Q1 2022 ReShape Lifesciences Inc Earnings Call
Good day and thank you for standing by welcome to the Reshaped life Sciences first quarter 2022 earnings webcast I would now like to hand, the conference over to Michael Miller of Rx Communications. Please go ahead Sir.
Good morning, and thank you for joining the reshaped life Sciences first quarter 2022 earnings webcast.
Pleased to be joined by Bob <unk>, President and Chief Executive Officer of Reshaped Life Sciences, Inc, who will provide an overview of the company's activity during the first quarter and milestones to date Tom.
Tom Stankevich Chief Financial Officer of Reshape will then review the financial results for the quarter, and then turn the call back over to Bart to finish.
As a reminder, this conference call as well as reshape life Sciences, SEC filings and website, including the Investor Information section of the website contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1090 fives actual results.
Results could differ materially from those discussed due to known and unknown risks uncertainties and other factors these and additional.
Additional risks and uncertainties are described more fully in the Companys filings with Securities and Exchange Commission, including those factors identified as risk factors in the company's most recent annual report on Form 10-K.
Additional reminder, reshaped stock is listed on NASDAQ trading under the ticker symbol Rs LLS.
I will now turn the call over to <unk>, President and CEO Reshaped life Sciences Bart.
Thanks, Michael Good morning, everyone and thank you for joining us today as most of you are aware with the emergence of the fast spreading COVID-19, AUM across their head in late 2021, which resulted in a marked rise in global cases electric procedures across the board had literally ground to a halt nationwide. This <unk>.
Turn affected revenues across the spectrum of medical technology companies, primarily those with product centered on elective procedures.
In line with this Undisputable fact, reshaped first quarter revenues were impacted by the closing of a significant number of bariatric centers during that time.
That said as these restrictions on elective procedures were subsequently lifted late in the first quarter, we began to see a solid uptick in sales.
We're particularly encouraged by the revenue generation, we saw in March which eclipsed our sales in January and February combined <unk>.
Shortly as part of revenue trend has extended into the second quarter and we expect sales to continue to grow throughout the year buoyed by our multi platform direct to consumer advertising campaign. As a reminder, this DTC campaign utilizes strategically placed national TV print digital media and public relations.
In order to market our lap band program with available aftercare supported through reshape care, a reimbursable virtual health coaching platform that can also support weight loss objectives for people who are not surgery candidates.
Our goal is to create and build consumer engagement, leading to increased patient demand for our insurance reimburse next generation of that band program and suite, a physician led weight loss support solutions, which also leads to a rising very metric surgeon engagement. The results of this campaign have been overwhelmingly positive thus far and recognize.
<unk> that the four to six month mandatory wait period imposed by insurers creates a lag between early engagement and actual procedures. We are right now just starting to reap the benefits of this strategic outreach and we are optimistic that revenues will continue to increase through the remainder of 2022 and beyond.
Before I go into more detail on what we see is a bright future ahead, I would like to remind our listeners of the massive market opportunity before us.
Obesity epidemic is well documented with $2 5 billion people or more than 30% of the global population considered overweight or obese and this number is expected to grow to 50% by 2030.
As a result, the overall bariatric surgical device market is projected to be at $2 $8 billion market worldwide by 2025.
The U S market alone is estimated to grow to $1 8 billion in this timeframe. Additionally, with 50% of adults in the U S. Trying to lose weight every year reshape is positioned to be a leader in addressing the significant effects of this serious health issue.
As a reminder, the lap band is the only FDA approved laparoscopic weight loss device commercially available available in the U S with the safest profile weight loss surgeries and is covered by most major insurance plans, including Medicare.
The market that we are building today is ours.
Now I would like to outline the success of our recently initiated multi tiered DTC marketing campaign, which has led to a surge in demand for Latam procedures.
As most of you are aware, we launched our national demographic targeted DTC campaign across the highest viewed TV channels and print publications with the goal of effectively communicating the benefits and differentiated advantages of the lab at the.
The lab that is unrivaled in the market. It is adjustable reversible and well prove it with over $1 billion band, having been placed and patients globally in the past 20 plus years.
Demonstrating and in comparable safety profile compared to highly aggressive stomach procedures or diet.
In an outpatient setting a patient can have their procedure in the morning go home that afternoon, and then a few days back at work at.
It is very confidential and it's not a big disruption to your life or your responsibilities, that's something that the highly desirable to many people looking at weight loss options.
Additionally, as surgery centers reopen we're seeing that patients continue to be drawn to the adjustability reduced risk of procedure adverse events and mitigation of nutritional deficiencies associated with anatomy altering procedures people also understand that the lap band.
Gives them control they are using a tool to help them achieve their weight loss and health goals as opposed to just having something done to them and mentally that has a big impact on people, making these decisions being in control and still participating through using a tool versus having something permanently dead to you can be a big big impact in the.
Valuation process.
It's something down the road comes out that is a better option for individuals the lab.
That can also be removed with no changes to the patient's anatomy.
We had an early launch of the DTC at the end of last year, adding select TV networks and magazines throughout the fourth quarter. After gaining medical review Committee approvals, we were able to follow up with major investments into the campaign in the first quarter of this year.
Since the beginning of the marketing campaign lap band has been featured in over 15 Major magazine publications, including people, good housekeeping and better homes and gardens and over 28 national cable stations, including Bravo lifetime, USA, A&D and hallmark that all focus on our target audience.
We have continuously improved on these marketing efforts through diligent metric analysis and adaptation while also incorporating co op marketing programs local digital media and the National Social media Influencer campaign.
We are now seeing procedures directly track to the campaign and we remain positive that we will continue to see the benefits and potential of this strategy through execution as the year goes on.
The significant increase in potential patient and bariatric surgeon engagement that we have experienced so far indicates that our message is clearly resonating with the consumer and professional markets.
In January of this year, we had the opportunity to present, the Latam program and expand awareness to a range of key bariatric surgery providers at the American Society for metabolic and Bariatric surgeries leadership Academy and reunited meeting.
Where we received overwhelmingly positive feedback on the need for training and inclusivity of the lap band procedure for bariatric practices.
This year over 40, bariatric surgeons have approached us for recertification keep in mind that this is additive to our existing accounts and we are only targeting 200 to achieve our immediate objectives.
And we are receiving a steady flow of request for refresher courses every week.
As noted in today's press release, we are truly fortunate to have burnt Vincent the smbs as 2020 to distinguish industry partner Award winner, leading this effort and we are delighted that he will be facilitating the training of the next generation of very active surgeons, including todays very accurate pillows.
On the benefits of the Latam.
Given the level of renewed interest in lab and from key industry organizations, such as <unk> bariatrics surgeon and consumers alike. We are enthusiastic about the potential for continued increased demand and sales going forward. In addition to re engaging surgeons, who haven't used the lap band in years, we are likewise keenly.
On engaging new physicians and we are seeing growth across the nation, including a key underserved markets doctors are enthusiastic and we are not necessarily competing against more aggressive stapling procedures, we are creating a new market for people that don't want those procedures and may have given up on diets.
Whole new twist, it's a blue Ocean theory versus a red Ocean theory, and we're really excited about this opportunity.
Moreover, we are receiving a steady stream of anecdotal feedback from surgeons on the positive impact our DTC campaign is having on their practices. For example, numerous physicians have told us that they had never seen marketing works, so well and they have mentioned receiving more inbound calls requesting the lap and then they have seen for years some have told us.
<unk> seen as much as a 500% increase in patient interest and others are working hard to catch up from that band backlogs and marketing created while surgery centers were shut down several reporting that they are even performing surgery on Saturdays.
This tells us that our strategy is on target and as I noted earlier as scheduled procedures are starting to flow. We're very excited to envisage what the next few quarters should look like based on the positive feedback and metrics that we're tracking from the DTC campaign.
Today, we can track website traffic lead and warm transfers of qualified patients to practices with a high level of confidence. This will all lead to increased lab procedures, and thus potentially a significant increase in revenues from reshaped life Sciences overtime.
It is important to mention again that 4% to six month mandatory wait period required by insurers for bariatric for weight loss procedures, including the lap band.
As it means that after we transfer a warm lead to the doctors from our DTC campaign insurers will require a patient to go through several steps, which may include behavioral analysis physical analysis, perhaps China medically manage weight loss program, one more time to make sure that they can't lose weight and that they actually need surgery. So this represents a <unk>.
<unk> between the preliminary investment towards our marketing effort initial patient engagement and scheduled procedures with this means that we are just now at the cusp of reaping the benefits of our DTC marketing campaign.
While focusing on the visibility of the lap band program. We also continue to build our proprietary ecosystem of unique weight loss solutions that provide more revenue producing pathways keeping patients in our sales channel longer chief. Among these is reshape care, our proprietary digital therapeutic weight loss and wellness program, which is reimbursed by major <unk>.
Terence plants, making it an infected and convenient virtual health coaching program to help our medically managed and very active surgery patient achieve and maintain their weight loss goals. Since the program has access through a prescription. It is physician led we a board certified health coaches that work on the behalf of the doctors and his or her practice.
To help patients with their behavior changes nutrition or exercise or whatever they might need to help them achieve and maintain their weight loss goals. Although originally developed as an aftercare support program for bariatric patients. We have also realized the opportunity to support patients desiring to lose weight, who are not surgical candidates.
Through reshape care, we are able to enter into the virtual health care delivery space, enabling us to tap into a market that is expected to reach $95 billion by 2026.
<unk> care and its extension reshaped marketplace, providing e-commerce platform to access a collection of healthcare provided recommended comparatively priced weight loss and wellness programs that support the vital areas of nutrition exercise sleep and stress. This e-commerce based offering includes our new advanced <unk>.
Premium supplements to optimize health and wellbeing, specifically for bariatric surgery and medical weight loss patients.
Before I turn the call over to Tom to go over the financial results I'd like to take a moment to review our pipeline we plan to resume our EU based clinical trial for reshape best Laparoscopic implantable technology designed to support and enhance the weight loss journey for patients with a systemic reduction surgery.
Best has the potential to replace or complement current stomach reducing pair at procedures once the European hospitals again permit access for studies and we communicate our go forward plans with regulators.
We remain in contact with the clinicians and clinical sites regarding this trial, where access to facilities and patients with precluded by COVID-19 pandemic measures.
With the assistance of a grant from the NIH, we completed and met the necessary endpoints in order to complete the preclinical development of reshaped diabetes blocks, Tim Neuromodulation technology, a novel investigational device using neuromodulation to control insulin production and potentially treat type two diabetes.
We have submitted for a second grant for which we have responded to request for additional information from the NIH Committee and hope to hear back over the next few months. This platform is backed by a strong intellectual property portfolio.
<unk> committed to evaluating potential through a non dilutive funding strategy.
Additionally, we continue to explore the compliance and regulatory requirements and manufacturing liability market perception and quality system controls necessary for reintroduction of the oberland balloon system, which we gain through our merger with Oberland.
The technology is first and only swallowable gas filled FDA approved balloon system introduced into the U S weight loss market.
As a nonsurgical minimally invasive product.
Finally, we continue to evaluate M&A opportunities that align with our commitment to the physician led weight loss and metabolic solutions market, which can enhance our current product portfolio and be accretive to our value.
We are optimistic that the upward trend in sales we are experiencing in the second quarter will continue as we expand visibility and demand for the lap and along with the rest of our portfolio a physician led weight loss solutions, we will maintain focus on marketing the proven advantages of our next generation Latam program celebrating its 20 <unk> year.
As the only FDA approved insurance reimburse surgical weight loss device and we will continue the evaluation development and prioritization of our portfolio and external opportunities that can bring additional value, creating weight loss solutions to our company I look forward to providing further updates on our progress in the quarters to come.
I'll now turn the presentation over to Tom for a review of our financial performance Tom.
Thanks, Bart and once again, thank you all for joining our webcast. This morning.
Our revenue totaled $2 4 million for the three months ended March 31, 2022, which represents a contraction of 24, 2% or 800000 for the same period in 2021.
As Bart explained the primary reason for this decline is due to the COVID-19, omicron variant, which caused a significant number of bariatric centers to close from December 2021 to February 2022.
During March 2022, we did experience a significant increase in revenue compared to January and February 2022, as the omicron variant began to subside.
We expect our revenue will continue to increase through the remainder of 2022 as we have witnessed a significant growth in web traffic and Dr. Consultations attributable to our direct to consumer marketing campaign that we launched during the fourth quarter of 2021.
We reported gross profit of $1 2 million compared to $2 3 million for the three months ended March 31, 2021, a decrease of $1 1 million.
Gross profit as a percentage of total revenue for the three months ended March 31, 2022 was 50% compared to 71% for the same period in 2021.
The decrease in gross profit margin is primarily due to the reduction in revenue for the quarter combined with other department expenses, which are more fixed in nature, such as payroll related expenses consulting fees depreciation along with increased freight costs.
Sales and marketing expenses for the three months ended March 31, 2022 increased by $3 5 million to $4 7 million compared to $1 2 million for the same period in 2021.
The increase is primarily due to an increase in advertising and marketing costs of $3 million. After having launched the direct to consumer marketing campaign during the fourth quarter of 2021 and expanding this campaign during the first quarter of 2022.
There were also increases related to strengthening the commercial organization as well as other smaller increases such as travel related expenses as markets begin to open up again.
General and administrative expenses were $4 1 million for the three months ended March 31, 2022, compared to $2 7 million for the same period in 2021, an increase of $1 4 million.
In addition to an increase in stock based compensation of 500000. This increase also reflects it.
Increases totaling 900000 of insurance professional services payroll related expenses and an increase in rent and facility expenses associated with the <unk> merger.
Research and development expenses were 800000 for the three months ended March 31, 2022 compared to 600000 for the same period in 2021. The increase was primarily due to increased payroll and payroll related expenses.
On a non-GAAP adjusted EBITDA basis, which included an increase in stock based compensation. The loss was <unk> 7 million for the three months ended March 31, 2022, compared to a loss of $1 7 million for the same period last year, which includes a noncash $2 million loss on extinguishment of debt.
The $7 million loss also includes our previously announced upfront marketing investments of $3 million for our direct to consumer advertising campaign.
As a result of our upfront marketing investment revenues were delayed due to the mandatory waiting period of a minimum of four to six months for insurance verification purposes.
Turning to the balance sheet, the company's cash and cash equivalents totaled approximately $15 5 million as of March 31 2022.
Of note, we continue to strengthen our balance sheet as we have eliminated all debt, including $10 5 million term debt with an institutional investor in our final $3 million obligation to Apollo into surgery for the purchase of the lap band in December of 2018.
Additionally, $6 million was incurred in professional service and investment banking fees related to the <unk> merger as.
As mentioned in previous quarters, we continue to save an optimized cost as we strive to increase revenue and pursue significant ROI opportunities.
As COVID-19 restrictions continue to be lifted in elective procedures continue to rise our efforts around product visibility and demand for our products are expected to show increasing incremental returns and we look forward to reporting positive progressive results in the coming quarters.
With that I will now turn the call back over to Bart.
I hope we have been successful in relaying how excited we are about the future of the Latam program.
The results we saw in just the month of March April and to date in May are Testament to the value of this program and the company can bring to the weight loss market.
We believe wholeheartedly that the proven benefits offered by the FDA approved minimally invasive safe and effective lap band and suite of weight loss solutions will continue to attract interest as our DTC and other visibility campaigns expand and achieve more market penetration and thus improved revenue from reshape.
As we help the millions of patients seeking physician led weight loss solutions and an improved quality of life. Thank you to our board members executive leadership team employees customers vendors existing and new shareholders for your continued support of reshape as we progress on our mission to become the Premier physician led weight.
<unk> company.
We look forward to reporting our results over the coming quarters.