Q2 2022 ReShape Lifesciences Inc Earnings Call

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Good afternoon, and thank you for joining the reshaped life Sciences second quarter 2022 conference call.

I would like to turn the call over to Michael Miller from Rx Communications.

Good afternoon, and thank you for joining our reshaped life Sciences second quarter 2022 earnings call.

Im pleased to be joined by Paul Hickey, the newly appointed President and Chief Executive Officer of Reshape Life Sciences, and Tom Stankovic Chief.

Chief Financial Officer.

Paul will open the call after which Tom will provide an overview and update on the company's activities and review the financial results for the quarter.

He will then turn the call back over to Paul for some closing remarks, after which we will open up the call to a question and answer session.

As a reminder, this conference call as well as reshape life Sciences, SEC filings and website, including the Investor information section of the website.

<unk> forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

Actual results could differ materially from those discussed due to known and unknown risks uncertainties and other factors. These and additional risks and uncertainties are described more fully in the Companys filings with the Securities and Exchange Commission, including those factors identified as risk factors.

And the company's most recent annual report on Form 10-K.

As an additional reminder, reshape stock is listed on NASDAQ trading under the symbol <unk>.

I will now turn the call over to Paul Hickey, President and CEO of Reshaped life Sciences Paul.

Thanks, Michael.

Good afternoon, everyone and thank you for joining us today.

I'm very excited to be joining reshaped life Sciences, and I look forward to leading the company during such an exciting juncture. We are working towards our goal of becoming the global leader in physician led weight loss of metabolic health solutions with our comprehensive integrated slate of products and services, including our flagship.

Band program.

Im enthusiastic about the demand generated by our multi tiered direct to consumer marketing campaign, thus far which continues to be successful in driving patient engagement and filling surgeons pipelines for Latam procedures, evidenced by the 19% increase in sequential revenues achieved in the second quarter.

In the second half of the year, we expect a positive trend in sales as bariatric surgeons regained the ability to proceed with Latam procedures, which are severely restricted in the early year due to the continued COVID-19, pandemic and as patients and providers continue to navigate.

The typical six month mandatory waiting period required by insurers for bariatric, our weight loss procedures, including the anatomy sparing Latam.

Our confidence in this growth is strengthened by the success of our multi tiered direct to consumer marketing campaign, and helping practices work through patient backlogs, thereby allowing more new patients to pursue this process and further increasing the sales of the lap band and our suite of weight loss in med.

<unk> health solutions.

The prospects for reshape our a significant reason that I chose to join the company and.

In addition, my experience as senior Vice President of marketing and reimbursement at <unk>, the predecessor company to reshape <unk>.

Give me invaluable insights into the company's potential to help alleviate the obesity epidemic I am thrilled about the enormous market opportunity ahead of us.

The well documented obesity epidemic rages on with $2 5 billion people are more than 30% of the global population.

<unk> overweight or obese.

This number is expected to grow to 50%.

The year 2030.

As a result, the overall bariatric surgical device market is projected to be a $2 $8 billion market worldwide by 2025 the.

The U S market alone is estimated to grow to $1 8 billion in this timeframe. Additionally, with 50% of the adults in the U S. Trying to lose weight every year reshape is positioned to be a leader in addressing the significant effects of the serious health issue.

Natalie sparing lap band is the only FDA approved laparoscopic weight loss device commercially available in the U S with the safest profile of weight loss surgeries and is covered by most insurance plans, including Medicare.

In addition to our FDA approved lap band program, we have a robust pipeline of weight loss products and services, which we'll discuss in detail during this call.

Forward to working closely with the entire reshape team to take advantage of this opportunity to expand the company's growth as we execute on our strategy to become the premier physician led weight loss and metabolic health solutions company.

I would now like to turn the call over to Tom Stankiewicz.

To review the recent highlights and provide a recap of our financial performance Tom.

Thanks, Paul and once again, thank you all for joining our webcast.

We have achieved a multitude of important milestones during the second quarter and current period.

Strengthening our position as the market leader with our integrated portfolio of proven products and services that manage and treat obesity and associated metabolic diseases.

Our recently announced FDA five 10-K clearance for the disposable gastrointestinal balloon indicator calibration to there is a significant milestone for the company.

We expect this line extension of calibration to be rapidly adopted by Serge given their ability to help better visualize the anatomy, making it easier to identify potential defects during a broad range of bariatric procedures such as.

Laparoscopic sleeve gastrectomy gastric bypass and adjustable gastric banding.

We look forward to formally introducing this new important product at the International Federation for surgery of obesity and metabolic disorders World Congress in Miami later, this month and expect the commercial sales to begin in September .

Our partnership with open loop and expert in full stack virtual care delivery services.

Provides a nationwide position that telehealth solution for reshaped care.

Which had vastly extend the reach of our proprietary digital therapeutic weight loss and wellness program.

It is important to note reshaped the doctor prescribed and may be covered by insurance or up to 2006 visits for reimbursement year.

At an effective and convenient virtual health coaching program.

In partnership with physicians.

Graham is differentiated by the current virtual weight loss market through live video based counselling with doctors and board certified health coaches to ensure the most comprehensive and customized care possible, including implementing behavioral change to improve sleep nutrition exercise and stress levels.

Reshape care is appropriate for all weight loss patients, including medical weight loss and pre and post surgical bariatric patients.

As a result.

We are able to tap into the virtual health care delivery space a market that is expected to reach $95 billion by 2026.

Specifically the rollout the reshaped care and its extension reshaped marketplace, which includes advanced line of premium supplements.

<unk> reshaped.

English is an incredibly valuable ecommerce platform of healthcare provider recommended competitively priced weight loss and wellness products with bariatric surgery, and medical weight loss patients that support nutrition exercise sleep and stress.

We remain encouraged by the continued pace of inbound requests from very active surgeons for refresher courses on the Latam program.

In fact, this year doesn't have very accurate surgeons have approached us for re certification, which is an acknowledgement of the growing patient demand and established safety.

Because of.

The anatomy sparing Latam procedure keeping.

Keep in mind that this is additive to our existing accounts and we are receiving a steady flow of requests for a refresher courses every week.

As we've previously noted we would again like to congratulate Bruce Vincent our global director for clinical training the Aaas Mbs's 2022 distinguished industry partner Award.

As leading the retraining effort and facilitating the training of the next generation of Bariatric surgeons, including for the first time geriatric fellows on the benefits of the lap band during the session at the Aaas and Aas.

MBS annual conference this past June .

As a result of this renewed interest the lap band from industry groups, such as <unk>. Our focus has been on both reengagement of accounts that have historically used the Latvian and bringing in new accounts, especially within the underserved major markets.

Doctors are realizing that lap band can be additive to their practices and that is not taking away any business from more aggressive stapling in gastric bypass procedures.

We are creating a whole new market for people, who don't want those procedures that may be giving up on that.

We are enthusiastic about this trend and expect a steady stream of practices to request training going forward buoyed by our multi platform DTC advertising campaign, which continues to drive patient engagement.

The anatomy sparing lap band.

Unrivaled in the market and it is adjustable reversible and well proven with over 1 million bands, having been placed and patients globally in the last 20 years.

Construction and in comparable safety profile compared to highly aggressive stomach stapling procedures.

Adjustability reverse ability and having personal control.

All highly desirable aspects for potential patients, we're making very hatrick surgery decision.

Additionally, the reduced risks of adverse events and nutritional deficiencies associated with anatomy altering procedures have also been identified as being a great significant this decision making process.

The fact that most of the patients return home the same day as their Latam procedure, which is available in outpatient surgery Center is also a key determining factor in the weight loss procedure decisions.

As a reminder, our multi tier DTC marketing campaign is utilized strategically placed national television print and now to a greater extent targeted digital media.

In order to market our lap band program with available aftercare supported through reshape care.

From the outset of the campaign, we have leveraged the highest viewed TV channels in print publication with the goal of effectively communicating the benefits differentiated advantages of the lap band, which had been featured in over 15 major magazine publication, including people.

Good housekeeping better homes, and gardens, and over 28 national stations, including Bravo lifetime, USA and A&D and hallmark.

All of which focus on our target audience.

We continue to improve on these marketing efforts through diligent metric analysis and adaptation while also incorporating co op marketing partnerships local digital media and National Social media Influencer campaign.

We have been successful in creating and building customer engagement, which has led to increased patient demand for the Latam program.

Which is then led to the filling of bariatric surgeons pipelines today, we can track customer engagement leads and warm transfer qualified patients the practices with a high level of confidence.

Based on tracking these metrics, we have been able to adapt our DTC marketing campaign to be more effective and more efficient.

Will all lead to increased lap band procedures, and Thats potentially a significant increase in revenues or reshaped life sciences overtime.

The result of this campaign have been overwhelmingly positive so far indicating that our message is clearly resonating with the consumer and professional markets.

In fact doctors, who are working hard to catch up from the demand backlog that the marketing campaign created while surgery centers were shut down.

The typical six month mandatory waiting period imposed by insurers creates a lag between early engagement and actual procedures.

This means that after we transfer a warm lead to a doctor from our DTC campaign.

Insurers will require a patient to go through several steps, which may include behavioral analysis, physical analysis, or perhaps triangle medically manage weight loss program, one more time to make sure they can't lose weight that way and need surgery.

This represents a lag between the preliminary investment towards our marketing efforts.

Initial patient engagement and scheduled procedures.

These scheduled procedures are starting to flow. We are really excited about the next few quarters could look like based on the metrics. We are tracking from the DTC campaign we.

We are now just starting to reap the benefits of this strategic outreach and we are optimistic that revenue will continue to increase through the remainder of 'twenty two and beyond.

Turning to a review of our financial performance a full discussion of our financials is available in our press release and 10-Q. So I will just take a moment to review key financials for the <unk>.

Second quarter ended June 32022.

Our revenue totaled $2 9 million for the three months ended June 32022, which represents a contraction of 18, 1% versus the same period in 2021.

As I explained earlier the primary reason for this decline is the COVID-19, omicron variant, which caused a significant number of very after eccentric to close in January February and into March 2022.

As the spread of the Omicron variant began to subside. We were pleased to have experienced a 19% increase in sequential revenues compared to the first quarter.

As I noted in my prior remarks, we expect sales to continue to increase through the remainder of 2022 as we have witnessed continued growth in patient engagement and doctor consultation attributable to our DTC marketing campaign.

We reported gross profit of $1 9 million compared to $2 2 million for the three months ended June 32021.

Both profit as a percentage of total revenue for the three months ended June 32020 to 65, 1% a solid improvement compared to 61% for the same period in 2021. The gross profit margin increased during the three months ended June 32022, primarily due to the company at a higher percentage of domestic.

Sales than in the same period of 2021, which has a higher gross profit margin than international sales.

Sales and marketing expenses for the three months ended June 32022 increased to $4 7 million compared to $1 4 million for the same period in 2021.

The increase is primarily due to an increase in advertising and marketing costs of $1 8 million after having launched the DTC marketing campaign during the fourth quarter of 2021 and expanding this campaign during the first half of 2022.

There were also increases related to strengthening the commercial organization and increase in consulting and professional fees related to the launching of the digital media platform as well as other smaller increases such as travel related expenses as markets begin to open up again.

General and administrative expenses for the three months ended June 32022 increased to $5 4 million compared to $4 3 million for the same period in 2021.

The increase was primarily due to $2 million of legal expenses and increases in stock based compensation of $1 2 million and an increase in payroll expense as we continue to make strategic organizational changes.

This was offset by a decline of $2 3 million in consulting and other professional fees as the company has significant related costs during the second quarter of 2021 due to the merger with Oberland.

Research and development expenses were 800000 for the three months ended June 32022, compared to 100000 for the same period in 2021.

The increase was due to increase related to consulting fees and an increase in payroll expenses, including stock based compensation.

On a non-GAAP adjusted EBITDA basis, the loss of $7 8 million for the three months ended June 32022, compared to a loss of $1 2 million for the same period last year.

It is important to note that revenues were delayed due to the mandatory waiting period of approximately six months for insurance verification purposes, which we previously discussed the <unk>.

Increased loss is primarily due to the previously mentioned increase in advertising and marketing costs from the DTC marketing campaign, a related increase in payroll expenses due to the expansion of the commercial team and increase in stock based comp compensation and an increase in legal expenses.

Lastly, during the quarter, we continued to strengthen our balance sheet growth and $2 5 million in proceeds from warrant exercises after having eliminated all debt previously from our balance sheet at the end of last year.

When we ended the quarter with $11 5 billion in cash and cash equivalents, which combined with an increase in revenues for the second half of 2022 and beyond should extend our cash runway well into 2023.

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

Thanks, Tom.

Before we open up the call for Q&A I would like to take a moment to review the status of a few of additional products in our pipeline.

As mentioned last quarter, we continue to evaluate the reshape vest we remain in contact with the clinicians and clinical sites regarding the EU clinical trial, which was paused due to the lack of access to patients and facilities caused by the COVID-19 pandemic.

Additionally, we continue to explore the manufacturing viability and market opportunity, which would be necessary for the reintroduction of the <unk> balloon system.

Technology is the first and only swallowable gas filled FDA approved balloon system introduced into the U S weight loss marketplace as a non surgical minimally invasive product we.

We will provide an update once our analysis is completed.

Also of note with the assistance of a grant from the NIH, we met the necessary endpoints in order to complete the preclinical development of the reshape diabetes block Stim Neuromodulation device.

<unk> investigational device using neuromodulation to adjust insulin production and potentially type two diabetes.

We have submitted an application for a second cramps with the NIH and hope to hear back in the near future.

We remain committed to further evaluating the potential of this product, which is backed by a strong intellectual property portfolio.

Through a non dilutive funding strategy.

Finally, we will continue to evaluate M&A opportunities that align with our commitment to the physician by the weight loss of metal box solutions market, specifically those that can enhance our current product portfolio and be accretive to our value.

We are pleased with our recent efforts and achievements and are optimistic that the upward trend in sales. We are experiencing will continue through the balance of 2022 and beyond.

Through our national direct to consumer marketing campaign and other visibility programs. We will continue to maintain focus on marketing the proven advantages of our FDA approved insurance reimbursed Anatomies sparing lap band program, along with the rest of our portfolio a physician led weight loss solutions.

This concludes our prepared remarks, so now we'd like to open the call to your questions operator.

Thank you and as a reminder to ask a question. Please press star one one.

And again that is star one one raise your hand.

Okay.

And again, everyone. As a reminder, if you'd like to ask a question. Please press star one one.

Thank you and we will take our first question from Anthony Vendetti from Maxim Group. Your line is open.

Thank you.

Yes.

Maybe if you could talk a little bit.

Paul do you want to on the recent FDA approval for the line line extension.

How that fits those disposables, how is that going to.

Impact do you believe the top line and eventually.

Maybe give a little timeframe.

When youre going to start to commercialize that and then.

I have a follow up call and reshape care.

Sure. Thanks, Anthony it's it's Tom here.

Thanks for the thanks for the question so yes.

The GB launch for us is very important strategic.

It's very very good news for the company.

As you May recall, we were we were selling.

<unk>.

We were selling.

We were selling this in the wrong sizes. We were now we've got now we've got five 10-K approval for the most popular sizes that the bariatric surgeons are using today. So that's just that's just the benefit of what we've been what we have been doing and what we will be doing.

Going forward so.

I expect.

Spect, some some nice revenue increases as far as this is concerned as it gets to be.

Rolled out.

We plan to have this.

Commercial in September we're going to introduce it at the <unk> conference that's upcoming next week in Miami.

And we expect it to gain gained some traction early on.

Again, this is going to be in the and the more popular tube sizes that the surgeons are using and we expect a nice bump in revenues, even starting even starting this year and into next year.

Okay, great so commercialization in September .

And start to contribute to revenues.

By the end of this year.

And then on reshape care.

Do you have.

A number in terms of how many patients have signed up for.

Sure.

Any feedback so far I know it's early stages.

You had signed an agreement.

With a company that was going to.

Incorporate reshape care. So I was wondering what kind of <unk>.

Early feedback you have so far.

So early feedback that we've been we've been getting is very good.

We are we are about to really significantly launch.

Reshape care so.

Feedback that we've gotten we've been working some of the Kinks out in the system as far as.

How the whole process.

As we're able to work through.

Coaching some of the coaching some of the patients but.

So this is this is also going to become very mainstream for us in the coming weeks and months.

<unk> expect to have expect to have a revenue bounce from for reshape care, even during before the end of this year.

We're very excited with what the whole reshape care program.

Okay, Great and then just in terms of in terms of the lap band itself.

You've been putting in.

Towards the end of last year, particularly.

October November .

December some significant dollars into advertising.

In magazines and <unk> and so forth.

Can you just can you just talk about.

Your.

Level.

Of comfort or.

If you feel like those dollars are giving you the ROI.

I believe after the initial launch you fine tuned it a little bit more do you feel comfortable.

With it with where you're at now or.

Do you think you need to continue to fine tune it before for us.

Spending more dollars there.

Well I think.

Great question.

Thank you.

The answer to your questions.

100% happy with the way things.

Things have things have things have gone as far as the whole DTC advertising campaign, the amount of the amount of.

Website traffic that we've that we've had the amount of leads that we have had those leads that turn into.

Warm transfers as we like to call them, an ultimate ultimate consultations with doctors.

We're extremely happy with that and we had to we had to do that.

On a larger scale initially too.

Effectively launch the whole the whole lap and program we've learned a lot from from that and some of the things. We have we have learned is too.

The whole thing.

DTC campaign was too where we can where we can tune things up a little bit where we can tune things down a little bit also right now we're starting to do a lot more in the way of digital marketing and social media to do a lot more in the way of digital marketing and social media marketing.

<unk> and <unk>.

To be honest with you that that's going to be that's going to cost us.

Significantly less also going going forward.

A lot of the a lot of the expense of advertising that we did on a national basis, TV and national National print.

I don't need to I don't need to go into whole lot of detail explaining that thats very expensive to do but that laid the foundation and I think we needed to we needed to do that to get to.

To get the lap band back out there in the in the marketplace and how we can target a little bit a little bit better and we're going to do that through more digital marketing and social media.

Anthony This is Paul here can you first off.

I just wanted to publicly thank Tom for for taking the role as interim CEO in the last few weeks.

Much appreciate it kept the.

The machine operational and everything running smoothly with all the employees and the great team. We have here at reshape completely agree with the answer you just gave just want to emphasize to our ongoing.

Our business plan and.

I guess the business model is to optimize the dollar spent to drive leads to our physicians and part of that.

As.

As Tom indicated working with sort of a national Splash and then as time moves on continue to optimize that into different media outlets as well as watching the shifts from dollars. We've spent also watching our centers.

Dedicated funds to market their practices and drive additional patients into their settings to ultimately treat them with <unk>.

So committed to it as far as return on investment it just gets better over time because of us being very diligent about looking at the metrics and making sure that we understand where the dollars are spent and what leads are generated.

And one additional tool that the company added prior to my arrival was salesforce.

CRM tool and it's probably the best in industry that I've experienced in my past and I think that's truly going to track metrics.

By by region by state by practice again, making sure that the media outlet immediate channel that we use whether it's social or a national or radio or whatever.

We'll be tracked for how warm the needs are and whether or not the physician in their programs are able to convert to Latam.

Great.

Helpful color. Thanks, Paul.

I know today is the first day so welcome aboard.

Thank you.

Okay.

Yes.

Thank you.

This concludes our question and answer session I would like to turn the call back over to Paul Hickey for any closing remarks. Please go ahead.

Great. Thank you well I hope you recognize our enthusiasm and share our excitement for the road ahead.

The substantial growth opportunities, we have before us.

We believe wholeheartedly that the benefits offered by the FDA approved <unk> invasive safe and effective lap band and the suite of weight loss solutions will continue to attract interest and that we are just beginning to reap the benefits of our practice direct from consumer marketing campaign.

I want to thank our employees board members customers vendors and existing and new shareholders for your continued support of reshape as we progress on our mission to become the Premier physicians I would weight loss company.

I look forward to the opportunity I have at reshape and to providing future updates.

This conference has now sorry.

Alright.

Conference call has now concluded thank you for attending today's call.

You may now disconnect.

Thank you everyone have a great day.