Q2 2024 ReShape Lifesciences Inc Earnings Call
Good day and thank you for sending by. Welcome to the...
Reshape Life Sciences second quarter 2024 earnings call. At this time all participants are on a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Michael Miller, RX Communications. Please go ahead.
Speaker Change: Good afternoon and thank you for joining the second quarter 2024 Reshape Life Sciences Earnings Call.
Speaker Change: I'm pleased to be joined today by Paul Hickey, President and Chief Executive Officer, and Thomas Stankovich, Chief Financial Officer.
Speaker Change: Management will also be joined by Krishna Gupta, a current director of IOM Therapeutics, who will be appointed chairman of the combined company upon the completion of the previously announced merger agreement between the two companies.
Paul Hickey: As we do each quarter, Paul will provide an overview and update on the company's activities, and Tom will review the financial results for the period, after which Paul will introduce Krishna for his remarks.
Speaker Change: As a reminder, this conference call, as well as Reshape Life Sciences' SEC filings and website, including the information,
Speaker Change: Investor information section of the website contained forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those discussed due to known and unknown risks, uncertainties, and other factors.
Speaker Change: These and additional risks and uncertainties are described more fully in the company's 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.
Speaker Change: As an additional reminder, Reshape Stock is listed on NASDAQ, trading under the ticker symbol RSLS. I'll now turn the call over to Paul Hickey, President and CEO of Reshape Life Sciences. Paul?
Paul Hickey: Thank you, Mike. And thanks to all of you for joining us this afternoon for our earnings call for the second quarter of 2024.
Paul Hickey: As Mike noted, after I provide an overview and update on Reshape's activities and Tom reviews the financial performance, Krishna Gupta will take a few moments to share some background and outline the strategy and vision
Krishna Gupta: of the NUCO to be called Byam Holdings following the closing of our announced merger agreement.
Krishna Gupta: Let's begin with an overview of our activities during the second quarter and subsequent period.
Krishna Gupta: We have remained laser-focused on stabilizing revenues and maintaining our disciplined approach to continually leveraging resources in order to execute on our 2024 cost reduction plan.
Speaker Change: which has led to approximately 45% lower operating expenses for the first half of the year compared to last year.
Speaker Change: As a result, we have stabilized our growth profit margin, even with lower sales resulting from the widespread adoption of GLP-1s. Tom will detail these cost reductions later in this call.
Tom: In addition to these reductions, we continue to fine tune our lead generation activities and invest in our growth drivers, including the commercial launch of our physician-led redesign, LapBand 2.0 Flex.
Speaker Change: We are currently in the last phase of our limited market release and gathering data and metrics that will be used to support an anticipated widespread commercial launch.
Speaker Change: Most notably, in July, we coordinated both the merger agreement with Biome Therapeutics and the concurrent asset purchase agreement with Biorad, as well as successfully negotiated with our Series C shareholders to substantially lower their liquidation preference.
Speaker Change: All things considered, we feel we are successfully maximizing stockholder value and earnings potential. I will detail the transaction a little bit later in this call.
Speaker Change: Before I do that, I'd like to touch on the obesity market.
Speaker Change: Obesity is a complex, lifelong disease that requires individualized treatment strategies to achieve sustainable weight loss.
Speaker Change: GLP-1 receptor agonists have provided considerable advantages for individuals with type 2 diabetes and has also benefited individuals dealing with obesity.
Speaker Change: However, real-world long-term tolerability for GLP-1s is low, and based on this evidence, we believe that the market opportunity for the LAPBAN will increase over time, especially with the newly launched next-generation LAPBAN 2.0 Flex.
Speaker Change: As most of you are aware, the stigma around obesity and medical intervention has been normalized by the adoption of GLP-1 receptor agonist usage, and we continue to believe that the number of people seeking the help of medical professionals, especially bariatric surgeons, over time will increase.
Speaker Change: In the interim, our cost reductions have allowed us to focus on and optimize the commercialization of our LapBan 2.0 Flex, which was created to improve the patient experience while continuing to market our current LapBan.
Speaker Change: The limited market release of the LapBand 2.0 Flex is nearing completion and is going exceptionally well. And initial surge in feedback has been very positive.
Speaker Change: Added to this, our patient-friendly website is receiving meaningful traffic, while our co-op marketing program has proven effective and scalable with key lap band centers.
Speaker Change: As it relates to the recent merger agreement, as most of you know, beginning in December of last year, we conducted a high-priority search for synergistic merger and acquisition opportunities, having engaged Maxim Group LLC on an exclusive basis to assist in this process.
Speaker Change: To that end, following an extensive evaluation of multiple strategic options and engaging discussions with a number of other potential merger and acquisition candidates, our Board of Directors unanimously recommended the merger with Biome along with the concurrent asset sale to Biorab.
Speaker Change: We believe this presents a significant opportunity for our shareholders to capitalize on the potential of the newly formed entity post-merger.
Speaker Change: with me.
Speaker Change: As previously reported, Bio-Rad has an exclusive license for our Obalon gastric balloon system.
Speaker Change: We believe they are the most synergistic partner to sell our assets to, including our LAPBAN system, Oblon gastric balloon system, and the diabetes block stem neuromodulation system.
Speaker Change: This asset purchase agreement for $5.16 million in cash will allow us to pay down the costs associated with the volume transaction. Notably, our disciplined cost reduction plan facilitated the value we are able to bring to our shareholders.
Speaker Change: Additionally, I would like to express our gratitude to our Series C preferred stockholders for their willingness to substantially lower their liquidation preference, thereby enabling our common stockholders to recognize the potential value of the merger.
Speaker Change: Krishna will detail more information on the buy-in transaction later on this call. I'm very excited about the shareholder value and growth potential resulting from these transactions.
Speaker Change: I would now like to turn the call over to Tom Stankovich to provide a recap of our financial performance. Tom.
Tom Stankovich: Thanks, Paul. And once again, thank you all for joining our webcast this afternoon.
Speaker Change: As Paul mentioned earlier, in response to the short-term impact and adoption of GLP-1s, we have reorganized the company and maintained our disciplined approach on executing our cost reduction plan for 2024.
Speaker Change: With various cost reductions, we have achieved a 45% reduction in overall operating costs for the first six months of 2024 compared to the same period last year.
Speaker Change: All expense line items within our operating expenses are lower than the comparable period in the prior year. Additionally, we have stabilized and increased our gross profit margins, even with the lower sales due to the adoption of GLP-1s.
Speaker Change: A full discussion of our financials is available in our press release in 10Q. I will just take a few moments to review key financial metrics for the second quarter and six months ended, June 30, 2024.
Speaker Change: Our revenue totaled $2 million for the three months ended June 30, 2024, which represents a reduction of $300,000 compared to the same period in 2023.
Speaker Change: Revenue totaled $3.9 million for the six months ended June 30, 2024, and represents a reduction of $600,000 compared to the same period in 2023.
Speaker Change: The reason is due to a decrease in sales volume, which is primarily due to GLP-1 pharmaceuticals.
Speaker Change: Gross profit for the three months ended June 30, 2024 was $1.1 million and was slightly below $1.2 million for the same period in 2023.
Speaker Change: The gross profit as a percentage of total revenue for the three months ended June 30, 2024, increased to 58% compared to 53% for the same period in 2023.
Speaker Change: Gross profit for the six-month end of June 30, 2024 and 2023 was $2.3 million and $2.4 million, respectively.
Speaker Change: Gross profit as a percentage of total revenue for the six months ended June 30, 2024, increased to 59% compared to 53% for the same period in 2023.
Speaker Change: The increase in gross profit percentage is due to the reduction in overhead-related costs, primarily payroll, as the company had a reduction in employees late in 2023.
Speaker Change: Sales and marketing expenses for the three months ended June 30, 2024, decreased by $1.5 million to $700,000, compared to $2.2 million for the same period in 2023.
Speaker Change: Sales and marketing expenses for the six months into June 30, 2024 decreased by $2.7 million or $1.7 million compared to $4.4 million for the same period in 2023.
Speaker Change: The decreases in the three- and six-month periods ended were primarily attributable to a decrease in advertising and marketing spending.
Speaker Change: including consulting and professional marketing services as the company re-evaluated its marketing approach and has moved to a targeted digital marketing campaign, resulting in a reduction of costs.
Speaker Change: Additionally, there were reductions in sales personnel and related reductions in payroll related expenditures including commissions and travel.
Speaker Change: [inaudible]
Speaker Change: General and administrative expenses for the three months ended June 30, 2024 decreased by $300,000 to approximately $2.1 million, compared to $2.4 million for the same period in 2023.
Speaker Change: General and administrative expenses for the six months ended June 30, 2024, decreased by $2.7 million to approximately $4 million, compared to $6.7 million in the same period, 2023.
Speaker Change: a decrease for both three and six months.
Speaker Change: of 2024 is due to a reduction in payroll-related expenditures.
Speaker Change: a decline in staffing levels and a reduction in rent expense as the company moved its headquarters at the end of the second quarter of 2023 to a smaller facility to reduce costs and professional fees.
Speaker Change: Research and development expenses for the three months ended June 30, 2024 decreased by $200,000 to $400,000 compared to $600,000 for the same period in the prior year.
Speaker Change: Research and development expenses for the six months ended June 30th, 2024 decreased by $200,000 to $900,000 compared to approximately $1 million for the same period in the prior year.
Speaker Change: The primary reason for the decrease is due to a reduction in consulting and clinical trials as the company has paused clinical trial work to preserve cash.
Speaker Change: Non-GAAP-adjusted EBITDA loss was $1.9 million for the three months ended June 30, 2024, compared to a loss of $3.7 million in the same period last year.
Speaker Change: For the six-month end of June 30, 2024, the adjusted EBITDA loss was $4.1 million as compared to $9.1 million the same period last year. Both reductions are primarily due to our continued efforts to reduce overall costs.
Speaker Change: We ended the quarter with net working capital of approximately 2.9 million, primarily due to cash and cash equivalents, including restricted cash totaling 1.2 million, and we remain debt-free on our balance sheet. With that, I will now turn the call back over to Paul.
Paul Hickey: Thanks, Tom. At this time, I'm excited to have the opportunity to introduce Krishna Gupta, who will be the Chairman of the Combined Company Post-Merger, to outline VIAM's strategy and vision for the future. Krishna?
Krishna Gupta: Thanks Paul and I'm really excited to be here to speak with the shareholders of this great company. I appreciate the opportunity to talk about the exciting work we're doing at Viome Therapeutics. We're a clinical stage company focused on treating immunoinflammatory diseases, unmet needs with next-generation solutions.
Speaker Change: Upon closing of this merger agreement, we will rename the company Viome Holdings, Incorporated, to reflect our approach to building multiple accretive assets under the Viome umbrella.
Speaker Change: The former reshaped stock will continue to be listed on the NASDAQ market under the new ticker symbol HIND, an ancient name for India, which is an integral part of the final identity and competitive advantage.
Speaker Change: The Viome team is a great balance of scientific prowess, big picture vision, execution experience, and capital markets agility.
Speaker Change: I want to call attention to our scientific founder, Sriladitya Sengupta, a top student at India's best medical school and alum of Cambridge and MIT. He's been a researcher at MIT and Harvard for years and has been a friend of mine for over a decade.
Speaker Change: We're a clinical stage company laser focused on identifying unmet medical needs and addressing them with novel approaches and smart clinical trial designs.
Speaker Change: We've very thoughtfully been building in the immuno-inflammation sector, which is a hot and expanding area, and we have a very promising pipeline developed over the past few years with potential near-term catalysts treating rare and unmet diseases.
Speaker Change: If we zoom out, our current assets reflect some of our key competitive advantages.
Speaker Change: We're accessing world-class talent and world-class research at much lower costs, thanks to our proprietary connections to India, all in order to solve tangible, real-world problems with large U.S. market opportunities.
Speaker Change: This is an extremely timely generational opportunity.
Speaker Change: India is the biggest growth story in the world, especially as China's growth declined.
Speaker Change: We all know about the success of the Indian IT sector and the numerous successful Indian software founders and executives, both in the US and India.
Speaker Change: This theme is becoming increasingly tangible with health care as well.
Speaker Change: I'm very bullish on our ability to bring in additional opportunities, partnerships, and acquisitions under the volume holdings umbrella, deals that enable our future shareholders to access the special and growing innovation connection between the U.S. and India.
Speaker Change: From the onset, Volume will be well positioned for success in the public markets.
Speaker Change: Having proactively insured, has no debt, a clean capital structure, and a very aligned board.
Speaker Change: As part of the execution of the merger agreement, we have commitments for additional capital.
Speaker Change: anchored in part by Dr. Renjun Pai, Chairman of the Money Paul Education and Medical Group and investors affiliated with Remus Capital and Iron Pillar.
Speaker Change: Certain of Viom's current shareholders have committed to a minimum $7.3 million private placement in the combined company and its subsidiaries, which may be upsized through additional investments to close concurrently with the merger.
Speaker Change: Based on our anticipated cash flow projections, we should have adequate liquidity on hand to sell fund into the second half of 25.
Speaker Change: We plan to deploy the capital raised through the private placement to unlock significant value in our pipeline of amino inflammatory acids.
Speaker Change: Let me reiterate, we strongly believe that India is the world's greatest growth story, and we also believe that immunoinflammation offers a significant opportunity for value creation.
Speaker Change: As such, we are excited about using our new public platform to strengthen our existing assets and unlock key value milestones from our pipeline, leveraging the world-class Indian Innovation Corridor and the U.S. market.
Speaker Change: We are confident in our ability to potentially build significant value with our pipeline of novel, local agent drugs for significant unmet needs.
Speaker Change: supported by a robust patent portfolio, effective drug development strategies, a balance sheet with no debt, and prudent capital deployment, all with a focus on accreting value for shareholders.
Speaker Change: So, in closing, we feel like we are very aligned with Reshape's shareholder expectations for a disciplined and focused business model executed flawlessly to help ensure we maximize shareholder value.
Speaker Change: Thank you in advance for your support and vote for this merger agreement. I'm excited to call all of you our shareholders.
Speaker Change: We look forward to providing you with updates on volume holdings in the future, and I want to wish India a happy Independence Day.
Speaker Change: With that, I would like to turn the call back to Paul.
Paul Hickey: Thanks, Krishna.
Paul Hickey: We are generally enthusiastic about the benefits we are poised to deliver to our shareholders as a result of the Merger and Asset Purchase Agreement, which will be described in more detail in an S-IV registration statement that will include the proxy statement related to the Merger and Asset Purchase Agreement.
Paul Hickey: followed by a holding of a shareholder meeting for the approval of the transactions.
Paul Hickey: I'd also like to reiterate that our Board of Directors unanimously recommended the merger with Viome along with the concurrent asset sale to Virad.
Speaker Change: I'd like to express my gratitude again to Krishna for joining the call today to discuss the exciting prospects for biotherapeutics. And as always, I want to thank our employees, Borden.
Speaker Change: Advisors.
Speaker Change: Bye-bye.
Speaker Change: Thank you.