Q4 2023 ReShape Lifesciences Inc Earnings Call
I would like to turn the call over to Michael Miller from Rx Communications.
Good afternoon, and thank you for joining the year end 2023, reshaped life Sciences earnings call I'm pleased to be joined today by Paul Hickey, President and Chief Executive Officer, and Tom Stankiewicz, Chief Financial Officer, Paul will provide an overview and update on the company's activities, which will.
<unk> discussion with Doctor Christine run fielding a member of reshape scientific Advisory Board.
Then Tom will review the financial results for the period I will then turn the call back over to Paul for some closing remarks, after which we will open 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 information Investor Information section of the website contains 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 in 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 Rs L. US I'll now turn the call over to Paul Hickey, President and CEO Reshaped life Sciences Paul.
Thank you, Mike and thanks to all of you for joining US this afternoon for our year end 2023 earnings call.
After I provide an overview and update on reshaping activities will be joined by a member of our scientific Advisory Board Dr. Christine run fielding professor of surgery at NYU Grossman School of Medicine director of the NYU Langone weight management program and Chief of Division of Bariatric surgery, Dr. <unk> fielding spoke on our second.
2023 conference call. Two recently performed the first surgeries utilizing next generation less than two point of flex and its been kind enough to join us once again to discuss our experience utilizing this new version of the lifetime.
Now let me begin.
Reshape remains dedicated to achieving profitability executing our growth strategies and maintaining our emphasis on creating shareholder value by focusing on our three growth pillars.
Our story for 2023 is not unlike other businesses that I've seen the impact of <unk> agonist prescription drugs, but we stand apart with those businesses that have responded quickly made bolt adjustments to the strategies and stabilize their businesses.
The most important takeaway from this call is for investors to understand that we remain dedicated to our first pillar of growth, which remains paramount to reshape to achieve profitability and maintain our emphasis on creating shareholder value.
Our steadfast focus on cost reductions, while continuing to invest in growth drivers is intended to secure the long term sustainability of the company.
While <unk> prescriptions are now understood to be a long term growth catalysts for the bariatric market their short term impact made it necessary to make additional strategic cost reductions, including a further reduction in staff leading to a projected 55, 4% decrease in operating expenses for 2024 compared to last year.
Sure.
Tom and I will provide further details later during this call, but this reorganization and decrease in expenses will allow us to focus on and optimize the commercialization.
Our lap and to point out flex created to improve the patient experience, while continuing to market our current Latam.
The limited launch so that lap band coupon a flex is progressing and the initial surgeon feedback has been positive.
Added to this our revamped patient friendly website and is receiving meaningful traffic, while our co op marketing programs with key burn centers have proved effective and scalable.
Before I recap, our fourth quarter and subsequent highlights I'd like to discuss and comment on important events occurring within the obesity market today.
Whether you have understood the obesity market for years are just heard about it recently on Oprah's televised special the obesity market is growing at an alarming rate and carries with it significant medical repercussions and associated economic costs.
Obesity remains a complex lifelong disease that requires personalized treatment to ensure long term weight loss goals are achieved.
They're growing populated GOP, one agonists has brought significant benefits to both those with type two diabetes and those where our base.
No doubt that the GL Penguin adoption is expanding the medical weight loss market by vastly reducing the stigma that often occurs around obesity and medical intervention and we believe this includes bariatric surgery.
However, it is becoming very clear that weight loss to the GOP, one usage has limitations, especially related costs accessibility and the fact that the weight loss photos by 12 to 18 months. Additionally, the real world long term Tolerability is low and one large analysis only 27% of patients prescribed <unk>.
<unk> were inherent after one year.
We continue to believe based on this evidence that the market opportunity for the lap band will increase over time, especially with the newly launched next generation My plan to flex.
From a continuum of care perspective individuals with obesity on <unk> therapy are likely.
Potential candidates for Latam parametric surgery as the next viable anatomy preserving weight loss treatment in other words once GOP when patients get a taste of weight loss, yet have issues with the drugs accessibility durability or their tolerance patients will contemplate bariatric surgery, especially a minimum place a procedure like <unk>.
<unk>.
Now let me take a few minutes update you on our progress related to our primary pillars.
As I mentioned earlier in the call I want to provide more specifics on progress made toward our first pillar.
Which will help us deliver shareholder value and ultimately profitability spin.
Specifically as we consider the impact of GOP, one prescriptions for weight loss treatment, which has put pressure on the bariatric industry. It was imperative to conduct a thorough evaluation of our operations and Swiss swiftly implement substantial cost cutting measures at.
At the same time, we are channeling investments into the most promising part of our strategy to drive growth.
And maintaining adherence to critical P&L metrics within our organization.
Tom will detail the expense savings, we have identified realized and are planning for but in summary, we have identified and implemented additional cost reductions expected to result in lower operating expenses of approximately $8 million in 2024, a more than 50% reduction over 2023, excluding onetime costs.
We are optimizing our marketing spending while making additional reductions in consulting services totaling approximately $2 4 billion.
We have also executed a reduction in force of approximately $1 2 million and have decided to temporarily pause our reshaped care program and achieve an estimated savings of $1 8 million.
We are also planned for <unk> 9 million of reductions for incentive compensation other payer related about all part of streamlining our team significantly but without affecting revenue.
Taken altogether these reductions will allow us to focus and invest in our growth drivers while at the same time extend our cash runway.
The changes are both necessary and indicative of our commitment to our first growth pillar, which I established late in 2022 and point of fact with these 2024 reductions the company's core operating expense reductions between 2022, and 2024, our estimated at $24 million or 75%.
In addition to the necessary cost reduction initiatives related to our first growth pillar, we continue to make significant progress with our cost effective digital lead generation and patient engagement campaign through our exclusive partnership with <unk> medical.
As a reminder, this platform allows us to access advanced lead optimization software.
That can enhance patient engagement and increased patient volume.
The software utilizes an AI SMS patient self service technology, which in combination with our targeted direct to consumer marketing campaign helps individuals' effortlessly overcome new patient intake challenges as a result patients can easily book appointments with medical professionals at anytime.
<unk> seen an increase in the quality of patient needs, while successfully reducing costs and targeted markets, where our surgeon advocates operate.
Let's now discuss our progress executing our second growth pillar to expand our portfolio or distribution.
As previously reported we continue our high priority search for strategic and synergistic M&A opportunities, having engaged the Maxim group on an exclusive basis to assist in this process.
As one can imagine we've had a high level of activity and will continue to separate to find the right partner for long term success of reshaped life Sciences.
I'm also pleased to report that we continue to focus on development and commercialization of new products and therapies.
To that end last month, we announced that the first surgery surgeries utilizing the Latam Tucano flex were extremely successful and additional surgeries have already taken place. These first surgeries followed closely on the heels of getting the FDA PMA supplement approval for the left them to appoint a flex initially.
Initial limited launch continues to gain traction and represents a leap forward and improving the overall that bad patient experience.
In a few minutes Dr. <unk> fielding will detail our experienced with Latam to promote complex.
And as a reminder, the new flex technology access it really fell to alleviate discomfort from swallowing large pieces of food eliminate the need for an office span adjustments as the band momentarily relaxes before returning to its rest in diameter.
In January we had the opportunity to train surgical fellows on a lap end system during which we also introduce <unk> flex. This one is exciting this wasn't exciting event given that the future of the Lifevantage inextricably tied to its continued adoption by surgeons and surgical fellows, who represent the next generation of bariatric surgeons.
We believe based on current surgeon feedback, including those who have already used the Latam Superdome flex that the new flex technology will allow us to engage more surgeons as well as new.
And existing by Pan patients, leading to an increased demand for <unk> surgery, and ultimately becoming a true growth catalysts for the lap band franchise and the company.
At this time I'd like to introduce Dr. Christopher <unk> fielding from NYU as previously mentioned Dr. <unk> is a member of our scientific Advisory Board has been a key opinion leader and expert in their field of bariatric surgery for decades.
As I mentioned earlier, Chris performed one of the first surgeries utilizing our physician led redesign lap <unk> flex designed to improve the patient experience.
Chris I would like to ask you to give everyone. Your background and then discuss your experience with the <unk> flex.
Thanks, Paul.
Good afternoon, ladies and gentlemen, as mentioned earlier I'm, a professor of surgery at NYU, Chris in school of Medicine director of the NYU Lang down late management program on the <unk>.
Chief of the division of Bariatric surgery at NYU Langone Medical Center in New York City.
I was recruited to create the bariatric surgery International in 2000 and was the first bariatric surgeon at NYU fresh out of training.
The following year in 2001, when the last bandwidth FDA approved.
One first searches.
States to be trained on how to implant and manage the device.
Within two months of the approval I became one of the busiest in this panel.
On the last answer.
Well the first 10 years implanted approximately 5000 lap band.
I will consult for Biomarin Keryx and sat on a clinical advisory board.
Turning to other surgeons on Latam surgery, as a proctor and by running workshops.
I also electric lap band surgery at other academic institutions, and other training workshops and at National and International Conference.
I've published over 45 scientific research articles involving lap band surgery outcomes to improve quality of care and decreased complication.
I continued my consulting roles with the subsequent companies that own lockdown first with Internet and Allergan and that reshaped.
Over the past 23 years I've expanded Nyu's Bariatric surgery Division, which now consists of six bariatric surgeons five nurse practitioners three registered dieticians to psychologists and one social worker.
We perform approximately a thousand bariatric operations per year, including sleeve gastrectomy gastric bypass and Lockdown started dream.
However, about 30% of our operations, our revisions or corrective operations to treat weight regain a complication.
It is worth mentioning that the utilization of DLP, one is having a tremendously positive impact in the late last week.
And that more people than ever before are enquiring about medical weight loss option, which I believe will ultimately increase in number of patients who would consider surgery and <unk>.
Other work now that <unk> patients have an open mindset other weight loss options offered to them, especially those that are more accessible durable and tolerable and the long term use of guilty ones. They will actually contemplate bariatric surgery, including minimally invasive procedures like a lap band and Latam to point out black.
But that is the safest bariatric surgery option as proven by multiple large population studies and vast personal experience.
This was the primary reason for the rapid initial uptake of lap and surgery to faisel patients loved it because it was an outpatient procedure with quick recovery time, which allow them to lose more weight every time they came in for the ban to be tightened.
It also gave them accountability and long term connection with the practice, which motivated them.
Childbearing women have been remarkably successful with weight management during pregnancy, using the band and.
And weight loss after pregnancy, because the band can be adjusted to help them lose weight afterwards.
The band can be loosened during pregnancy, and then we tightened after delivering to.
To this day I still have hundreds of patients about their lockdown and tactful for 15 years and have maintained 100 pounds or more of weight loss.
However, all the time there were issues with some patients on the management of ban adjustment and related therapy levels, particularly when it required urgent loosening to relief food obstruction caused by the patients attempt to consume more fluid than the band will allow.
In these scenarios to surgeons and patients became frustrated and eventually became discontent with that device.
I have long looked forward to the launch of the lap band two pointed out flex either will potentially remedy this issue did too.
Ability for self correction utilizing an internal reservoir system, thus limiting the need for manual band adjustments in these instances.
Specifically pieces of food that we're once too large to pass through the narrow passage can now passed through into the stomach because of the new flex technology. Since it allows the bank to relax momentarily under normal swallowing forces and then returned to its rest of the environment.
What's even more exciting for me and other clinicians is the adoption of multi modal or what we call them combination therapy that is becoming a mainstay in the bariatric surgery field, meaning.
Meaning <unk>, one agonists can be used to complement and augment weight loss after surgery to help prevent weight gain with.
This ability for self correction, along with its ability to partner with <unk>. One agonist makes a lot back to your point of flex a better long term weight loss solution for my patients I know I look forward to increasing usage at my practice going forward.
I hope these insights have been helpful. I look forward to answering questions. Later during this call I will now pass the call back to Paul.
Thank you Chris.
As the leader in the field, we appreciate your opinion and first hand experiences.
We remain confident that with our <unk> flex and legacy lap and we are uniquely positioned with the least invasive safest and most durable weight loss option for these patients that have historically had an aversion to medically manage weight loss in surgery.
Given the growing body of evidence pointing to the fact that weight loss due to <unk> usage has limitations related to comorbidities and accessibility we.
We believe that the marketing opportunity for the Latam <unk> flex and lap band will increase over time.
From a continuum of care perspective, these patients are likely potential candidates for Patrick surgery as the next viable weight loss treatment.
Before I turn the call over to Tom I wanted to remind everyone that we have worked diligently to strengthen our IP position.
Most recently evidenced by the notice of allowance from the U S patent office for an additional patent covering <unk>.
<unk> balloon system.
As always we will continue to build a defensive moats around our product portfolio and commercialization efforts and take offensive actions. When it is appropriate I will look forward to providing updates to you all in this important area and future updates.
Now I'd like to turn the call over to Tom Stankevich to provide a recap of our financial performance Tom.
Thanks, Paul and once again, thank you all for joining our webcast. This afternoon.
As Paul mentioned earlier in November and in response to continued pressure on the company's revenue caused by the adoption of <unk> ones. We are reorganizing the company.
And have identified cost reductions of approximately $8 million or more than 50% for 2024 alone.
Specifically a reduction in force of approximately $1 5 million, which began in November and December and.
The 900000 of reductions in incentive compensation and other payroll related amounts have been implemented across all expense categories.
Other core operating cost in total have been reduced which includes reduction in selling and marketing costs of $2 4 million without affecting our continued marketing spend optimization.
Costs related to the pause of a reshape care program totaling 800000.
Expenses related to G&A.
<unk> $1 $3 million, which are primarily in professional and consulting fees and insurance costs.
And R&D expenses totaled 900000, which primarily include reduced patent fees and consulting costs.
Taken together with actions thus far we have made significant progress, reducing our core operating expenses cutting approximately $24 million or 75% between 2022 and 2024.
A full discussion of our actual financials is available in today's press release and 10-K. So I will just take a moment to review key financial metrics for the year ended December 31 2023.
Our revenue totaled $8 7 million for the year ended December 31, 2023, which represents a contraction of $2 6 million compared to the same period in 2022.
The primary reason for this decrease is due to the introduction of G. L. P. One prescriptions within the U S. This is also evidenced by a decrease of lap and unit sales of approximately 27%.
We continue to focus on our new marketing strategies through targeted and AI supported digital media campaigns near bariatric surgical centers around the U S.
<unk> cost and equate and increasing our efficiencies.
We expect that these efforts will come to fruition in 2024. Additionally, we anticipate a full U S launch of the lap band to flex in 2024 and that should contribute to increased sales going forward into 2024 and beyond.
Gross profit for the year ended December 31, 2023 was $5 5 million compared to $6 8 million for the year ended December 31 2022.
A decrease of $1 3 million.
Gross profit as a percentage of revenue for the year ended December 31, 2023, 64% compared to 61% for the same period in 2022.
The increase in gross profit margin is primarily due to the company allocating resources that were previously and primarily focused on inventory to other projects and allocated a larger percentage of these costs to operating expenses in 2023.
Sales and marketing expenses for the year ended December 31, 2023 decreased by $6 6 million or 47% to approximately $7 5 million.
Third to $14 1 million for the same period in 2022.
There was a decrease of $5 2 million in advertising and marketing expenses as we reevaluated, our marketing approach and have moved to a targeted and AI supported digital marketing campaign.
There were also $1 2 million of reductions in payroll related expenditures, including commissions travel and stock based compensation as part of the reduction of course.
General and administrative expenses for the year ended December 31, 2023 decreased by $7 million or 40% to $10 3 million compared to $17 3 million for the same period in 2022.
The decrease is primarily due to $2 6 million in litigation losses, we incurred in 2022.
In addition, the company had a reduction in payroll related expenses, including stock based compensation expense of $2 8 million to our cost reduction efforts.
Other reductions included intangible asset amortization as a company impaired the finite intangible assets during the fourth quarter of 2022, and a decrease in rent and insurance for the expired lease of our former Carlsbad, California location.
Research and development expenses for the year ended December 31, 2023 decreased by 200000 or 9% to $2 3 million compared to $2 5 million for the same period in 2022, which includes a slight decrease primarily in payroll expenses depreciation consulting and clinical related expense.
Yes.
non-GAAP adjusted EBITDA was $13 6 million for the year ended December.
31, 2023 compared to a loss of $23 million for the same period last year.
We ended the year with $4 5 million in cash and cash equivalents and remained debt free on our balance sheet.
As we move forward into 2024, we anticipate our revenues increasing and a continued reduction in our operating expenses.
With that I will now turn the call back over to Paul.
Okay.
Thanks, Tom.
Before we open the call for Q&A, it's important to reiterate that.
As both Tom and I have detailed that we have and will continue to adjust our operating expenses across all categories. So we can invest in our growth initiatives, including the full launch of our Latam to point out flex.
The Swift and bold steps, we have taken to restructure the company will help to ensure sustainability and scalability.
To prioritize investments, including marketing automation to support scale believes acquisition segmented customer centric messaging via an updated website for improve patient engagement and a frictionless booking system with qualified providers are further reducing lead generation costs.
Taken together, we expect to increase Latam procedures and ultimately revenue.
We will continue to develop and offer a portfolio that is differentiated from the competition with transformative technologies that consists of a selection of patient friendly <unk> nanometer changing lifestyle enhancing products that provide alternatives to more invasive bariatric surgeries to help patients achieve healthy.
Durable weight loss.
At the same time, we will continue to work with our World Class Scientific Advisory Board to continue to execute our plan for success in the global market that is changing and historic fashion to normalized safe and effective treatments for obesity.
This concludes our prepared remarks, so now I would like to open the call for your questions operator.
To ask a question. Please press star one one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one one again.
Please standby, while we compile the Q&A roster.
As a reminder to ask a question. Please press star one one on your telephone and.
And wait for your name to be announced.
This concludes our question and answer session.
I would now like to turn the conference back over to Paul Hickey for closing remarks. Please go ahead.
Thank you I hope that you appreciate our steadfast commitment to enhancing the efficiency of our company through the revamping of the organization to continue our quest for shareholder value as a sustainable scalable company.
We'll continue to work diligently to build on our commitment to provide evidence based personalized devices.
A special thanks to Dr. Ron fielding for participating in today's call as always I want to thank our employees employees board members customers consultant adviser suppliers existing and new shareholders for your continued support of reshape as we progress on our mission to become the Premier physician mud weight loss company.
Look forward to continuing to engage with our stakeholders healthcare partners and shareholders.
Okay.
The conference has now concluded.
Thank you for attending today's call you may now disconnect.