Q3 2022 Gelesis Holdings Inc Earnings Call

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Hello, and welcome to the Genesis third quarter 2022 earnings Conference call.

As Elliot and I'll be coordinating your call today.

If you would like to register your questions. During the presentation you may do so by pressing star followed by one on the telephone keypad.

I would now like to hand over to our host Kate Taylor Investor Relations. The floor is yours. Please go ahead.

Good morning, everyone and thank you for participating in today's conference call to discuss <unk> financial.

<unk> financial results for the third quarter ended September 32022.

Joining us today are <unk>, founder and CEO , Jos and Elliot CFO of dialysis, they will be discussing the fiscal 2022 third quarter and providing business updates on the company's commercial product quantity.

Before we begin today I want to remind everyone. This conference call may contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995, including statements relating to jealousy, there's estimates of its future business outlook prospects or financial results, including projected sales and EBITDA forward looking statements generally can be identified by words such as anticipate.

Believes estimates expects intend plan predict project will be will continue will likely result in similar expressions. These forward looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward looking statements factors that could cause or contribute to such differences include but are not limited to those discussed in our amend.

<unk> 8-K, and Form 10-K for the year ended December 31, 2021, and those discussed other documents, we filed with Securities and Exchange Commission. All subsequent written and oral forward looking statements attributable to jealousness or persons acting on behalf are expressly qualified in their entirety by the cautionary statements included in this conference call. We undertake no obligation to revise or publicly.

The results of any revision before looking statements, except as required by law.

These risks and uncertainties listeners are cautioned not to place undue reliance on such forward looking statements also the following discussion may contain non-GAAP financial measures for a discussion and reconciliation of these non-GAAP financial measures. Please see our earnings release, our third quarter 2020 to a webcast replay of this call will be available via the events and presentation section of the company's Investor Relations website at <unk>.

IR Dot Jealousness Dot com now I would like to turn the call over to the founder and CEO of jealousy. Besides the heart you Sai.

Thank you Keith and good morning, everyone.

I will start by providing updates on our <unk>.

And then turn the call over to.

Walk you through our third quarter 2022 financial results and full year two.

Presumably better.

<unk> is a novel orally administered FDA cleared management therapy.

This helps people to free satisfied with smaller portions.

EPS when you lose weight, while still enjoying the foods they love.

<unk> is the only approved weight management treatment for people with a BMI is lowest with Refis and all the way up to a BMI of 40.

As a result, we believe we have the largest.

<unk> addressable market.

Andy prescription weight management approach on the market today.

We are seeing strong uptake in <unk> across the BMI spectrum with roughly 35% of members with a BMI between 25 to 30.

Straight into this we are successfully reaching consumers.

Currently served by others described solutions.

Since the launch of the first wave of our National grocery Wellness media Companion February demand for clarity is reached record high with 114% topline growth in this quarter compared to the previous year.

As well as 36% of additional gross margin.

Despite the significant reduction in marketing spend we acquired over 23500, new members and sold over 92000 units during the third quarter of 2022 more than twice as many units as we sold in the prior year quarter.

We clearly were successful with launching new products and creating good initial consumer awareness and demand, but doing so is capital intensive.

Due to challenging market conditions the level of capital. We raised was not enough to continue to invest in the same way through marketing investments during the third quarter was reduced to preserve our cash resources.

As expected and in line with our previous guidance the reduced level of investment in marketing had an impact on revenues this quarter.

We are moved and excited by the feedback we are getting from our members some directly to us and many others in extremely active private communities online.

Clarity is changing People's lives.

As it is an important scientifically proven program for managing overweight and obesity.

An important part performing mission continues to be empowering the patients to take greater control of their health and wellness.

We believe the best place for <unk> is to be widely available.

Accessible.

And for that reason I am excited to announce that we are pursuing an application with the FDA, we changed the classification of limited to over the counter which would make it available without the need for prescription.

<unk> has proven itself as an effective affordable and trusted personal weight management products.

Relative best in class safety data demonstrated in over 185000 patients and its over four out of five star rating and trust pilot.

Gives us confidence that this is the right time to pursue an OTC pathway.

The FDA.

We think the entity available OTC.

Will it be a game changer for individuals struggling with overweight or obesity and clarity would become only one of two SBA regulated all treatments for waste management that's available OTC.

Importantly for Genesis the change to OTC could significantly simplify the consumer's buying process.

Thereby vastly lowering our cost of acquiring new members.

This reduces our reliance on capital markets to reach profitability.

Example.

We already see strong interest from people seeking out <unk> prescription bump there a significant drop off during the online physician visits.

We believe that simplifying the buying process will give us the much larger portion of this already interested customers.

In addition, <unk>.

People, who were hesitant to consider a prescription alternatives.

Or who are at the earlier part of the weight loss journey now could become part of our target addressable market.

This shift also enabled us to work with many more distribution partners and channels.

Simply on possible for a prescription product.

We believe we will be able to grow sales more efficiently as we potentially open up new sales channels and build towards the long term potential of <unk> to become the foundational therapy for weight management.

We intend to submit our application to the FDA in the first quarter of the next year.

Could receive market clearance by the middle of next year.

Additionally.

The light study we presented in several scientific meetings during this quarter.

The safety and efficacy of forward pipeline asset just 200.

Our new own hydrogel, which has a very similar properties to clarity.

The light study met its primary endpoints and has shown an impressive efficacy and safety profile in a population that typically is the harder thing to lose weight.

<unk>.

The study demonstrated even greater effect in people that have pre diabetes or type two diabetes.

We are now evaluating the best regulatory and commercial strategy for <unk> 200.

As the obesity market shifts preliminary to treatment of obesity before downstream consequences, the long term potential of <unk> and Genesis.

Longer than ever and we are working hard to bring this important solution to many millions of people struggling with the beginning or advanced stages of BCP and deliver value for our shareholders.

Now I would like to turn the call over to our CFO Luke months to walk through our financial discussion.

Thank you Shai.

I'll take you through our financial results for the third quarter of 2022.

For the three months ended September 32022, we acquired 23500, new members a 50% increase to the 15700, new members acquired in the same quarter in the prior year.

Product revenue during the third quarter of 2022 was $6 4 million driven by over 92000 units sold which is more than double the units sold in the same quarter in the prior year.

This strong growth this quarter was driven primarily by the mix of new and returning members as well as the mix of monthly and quarterly treatments being ordered by members. We also achieved this growth despite significantly reduced levels of investment in sales and marketing during the third quarter of 2022 to preserve liquidity, we incurred expense of $7 3 million specific to sales and market.

During the third quarter of 2022 compared to $21 2 million and $22 2 million during the first and second quarter of 2022, respectively.

We have realized significant improvement in the cost of manufacturing that product since we commissioned our commercial manufacturing facility at the end of last year and streamlined our packaging supply chain.

Our gross margin increased to 44% during the third quarter of 2022 compared to 8% during the same quarter in the prior year.

With the increase in sales volume. This resulted in gross profit of $2 8 million for the three months ended September 32022, and $9 6 million year to date compared to 251000 in the third quarter of 2021 and 709000 for the nine months ended well.

We're very encouraged by our success in controlling costs, while address these scaling our production levels to meet growing demand.

Net loss for the three months ended September 32022, with $14 1 million compared to a net loss of $30 7 million in the same quarter in the prior year adjusted.

Adjusted EBITDA for the third quarter of 2022 was a loss of $12 3 million compared to a loss of $26 2 million in the third quarter in the prior year.

The improvement in adjusted EBITDA between the comparative periods is due to several factors, while we reduced investments in selling and marketing during the third quarter of 2022 to preserve liquidity. We saw continued demand for <unk> created by the broad consumer awareness marketing activities. During the first half of this year.

We incurred expense of $7 3 million specific to sales and marketing during the third quarter of 2022 compared to $21 6 million during the same quarter in the prior year. Additionally, our improved cost and manufacturing plenty resulted in further efficiency in our P&L it relative to the third quarter of 2021.

Moving onto the balance sheet at September 30, we had $24 8 million in cash and $5 6 million in receivables with $18 4 million of inventory in our supply chain and just $8 million and accounts payable.

Regarding our outlook for the full year 2022, we expect product revenue gross profit and adjusted EBIT to be within the range of previously provided guidance.

During the third quarter and subsequently we've further reduced expenditures as selling general and administrative manufacturing and research and development to extend the company's operational runway into at least the second quarter of next year.

Now I'll hand, it back to you Shai to provide closing remarks.

Yes.

Please Julia.

There has been incredible momentum into obesity care industry, and we are well positioned with our uniquely differentiated product to play an important role in this growing category as the foundational therapy.

As we are focused on the path to OTC classification for clarity, we will no longer have the barrier of prescription if we can achieve OTC approval opening the door for new customers, we otherwise would not have reached and which other SBA approved critical therapies cannot.

Taxes.

We are uniquely positioned to continue to penetrate this category of new users, which should provide a long runway of growth for us over the next several years.

We are particularly excited about our plans to have a self sustaining profitable and capital efficient business overtime, one that will not rely on the capital markets for growth.

As we complete this transformation, we believe that the exciting story will become clearer to the market.

In the meantime.

We are focused on the fundamentals of our business and on the patients we serve.

An important part of our mission continues to be empowering the patients to take greater control of their health and wellness, while lowering the bar of access and we are thrilled about the dose that OTC approval could open for Genesis and for patients.

We will now begin our Q&A session.

To ask a question. Please press star followed by one telephone keypad now.

If you change your mind, Please press star followed by check.

And then perhaps ask a question. Please ensure your device is on mute locally.

Our first question comes from Daniel Crossline from Citi. Your line is open.

Hi, Thanks for taking the question I'd like to start really with a shift in strategy to to OTC.

You just launched quantity.

Really kind of widespread way in <unk> this year.

If something's shifted in the market.

See our OTC as the most efficient because it is quite a substantial shift in how you're going to sell this if youre approved so just curious what changed in your mindset in the market for you to make this shift.

Thank you. Thank you Dan for the question.

In fact, because of the unique profile of <unk>.

Glen at the both efficacy and safety, but mainly of course the wide enabled that we have that really allows it to be a product for any one with BMI above 25.

Even without.

Comorbidities.

We always want that make this product widely available and easily accessible like an OTC product.

Even if you are usually even if we are using heavily e-commerce channels would be the right way, we know that the target market and the people that are interested in product that without restriction.

It is a very big.

The market and we know that the going through the process.

Prescription actually create the friction and we lose.

Potential.

Patients through this process of course.

There is the additional cost which is which is another issue.

There is no way you can start as a medical device.

To be an OTC product you have to stop.

Ascription.

And Thats, a very typical way to do things, but in order to do so.

Need to.

We have the experience in the market because the number of people exposed to the treatment in clinical studies are hundreds so in our case, even close to 1000 in older Studies. However, we acquired through the last year experience with more than 185000 people.

We've been very consistent safety and Tolerability data.

So that's why we think now there is there are new windows open for us, which will make our marketing much more efficient.

Gather with much larger targeted market.

Got it that makes a lot of sense. So I assume if you get OTC approval. This is going to be the channel through which entity is sold.

Youre not going to.

<unk> ROE anymore, you're not going to have.

The sales force that's out there pitching to two doctors anymore, it's going to be 100% OTC for quantity.

I think that we will use a lot of the same channels, who use no. We will I don't think we get.

We.

Our ready to exactly give the strategy as far as all the channels, but you can imagine based on other OTC products of course, it will open for us many additional.

Channels in addition to ROE.

We still of course things, that's always going to be important partner, but that is going to open for us a lot of other opportunities.

Got it okay. So so would it be a prescription formulation sold through ROE and perhaps other providers or would it just be OTC through.

And drew.

Other distribution channels.

So I can just refer to what's going to happen until we are becoming OTC. If we are going to be approved and that's continue as it is right now through a prescription.

Mainly to roll in after that.

Going to be a lot of other options and of course physicians will be able to recommend it and describe it like that like they do with other OTC products.

Yes.

Okay, and then just turning to your cash burn.

You burned about $25 million in free cash flow.

You have about $25 million of cash on the balance sheet.

No change in your guidance for fiscal 'twenty, two which implies a slight degradation in EBITDA from <unk>.

I'm curious how you intend.

To find yourself in the near term given.

These cash needs and no change in your profitability guidance for fiscal 'twenty two.

Thank you again for the question I realize you probably CFO Gunther.

Yes, so we're continuing to speak with investors, both our existing investors, who have a lot of interest and continue to support the company as.

As well as new investors, who would be interested in the potential shift in strategy as well as our overall business model. So we're continuing to pursue those avenues in the meantime, we've already implemented changes to reduce our cost and our monthly burn and that should enable us to have sufficient liquidity with the cash we have on hand today.

To extend operations into the second quarter of next year without considering any additional funding that may come from.

Various opportunities ever tried to pursue whether that debt equity or some kind of partnership arrangement that brings additional liquidity. We're working all of these areas and we hope to have more information to share soon.

Okay, that's great and.

I know you have that equity line of credit outstanding doesn't look like you drew down on that at all.

Quarter.

Can you give some broad strokes of how you think about using out of that equity line of credit just given where your stock prices and how that factors into your funding made.

Yes so.

The equity line of credit has not been used to a material degree we had some very small issuances during the third quarter, but none of them were significant or material.

Going forward with our share price, where it is today, we don't anticipate using that line of credit.

In the near term until the share prices it recovers and is a much more stable and higher.

Baseline that's all we will begin utilizing that really won't be done opportunistically.

With the best interests of our shareholders and the market value of our so.

So we would expect that it would be very modest in the near term.

Understood. Okay, I've got a few more but I'll hop back in the queue in case, others have questions. Thank you.

Thank you very much.

As a reminder to ask any further questions. Please press star one on your telephone keypad now.

This concludes our Q&A on 130, <unk> CEO for final remarks.

Thank you everyone for participating in our earnings call. Today, We hope you are going to join US for our Q4 Nichols next year, Thank you and goodbye.

Today's call is now concluded.

Thank you for your participation you may now disconnect your lines.

Okay.