Q3 2024 ReShape Lifesciences Inc Earnings Call

Good afternoon, and thank you for joining the Reshape Life Sciences third quarter 2024 conference call. I would like to turn the call over to Michael Miller from RX Communications.

Michael Miller: Good afternoon, everyone, and thank you for joining the third quarter.

Michael Miller: 2024 Reshape Life Sciences Earnings Call. I'm pleased to be joined today by Paul Hickey, President and Chief Executive Officer, and Tom Stankovich, Chief Financial Officer.

Michael Miller: 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.

Michael Miller: 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.

Michael Miller: 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 1995.

Michael Miller: Actual results could differ materially from those discussed due to known and unknown risks, uncertainties, and other factors.

Michael Miller: These and additional risks and uncertainties are described more fully in the company's filings with the Securities and Exchange Commission.

Speaker Change: 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 this 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.

Paul Hickey: As Mike noted, after I provide an overview and update on reshapes activities and time reviews of financial performance, Krishna Gupta will take a few moments to share some background on the exciting vision of IAM Holdings.

Paul Hickey: Let's begin with an overview of our activities during the third quarter and subsequent period.

Paul Hickey: During the quarter, our revenue continues to rebound, increasing 16.6% in the third quarter over the second quarter, the third sequential quarter of revenue growth, and 6.4% over the third quarter of last year.

Paul Hickey: While we remain highly focused on maintaining our disciplined approach to continually leveraging resources in order to execute on our 2024 cost reduction plan, which has led to over 40% lower operating expenses for the first nine months of the year, compared to last year.

Paul Hickey: As a result, our gross profit margin increased to 62.8% for the quarter and 60.3% for the first nine months. Tom will detail these cost reductions later in this call.

Paul Hickey: In addition to the cost reductions, we continued to fine-tune our lead generation activities and invest in our growth drivers, including the commercial launch of our physician-led redesigned LapBand 2.0 Flex.

Paul Hickey: We completed our early launch phase and are analyzing data and metrics that will be used to support our widespread commercial launch.

Paul Hickey: Additionally, as announced this week, we received approval for the LatBan Tupinoflex from Health Canada, which represents yet another important growth catalyst for the LatBan franchise as we look to gain regulatory approvals worldwide.

Paul Hickey: Also announced this week, we were awarded approximately $241,000 supplementary grant from NIH with the University of Southern California's Center for Autonomic Nerve Recording and Stimulation Systems.

Paul Hickey: This non-dilutive supplemental grant awarded over the course of one year.

Paul Hickey: Will fund studies to test the safety and efficacy of the next generation electrodes for reshapes proprietary diabetes block stem neuromodulation or DBSM device, which can potentially double the nerve contact area, reduce power consumption,

and increase the effectiveness of delivering DBSN signals.

Paul Hickey: This fourth grant from the NIH brings our total received awards to $1.15 million, demonstrating the viability of our non-dilutive funding strategy and the NIH's keen interest in our novel DBSN technology and potential in the global diabetes market.

Paul Hickey: Most notably, in July, we coordinated both the merger agreement with Biome Therapeutics and the concurrent asset purchase agreement with Bi-Rad, and we successfully negotiated with our Series C shareholders to substantially lower the liquidation preference.

Paul Hickey: All things considered, we feel strongly these concurrent deals will maximize stockholder value and earnings potential. Krishna Gupta will detail the merger with IOM a little later in this call, which will shed some light on why we are very bullish on these transactions.

Paul Hickey: Before I do that, I'd like to touch on the obesity market. Obesity is a complex, lifelong disease.

that requires individualized treatment strategies to achieve sustainable weight loss.

Paul Hickey: As most of you are aware, the promotion of GLP-1 receptor agonists has lessened the stigma around obesity and has started to normalize medical intervention and treatment.

Paul Hickey: GLP-1 receptor agonists have provided considerable advantages for individuals with type 2 diabetes and has also benefited individuals dealing with obesity. We continue to believe that the number of people seeking the help of medical professionals, especially bariatric surgeons, over time will increase.

Speaker Change: Further, with the health economic cost burden related to widespread adoption of the GLP-1s, as well as our low real-world long-term tolerability, we believe that the market opportunity for our minimally invasive lap band will increase, especially with the newly launched LapBand 2.0 Flex.

Speaker Change: In the interim, our cost reductions have allowed us to focus and optimize the commercialization of the lap-band 2.0 flex, which was created to improve the patient experience.

Speaker Change: As I touched on earlier, we successfully completed the limited market release of a lap band flex.

Speaker Change: and it went exceptionally well. I'm pleased to report that initial search and feedback has been very positive.

Speaker Change: Added to this, our patient-centric website is receiving meaningful traffic, while our co-op marketing programs has proven effective and scalable with key lap band centers nationwide.

Speaker Change: Now let's talk about the future of reshaped shareholders with volume. As most of you know, last year, we conducted a high priority search for synergistic merger and acquisition opportunities, engaging the maximum group exclusively to assist in this process.

Speaker Change: After extensively evaluating multiple strategic options and engaging in discussions with other potential merger and acquisition candidates.

Speaker Change: Our Board of Directors unanimously recommended the merger with Viome, along with the concurrent asset sale to BioRAM.

Speaker Change: We believe this merger presents a significant opportunity for our shareholders to capitalize on the potential of owning a meaningful portion of volumes go forward business, which encompasses tangible assets and a big vision captured in a newly combined company.

Speaker Change: As previously reported, BIORAD has been granted an exclusive license for our Obolon gastric gluon system in the Indian subcontinent. We believe BIORAD is the most synergistic partner to purchase our assets, including the LAPBAN system and the Obolon gastric gluon system, for $5.16 million in cash.

Speaker Change: It is also worth noting that in October, we regained compliance with NASDAQ after affecting a 1 through 58 reverse stock split in September, which was a critical component for the merger with Viome.

Speaker Change: I remain very excited about the shareholder value and growth potential resulting from these transactions. And I'd 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.

Tom Stankovich: As Paul mentioned earlier, during the third quarter, our revenues continue to stabilize and grow.

Tom Stankovich: and has increased for the third quarter, third sequential quarter this year. Additionally, and in response to the short-term impact and adoption of GLP-1s, we have reorganized the company and maintained our disciplined approach to executing our cost reduction plan for 2024.

Tom Stankovich: With various cost reductions, we have achieved a 41% reduction in overall operating costs for the first nine months of 2024 compared to the same period last year.

Tom Stankovich: All expense items within our operating expenses are the same or lower than the comparable period in the prior year. And as a result, we also saw increases in our gross profit margin.

Tom Stankovich: A full discussion of our actual financials is in our press release and 10Q. So I will just take a moment to review key financial metrics for the third quarter and nine months ended September 30th, 2024.

Tom Stankovich: Our revenue totaled $2.3 million for the three months ended September 30, 2024, an increase of 6%, or $100,000, compared to the same period in 2023.

Tom Stankovich: This primarily resulted from an increase in sales volume offset by continued pressure, primarily due to GLP-1 pharmaceutical weight loss alternatives. Quarterly revenue was 17% higher, or $300,000, compared to the second quarter of 2024.

Tom Stankovich: Revenue total $6.2 million for the nine months ended September 30, 2024, a contraction of 7% or $500,000 compared to the same period in 2023.

Tom Stankovich: This primarily resulted from a decrease in sales volume primarily due to GLP-1 pharmaceutical weight loss alternatives.

Tom Stankovich: Rose profit for the three months ended September 30th, 2024 was 1.4 million, which was slightly above 1.3 million for the same period in 2023.

Tom Stankovich: Gross profit as a percentage of total revenue for the three months ended September 30, 2024 was 63% compared to 60% for the same period in 2023.

Tom Stankovich: Gross profit for the nine months ended September 30, 2024 and 2023 was unchanged at $3.7 million.

Tom Stankovich: Gross profit as a percentage of total revenue for the nine months ended September 30th, 2024, was 60% compared to 55% for the same period in 2023.

Tom Stankovich: The increase in gross profit margin is due to the reduction of overhead-related costs, primarily in payroll, as the company has had a reduction of employees late in 2023.

Tom Stankovich: Sales and marketing expenses for the nine months ended September 30th, 2024 decreased by 3.7 million or 61% to 2.4 million compared to 6.2 million for the same period in 2023.

Tom Stankovich: The decrease is primarily due to a decrease in advertising and marketing expenses, including consulting.

Tom Stankovich: and Professional Marketing Services, as the company has re-evaluated its marketing approach and has moved to a targeted digital marketing campaign.

Tom Stankovich: Resulting in a reduction of costs. Additionally, it was a decrease in payroll related expenditures, including commissions, stock based compensation expense and travel.

Tom Stankovich: General administrative expenses for the three months ended September 30, 2024 increased slightly by 45,000 or 1% to approximately $2.1 million compared to the same amount $2.1 million for the same period in 2023.

Tom Stankovich: The nominal increase is primarily due to an increase in professional services primarily related to the merger and asset purchase transaction that was entered into in July 2024, offset by reductions in employee-related expenses and bad debt expense.

Tom Stankovich: General administrative expenses for the nine months ended September 30, 2024, decreased approximately $2.7 million, or 30%, to $6.1 million, compared to $8.7 million for the same period in 2023.

Tom Stankovich: The decrease is primarily due to a reduction in professional services, such as audit and legal fees of $1.1 million, primarily due to the company incurring one-time ship adjustments for professional services related to our February 2023 public offering.

Tom Stankovich: A reduction in payroll-related expenses, including stock-based compensation expense due to decline in staffing levels. 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 a reduction in bad debt expense.

Tom Stankovich: Research and development expenses for the three months ended September 30th 2024 decreased by 100,000 or 26% to 400,000 compared to 500,000 for the same period in the prior year.

Tom Stankovich: Research and development expenses for the nine months into September 30th, 2024 decreased by $300,000 or 19% to $1.3 million.

Tom Stankovich: to approximately 1.6 million for the same period in the prior year.

Tom Stankovich: The primary reason for the reduction, decrease in the reduction is payroll, consulting and clinical trials.

Tom Stankovich: Non-GAAP adjusted EBITDA was $1.6 million for the three months ended September 30, 2024, compared to a loss of $2.9 million the same period last year.

an improvement of 1.2 million.

Tom Stankovich: For the nine months ended September 30, 2024, the adjusted EBITDA loss was $5.6 million as compared to $12 million for the same period last year, an improvement of $6.4 million.

Tom Stankovich: Both reductions are primarily due to our continued efforts to reduce overall operating costs.

Tom Stankovich: We ended the quarter with net working capital of $1.3 million, including cash and cash equivalent and restricted cash of $800,000.

Thanks, Tom.

Speaker Change: Well, I'm happy to be joined once again by Krishna Gupta, who will be the Chairman of the Combined Company Post-Merger, to further outline BiOM's strategy and vision for the future.

Speaker Change: Now, over the last year, I've had the pleasure of working with Krishna, and I am truthfully very excited about the opportunity for our reshaped shareholders and new shareholders alike to become part of Viome that stands apart from any other investment opportunity. Krishna.

Krishna Gupta: Thanks, Paul and Tom. I'd like to take this opportunity to kick off a more meaningful dialogue with Reshape shareholders. I'm looking forward to having you along on the volume journey, which also revolves around innovation in health care, much as Reshape has done.

Krishna Gupta: We'll be putting out a deck on the Viome Vision shortly, but in the interim, I encourage you all to read through the S4, which is publicly filed and available.

Krishna Gupta: We note in the S-IV that both sides have valued the go-forward entity at about 130 million dollars for the purposes of allocating the ownership of the combined company between Reshapes and Viome current shareholders, underpinned by our existing assets.

Krishna Gupta: We view this transaction as a massively positive one for REACH-shaped shareholders and believe there is significant upside beyond this valuation as well if the volume team executes well in 2025.

Krishna Gupta: So what does Viome do? As a reminder, Cambridge, Massachusetts-based Viome is an innovation-driven healthcare platform centered around the US-India corridor and the increasingly special relationship between the two countries.

Krishna Gupta: In particular, we are building a healthcare platform that we anticipate having three core pillars underpinning the bridge between US and India. Number one, biopharma, where we already have developed valuable assets.

Krishna Gupta: Number two, medical devices, and number three, AI. The latter two we are in the process of building the foundations for.

Krishna Gupta: We intend to be very active deal makers as a core competency in order to potentially further our platform and shareholder value. As an example of this, we have struck multiple deals with Sun Pharma, the fourth largest global specialty generic pharma company, to commercialize some of ION's technology in India.

Krishna Gupta: We'll be sharing more information and upcoming milestones about our core assets and how we think about value in our investor presentation shortly.

Krishna Gupta: These core assets have been developed over nearly a decade, with millions of dollars invested, significant IP filed around the world, and a large value creation opportunity centered on the large immunoinflammation space, which has seen several lucrative deals.

Krishna Gupta: We've been very tactical about designing assets for rare, unmet needs, accelerating development and hopefully one day monetization.

I encourage you to understand our assets in some detail.

Krishna Gupta: I also want to shed some light on our board and my colleagues.

Krishna Gupta: who are one of the world's best group of individuals to be stewarding this vision.

Krishna Gupta: Every person on our board is educated at the world's top institutions, is equally comfortable in the U.S. and in India, and has developed or invested in innovation on both sides of this bridge.

Krishna Gupta: whether it is co-founder Shiladitya Sengupta who was gold medalist of India's top medical university and now is a researcher at MIT in Harvard

Krishna Gupta: or Ambassador Frank Wisner, who was U.S. Ambassador to India, New York to New Delhi is a route we know extremely well. By putting our stake in the ground and capitalizing on the number one public market in the world for innovation-driven companies, the NASDAQ, we are excited about taking this journey with all of you.

Krishna Gupta: We believe the election results to be a strong tailwind for Viome's vision, which is synergistic with our M&A strategy.

Krishna Gupta: We expect both the capital markets, including the Indian American hedge fund managers on Wall Street, and retail shareholders alike, to recognize the significant opportunity that exists by engaging with India as its influence on healthcare is beginning to resemble the trajectory shown in technology.

Krishna Gupta: In closing, we are confident in our ability to potentially build significant value with our pipeline of novel local agent drugs for significant unmet needs, supported by a robust patent portfolio, effective drug development strategies, a balance sheet with no debt, and prudent capital deployment.

Krishna Gupta: toward a really big vision that is propelled by macro tailwinds and near-term catalysts.

Speaker Change: Our board and I at Viome are 100% focused on creating shareholder value for you and Viome's investors.

Speaker Change: If you're excited about healthcare innovation, about the exchange of talent, ideas, and capital between the US and India, and about the value creation opportunity that this transaction may offer you, please join us. With that, I'd like to turn the call back to Paul.

Thanks, Krishna.

Paul Hickey: He just shared a very compelling and believable opportunity that shareholders can be a part of with their approval of the proposed merger and asset purchase agreement. To remind shareholders, the details shared by Krishna are outlined in the S-IV Registration Statement, which includes the Proxy Statement.

Paul Hickey: When the SEC declares the S4 effective, we will plan and hold a shareholder meeting to approve the transactions.

Speaker Change: Krishna's message should excite you, and it is part of the reason our board unanimously recommended the merger with Viome and the concurrent S at sale to Biorad. Thank you again, Krishna. I'm grateful for you joining today's call to discuss what future shareholders can anticipate with Viome Therapeutics. They'll be in great hands.

Speaker Change: Additionally, I want to express my sincere appreciation to our employees, board members, customers, consultant advisors, suppliers, and existing and new shareholders for your unwavering support of Reshape and support for our future as Viome. Thank you all.

Speaker Change: Before we conclude, we have one question from Jason McCarthy from Maxim Group. Mr. McCarthy, your line is open.

Hi, guys. Hello.

Sure. Right.

Speaker Change: Oh, I'm sorry. Um, can you guys, uh, as you start to think about biome.

a bit more from a pharmaceutical biotech

Speaker Change: Company. Can you just talk at a high level about the 19...

53, Kjell.

Speaker Change: kind of what it does, and your plans to target malignant flanginating wounds, something I think a lot of people don't really know too much about, and it would be a good opportunity maybe to inform some of the investors here.

That is definitely in Krishna's warehouse, Krishna.

Krishna Gupta: Yeah, the malignating fungating wounds is an example of a rare unmet disease. You know, I'm going to defer on talking about the science until we put out our investor deck, but what I can point you to is that it's an example of an immunoinflammation therapy.

Krishna Gupta: So if you look at the world today, you know, it's beset by many problems that are frankly niche.

Krishna Gupta: untreated and often caused by an underlying immunoinflammation response. It's a category that's hot and Viome's scientific journey has always been focused on identifying the root cause and treating them.

Krishna Gupta: So malignant fungating wounds is one of these examples where patients that suffer from this

have quite acute symptoms.

Krishna Gupta: that are multi-sensory. You know, obviously it's painful, but then there's a very strong smell, and it is a very, very disturbing sight to look at as well, and that can cause significant damage to people's quality of life.

and we believe we are working on, you know,

Krishna Gupta: The only sort of solution and sort of product that can treat this in a systemic way.

Krishna Gupta: and we believe that can create a lot of value for shareholders to come.

Krishna Gupta: And that's just one example of where we can use this sort of development philosophy of hey, how can we use

Krishna Gupta: existing molecules, target them towards where unmet needs and do so in spaces where the underlying causes are immunoinflammatory. I'd love to share more, but I want to wait until we put out our investor presentation.

Speaker Change: Okay. Well, that presentation has, I guess, a high-level outline of the strategy in terms of what programs to take forward, whether it's the 1953 or the 1908 and the UVI disindication, which a lot of

you know, the ophthalmology space has been very, very busy.

Speaker Change: Over the last 12 to 24 months. Is that a fair assessment of what we could expect?

Speaker Change: Yes, you will have, you know, we will, we will sort of share a bit about the three different molecules that we have, the catalyst that we are intending to pursue in the near term, and and the value unlocks that follow.

Speaker Change: Okay, and just a quick one back to the reshape group.

You had mentioned that

Speaker Change: the GLP-1 agonists and dual agonists that are out there pressured

Speaker Change: Your platform, do you think that there's going to be more gravitation just in general over time towards lap bands, things like that, as opposed to GLP ones?

Speaker Change: You know, as people kind of break that stigma of obesity, as you've mentioned.

Speaker Change: Do you think there's an opportunity there for that market will extend a rebound, I guess, maybe be the right way to phrase it. Yeah, I do. It's a great question. I was just at a SMBS weekend conference in Atlanta last weekend.

Speaker Change: and sort of talked about the market overall and, you know, adoption of GLP-1s and what the impact has been on bariatric surgeries done.

Speaker Change: in the US, and clearly there's been an impact. And so again, our gains this quarter and through the year have sort of been, and to me, signaling their sort of market gains.

Speaker Change: based on the fact that we've got more people that are getting into these obesity discussions, kind of petering out or tapering on the weight loss they get with GLP-1s or other means, and looking for the least invasive option.

Now, it's interesting that the

Speaker Change: The obesity market overall is clearly untapped, even with GLP-1s. I think they showed data, whether it's accurate or not, to be not more than roughly about 10% adoption of that 100% of the pie that is clinically obese and needs to get medical attention. So it's still primarily an underserved market.

Speaker Change: and that's where it's going to take time for sort of societal influence as well as Big Pharma to help get people off the sidelines and into positions to start talking about improving their quality of life.

Thanks, guys, for taking the questions.

Speaker Change: Thank you. Ladies and gentlemen, this does conclude the conference. The conference is now concluded. Thank you for attending today's call. You may now disconnect. Speaker, stand by.