions thus far, we've made significant progress reducing our core operating expenses, OXXO, Inc. Of approximately $22,000,000 or 70 percent between 2022 2024. O'Reilly. Full discussion of our actual financials is available in today's press release and 10 Q. So I will just take a moment to review our key financial metrics for the Q3 ended September 30, 2023.

Speaker 5

Our revenue totaled $2,200,000 for the 3 months ended September 30, 2023, which represents a reduction of $600,000 compared to the same period in 2022.

Speaker 3

Our Investor Relations website.

Speaker 5

The growing popularity of GLP-one prescription drugs for weight loss treatment is the primary reason for the decrease in sales volume in the U. S. And internationally. OXX. We have focused our new marketing strategies through targeted and AI supported digital media campaigns near bariatric surgery centers, R and D expenses.

Speaker 5

We expect that these efforts will come to fruition during the Q4 of 2023 beginning of 2024. R and D. Our continued focus on increasing demand for the LAP BAND system and recently launched 3 new sizes of calibration tubes will grow revenues. R and D. Additionally, we anticipate receiving FDA approval for the LAP BAND 2.0 Flex late this year or early in 2024, R and D, followed by a U.

Speaker 5

S. Product launch that should contribute to increased sales going forward. Gross profit for the 3 months ended October 30, 2023 was $1,300,000 compared to $2,100,000 for the same period in 2022, a decrease of 800,000 Austin. Gross profit as a percentage of total revenue for the 3 months ended September 30, 2023 was 60% compared to 75% R and D for the same period in 2022. The decrease in gross profit percentage is due to the decrease in sales volume, our IRR, primarily related GLP-one drugs coming to market.

Speaker 5

Nevertheless, it is the highest gross margin percentage in any quarter this year as some of our cost reductions R and D expenses have had a positive impact on gross margins during the Q3. Sales and marketing expenses for the 3 months ended September 30, 2023 R and D expenses decreased by $800,000 to $1,800,000 compared to $2,600,000 for the same period in 2022. The decrease of $800,000 is primarily due to a decrease in advertising and marketing expenses as we reevaluated our marketing approach OXXO and have moved to a targeted digital marketing campaign. General and administrative expenses for the 3 months ended September 30, 2023 decreased by $1,700,000 to approximately $2,100,000 compared to $3,800,000 for the same period in 2022. R and D.

Speaker 5

The decrease is primarily due to reduction in payroll related expenses and personnel changes and reductions in professional services. R and D. Additionally, other reductions included intangible asset amortization as the company impaired its finite intangible assets during the Q4 of 2022 R and D expenses and a decrease in rent and insurance costs for the expired lease of our former Carlsbad, California location. R and D. Research and development costs for the 3 months ended September 30, 2023 remain consistent with the same period in 2022 with the O and M and Professional Services.

Speaker 5

Non GAAP adjusted EBITDA loss was $2,900,000 for the 3 months ended September 30, 2023 compared to a loss of $4,200,000 for the same period last year. We ended the quarter our Investor Relations Officer with $1,500,000 of cash and cash equivalents and remain debt free on our balance sheet. With the $2,800,000 in net proceeds from our recent public offering in October And the cost reductions detailed during the call, we will preserve cash and extend the company's cash runway. Austin. As we finish 2023 and move into 2024, we anticipate our revenues increasing and a continued reduction in our operating expenses.

Speaker 5

Onco. With that, I will now turn the call back over to Paul.

Speaker 3

Thank you, Tom. O'Reilly. Before we open the call up for Q and A, it's important to reiterate, as both Tom and I have detailed, OXXO. We have and will continue to significantly reduce operating expenses across all categories, so we can invest in our growth initiatives. OXXO.

Speaker 3

The bold steps we have taken to reorganize the company will help to ensure sustainability and scalability. We continue to prioritize investments, our Investor Relations team, including marketing automation to support scalable lead acquisition, segmented consumer centric messaging via an updated website for improved patient engagement R and D and a frictionless booking system with qualified providers, while further reducing lead generation costs. OXXY. Taken together, we expect to increase LAP BAND procedures and ultimately revenue. We will continue to develop and offer Aportfolio that is differentiated from the competition with transformative technologies that consist of a selection of patient friendly, non anatomy changing, lifestyle enhancing products, programs and services that provide alternatives to more invasive bariatric surgeries R and D to help patients achieve healthy, durable weight loss.

Speaker 3

At the same time, we will continue to work with our world class Scientific Advisory Board to continue to execute on our plan for success in a global market that is changing in historic fashion to normalize safe and effective treatments Oxford Obesity. This concludes our prepared remarks. So now we would like to open the call to your questions.

Speaker 2

Operator? Thank you.

Operator

OTOZRA.

Speaker 2

RBC Capital

Operator

Markets. Your line is open.

Speaker 6

Thank you. Thanks for that overview, Paul, and for also Doctor. Caroline Opovian. That was very helpful to hear your view. Maybe starting Doctor.

Speaker 6

Povian. Obviously, there's a lot of news surrounding the GLP-1s today. Lilly's was approved for weight loss or Obesity. And there's also as you discussed, there's comorbidities, There's potential adverse side effects. We don't know at what level at this point, right, other than what the studies are showing.

Speaker 6

And well, I guess we'll find out over the next 12 or 24 months as this rolls out. What is your expectation? It's obviously impacting sales for the LAP BAND, for bariatric procedures as patients And consumers decide to try something new. Do you think it's a 12 month process Arbor Day. Before they realize maybe A, the cost or the side effects for some of them are not worth it, is it 2 to 3 years before some of that sort of data starts to set in or some of the apathy for GLP-1s Maybe starts to set in or the initial sort of shiny new toy starts to wear off.

Speaker 6

What's your best guess On how certainly your guess is much better than mine. What's your best estimate as to when all this Sort of plays out and then just trying to get a good understanding of that.

Speaker 4

Yes. Well, What I'm seeing, we have 5 doctors, 3 nurse practitioners, 2 PAs and RDs in our Medical Practice Obesity Medicine. We saw 10,000 new patients last year. We're coming The decrease in bariatric surgery came from COVID, first of all. The COVID numbers Went down, as you all know, and are starting to recover.

Speaker 4

But part of it is most I don't see the decrease in bariatric surgery. I am seeing an increase. Bariatric surgeons in my practice are telling me there's a decrease, But it takes a while for the 10,000 patients we saw last year just in the medical arm To get through the program, we have 4,500 patients on our waiting list just for medical treatment. They're trying to get in And they have to wait 8 months to 1 year to see one of our medical practice providers. Why is that?

Speaker 4

There aren't enough Obesity Medicine Specialists in the United States to quell this demand. Therefore, All these great new niches, that's fantastic that the primary care providers can't They don't have the resources in their practice practices to prescribe because of the prior authorization headache, Which requires new FTEs just to process the prior authorization. And then they don't know how to They don't know how to give the drugs. They don't know how to provide diet and exercise. So it's a they primary cares just don't have Arbor Resources to do this.

Speaker 4

So it's relegated to obesity medicine specialists. There are only 6,57,000 obesity medicine specialists in the United States. So what I'm trying to say here is that we all have a backlog. And once the patient gets in, Over the past 6 months, what I have seen and my colleagues have seen is that we're able to get them in as a new patient. And we give them the patients with a BMI over 40 or over 35.

Speaker 4

We're looking them in the face and saying, I know you want to go on Wegovy. I can't give you Wegovy. There's a shortage. Plus, When the shortage is relieved, yes, I can give you a go lead. You realize you're going to have to be on it for the rest of your life and you're going to get 16% weight loss.

Speaker 4

Or I get, I lost £15 on Legovy and I want to lose more. Your BMI is 50, the way you're going to lose more is bariatric surgery. And so I'm able with all of the Because of the shortage, because of the fact that they realize that they need to be on an injection for the rest of their lives Because they got weight loss and they got the 16% weight loss that wegovy can give, But not more. And in a patient who needs to lose £100 to £150, that's not going to work. So I'm able now to convince patients to get a consultation with 1 of our bariatric surgeons.

Speaker 4

And we have 10 of them. And they have appointments next week, whereas I have an 8 month to 12 month waiting

Speaker 2

Okay.

Speaker 4

All right. So that's what's happening. But it's good. Yes, you're right. It's going to take some time to get these our Investor Day.

Speaker 4

On top of that, we have the laparoscopic adjustable gastric band. I have always wanted to combine the LAP BAND with a GLP-one And now Anoosh because now we have ZEP bound and we have duals and triples coming down the pipe Because then you get the restriction of the LAP BAND with the change in gut hormone milieu With the multitude of new shoes that are coming down the pipe. So this is going to provide a less, let's More than 25%.

Speaker 6

So Doctor. Bogdan, so if you're that's good. That's very helpful. In the situations where they want to the patient's goal is to lose more than 16% or 20%, Do you how often do you recommend bariatric surgery versus the LAP BAND with the GLP-1. And are there instances right now where you're just recommending the LAP BAND without the GLP And then you can do the GLP-one later.

Speaker 6

I'm just wondering how are you right now Guiding or Advising Your Patient.

Speaker 4

It runs the gamut Because what you need to understand about our center is we have not we have bariatric surgery, but we also have bariatric endoscopy with Chris Thompson, the world's Chris Thompson, the world's leaders in endoscopic devices and procedures. So but within bariatric endoscopy, we are definitely and with bariatric surgery, it's definitely And what I do recommend initially is if you're going for bariatric surgery, either the sleeve gastrectomy Albany or the laparoscopic adjustable band, certainly not or even the endoscopic procedures. We don't add Anush right away. We want to because you don't want to get excessive weight loss Because you're going to lose muscle and fat. You lose muscle and fat anyway, especially with the more aggressive Bariatric surgery procedures like the bypass, even the sleeve, the sleeve, the bypass and the biliary diversion, you're losing almost half muscle because you're losing it so fast.

Speaker 4

You don't want to do that. That causes sarcopenia and a lower resting energy Expenditure and it's bad. And those patients don't do well. What you want to do is get A good amount of weight loss with one procedure, if you're going to use a procedure. And then when you plateau, you either Plateau or you don't lose as much as you wanted, which is often the case Or you do great, but then a year later you regain some weight, then you add the noose, Okay.

Speaker 3

I see.

Speaker 4

So you don't want to do everything at once.

Speaker 5

Okay.

Speaker 3

Anthony, this is Paul. Doctor. Apove and I thank you for that insight both all the answers you provided. I wanted to add one more point, maybe you can I'll add to it as well. In terms of the numbers of people that you're seeing, Just kind of reminding, Anthony, I know we've talked about this before where there's as mentioned during the call, there's only 1% of the people that in prior years, decades, 1% that could have surgery are seeking out surgery.

Speaker 3

And our belief is, and I think that's what Doctor. Povian was Affirming that there's more people now beyond that 1% that are seeking care, specifically with GLP-1s being as popular with the big marketing push from big pharma. And then it's the timing. I know that I'd love to have that answer too, right? But the timing for nationwide on average all the centers that are unlike Brigham in women's and the center of excellence that Doctor.

Speaker 3

Pobian has formed over the years, I'm sure has ways of managing their timetable that are completely different across the board. We should look at smaller centers and centers that are less apt To have all the experience that you get out at the Brigham. And again, our only counter to kind of the GLP-one marketing push is our marketing efforts, which I think I noted briefly that the one center that was one of our 3 pilots, Blackbena, Louisville, Actually coming in with more procedure growth this year than last year with LAP BAND based on the fact that they are doing the marketing, they are doing the We put in place and it's working. So that's exciting for us. But Carolyn, would you Agree that you would have more pent up demand for people that are coming in to see you this year versus previous years because of What's happened in the last 6 months?

Speaker 4

There's no doubt. There's really no doubt. We're seeing patients, Many more patients than we used to because of the media attention on obesity, not just the Medications, but just the fact that patients are finally realizing, doctors are, but it's the patient Who needs to understand what they have is not shameful. That's what I said on 60 minutes. It's the shame that stops people from going to see the doctor about their obesity.

Speaker 4

And this is finally ending, Because we're finally understanding that if there's a pill or an injection that can help you lower your body weight set point, It can't be a matter of willpower because it's not. And that's what's changed. And that's why we can get patients I'm not hearing that anymore.

Speaker 6

Okay. That's great.

Speaker 4

And that's a godsend.

Speaker 6

Okay, great. That's very helpful. And obviously, it sounds like your center It's a center of excellence and you have a line and a huge backlog of patients. But shifting gears, Paul, maybe just on 2 other points here. The agreement you signed, the exclusive royalty bearing agreement with Bio Rad, Medisys, the private company for the Obalon Gastric Balloon System.

Speaker 6

Where is that in terms of being rolled out? Is that something that's going to be rolled out before the end of the year?

Speaker 2

RBC Capital Markets. Are they going to

Speaker 6

start selling that in 2024? And maybe just any other expectations around that agreement?

Speaker 3

Yes. I think Bio Rad had aggressive has aggressive goals there. The project has kicked off in terms of we signed the agreement and we've got

Speaker 2

Barclays. The 2 teams from Bio Rad

Speaker 3

and from ReShape engaging in, as you'd expect, sort of the weekly the appropriate cadence of project meetings. And They have aggressive timelines that they've stated. I think the knowledge transfer could take longer in terms of getting Yes, what we know over into their hands so they can execute the production. And then beyond the production, it's about verification, validation of their process, so that has the same level of global quality that is needed to our Investor with the regulatory bodies worldwide. So I'd expect that, I think we're all pushing to do something this year Austin and to have I'm sorry, we're sitting here now mid November.

Speaker 3

It's we were pushing to get something done this year. I think we're now looking at RBC Capital Markets. That's something that has to be in the 1st part of next year. But yes, both sides are eager to get Initially Bio Rad to get this product produced and get it done the right way, so we can start the next phase of this. But I'll definitely keep you updated on progress and milestones as we define them and have some predictability to them.

Speaker 3

I won't be shy about sharing those with you.

Speaker 6

Okay, excellent. And then on the cost cutting, $8,000,000 in $24,000,000 is that going to are there going to be some One time charges in the Q4 that we're in right now to account for that. And if so, do you have do you or Tom have I hand off what that might be.

Speaker 3

Yes. Tom, do you want to speak to that?

Speaker 5

Thanks, Andrew. Yes, sure. Absolutely. We're not anticipating any big charges in Q4 as a result all of this. And if there were, there would be one time in nature.

Speaker 5

But As of right now, I'm not expecting anything in the 1,000,000 of dollars, if you will. So to answer your question directly, no, not expecting anything material. Will there be some? Yes. You can imagine There would be some costs related to when you do a reduction in force, there's most likely going to be some severance costs Austin and those types of things.

Speaker 5

So we'll accrue for all of that during Q4. Okay, great.

Speaker 6

Thank you for all that information. I'll hop back in the queue.

Speaker 5

Great.

Operator

O'Reilly. Thank you. And this concludes our question and answer session. I would now like to turn the conference back over to Paul Hickey for any closing remarks.

Speaker 3

Great. Thank you. O'Reilly. I hope that you value our transparency and consistency of what we've expressed during this call and that you're able to appreciate R. C.

Speaker 3

Butler. Enhancing the efficiency and reliability of our company through the revamping of the organization to continue our quest

Speaker 2

Austin to grow shareholder

Speaker 3

value as a sustainable and scalable company. We will continue to work diligently to build on our commitment to provide evidence based Personalized Devices and Therapeutics as we remain optimistic about the long term growth potential for the company. Special thanks to Doctor. Pobian for participating in today's call. As always, I want to thank all of our current and past employees, our Board members, customers, our consultant advisors, suppliers, existing and new shareholders for your continued support of ReShape as we progress on our mission to become the premier physician led weight loss company.

Speaker 3

I look forward to continuing to engage with our stakeholders, healthcare partners and shareholders.

Operator

This conference has now concluded. Thank you for attending today's call. You may now disconnect. Everyone have a great day.

Powered by Quartr

Key Takeaways

  • The company implemented cost cuts totaling approximately $8 million for 2024 (over 40% reduction in operating expenses) and has reduced core operating expenses by about $22 million (70%) since 2022 to extend its cash runway and focus on growth initiatives.
  • Despite GLP-1 market pressures, a pilot center in Louisville using the Hyve digital lead generation platform and co-op marketing saw year-over-year LAP BAND procedural growth, validating the company’s targeted AI-driven consumer campaigns and frictionless booking system.
  • ReShape filed a PMA supplement for its next-generation LAP BAND 2.0 Flex (with “Flex technology” for adjustable relief pressure) and expects FDA approval by year-end/early 2024; it also signed an exclusive license with Bio Rad to commercialize the Obalon Gastric Balloon in South Asia.
  • The adoption of GLP-1 agonists is expanding the obesity treatment market by reducing stigma and attracting more patients to medical weight-loss care, which executives and KOL Dr. Apovian believe will ultimately drive increased demand for the LAP BAND as part of a continuum of obesity therapies.
  • In Q3 2023, revenue was $2.2 million (down $0.6 million YoY due to GLP-1 adoption), gross margin was 60%, non-GAAP EBITDA loss narrowed to $2.9 million, and the company ended with $1.5 million in cash and no debt, with expectations of revenue growth in Q4 and 2024.
A.I. generated. May contain errors.
Earnings Conference Call
ReShape Lifesciences Q3 2023
00:00 / 00:00