Vyome Holdings, Inc. (HIND) Q1 2019 Earnings Report, Transcript and Summary

Good afternoon and thank you for joining us on today's call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded today, May 20, 2019. I would now like to turn the conference call over to Scott Youngstrom, CFO of ReShape Lifesciences. Please go ahead.

Good afternoon and thank you for joining us on today's call. I'm pleased to be joined by Bart Bandy, our new Chief Executive Officer, who will provide an overview of the Company's recent activities and business highlights. I will then review our financial results for the first quarter of 2019 and then turn the call back over to Bart to wrap up the call. As a reminder, this conference call as well as ReShape Lifesciences' SEC filings and website at www.reshapelifesciences.com including the Investor Information section of the website contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results could differ materially from those discussed due to the known and unknown risks, uncertainties and other factors. 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 our annual report on Form 10-K that was filed on May 16, 2019, and in our quarterly report on Form 10-Q that will be filed at later today May 20, 2019. As an additional reminder, our stock is listed OTC trading under the ticker RSLS. I will now turn the call over to our CEO, Bart Bandy. Bart?

Thanks, Scott. Good afternoon everyone, and thank you for dialing in to our call today. I'm pleased to be hosting my first call as CEO of ReShape Lifesciences. On today's call, I will start with a brief summary of the ReShape Lifesciences' growth opportunity and provide some of our recent operational and strategic highlights as well as our vision as we move forward. Scott will then provide an overview of our financial results and then I will wrap things up. Since joining the Company just over a month ago, I'm even more encouraged by the opportunity at ReShape Lifesciences. We have some work to do, both refining our corporate roadmap as well as further advancing our commercial strategy. And I look forward to updating you on our strategic initiatives and plan as well as our financial expectations as we move forward together. In the meantime, our value proposition is very much intact and we are making progress in providing increased access to our technologies as a standard of care for patients battling obesity. Personally, I've spent the majority of my career working in the obesity space, with over 10 years dedicated to launching and developing markets around the globe for LAP-BAND technology. The LAP-BAND itself has several life cycles, and I'm very happy that it has ended up at ReShape, and then I have the opportunity once again to lead the market development around this exciting and effective product, which remains the only approved weight loss implantable device, that is currently reimbursed in the United States. As you might remember over the past several years while LAP-BAND was owned by Allergan and then Apollo Endosurgery, sales of the product [indiscernible] see downward trajectory. It is very important to note that Allergan and Apollo invested minimally in the marketing and infrastructure for LAP-BAND during this period. Presumably because the asset is such a high margin product, LAP-BAND was left to generate cash on its own with no significant resources allocated to increasing sales. However, and unfortunately for the industry, as the LAP-BAND sales declined, no real alternative treatments came into the market to fill this void for the bariatric surgeons. This is why we're even more excited to have this effective and least invasive product in our hands, where we will be able to provide it with the appropriate focus. For the team here at ReShape, the LAP-BAND is our top priority. We are dedicating as many resources as we can to give this effective product the attention it deserves with a goal to reverse the sales decline and once again establish the LAP-BAND as a leading option to the millions of people suffering from obesity. Upon taking over as CEO of ReShape, one of the first tasks that I charged myself with was to really understand the global market dynamic in the obesity space. What are customers seeing? What is working and not working? And how can we fulfill the market needs? Through my experiences of working with bariatric surgeons around the world, it remains apparent that there really is no agreed upon standard of care obesity. While gastric bypass and gastric sleeve are often thought of as the go-to treatments, both procedures have serious associated complications and patients often experience weight regain over time. In fact, you may have seen recent news around the FDA's announced review of surgical staplers due to concerns with associated malfunctioning. It has become clear that there is a definite need for an anatomy sparing and effective treatments for patients and we are confident that LAP-BAND is the answer. In a recent 20 years study done on LAP-BAND, the results of which were presented at the 2017 ASCO Conference, over 8,000 LAP-BAND patients were followed between September 1994 and June 2017 at the Center for Bariatric Surgery in Melbourne, Australia. Total weight loss for patients after 20 years was 59 pounds, which represented 49% excess weight loss. The overall ex-lap rate for the entire patient population was only 7.9% with an ex-lap rate of 4.6% for procedures performed in the period between 2006 and 2017 when the newest version of the LAP-BAND was implanted. These excellent long-term outcomes further support the documented safety profile of LAP-BAND. Investigators for this study emphasized the correlation and importance of patient management for good results. Continued follow-up, interaction and inherent to good LAP-BAND after care by the surgeons practice were noted as essential for effective durable outcomes. With these clinical data and observations in hand, the team here at ReShape has finally hit the ground running with the integration of LAP-BAND into our business. We have increased the number of reps selling the LAP-BAND as well as the support team in U.S. Additionally, a big piece of our integration includes expanding our global infrastructure, one of the first steps of which was building a global ERP system which we started implementing in first quarter. This was a big expense requiring significant work, but it will be a game changer for our company as there is now technology behind our sales and marketing organization that allows our reps to target the most effective and productive account and thereby align resources in an optimal manner. As was outlined in the fourth quarter call, our initial strategy and approach in addition to educating new patients on LAP-BAND is to stratify the top clinicians who represent a significant segment of the business and to increase the number of LAP-BAND procedures performed by these accounts. Additionally, we are spending more time in the field of strategically identified accounts to help them understand the benefits of the procedure and to encourage them to offer LAP-BANDs to more of their patients. We're also implementing new patients support tools to address the importance of aftercare to enhance efficacy. Our commercial process is focused on educating and engaging doctors and patients to arm them with the resources and true facts to realize the benefits of the LAP-BAND procedure. Outside of the U.S., the ReShape team made exceptional progress in the first quarter on building an OUS infrastructure, which until now have not existed for ReShape Lifesciences and had limited presence for the LAP-BAND prior to our ownership with the product. As you might recall as part of the transaction and the transition, Apollo agreed to continue selling the LAP-BAND internationally in order to give us time to set up our infrastructure. With OUS market accounting for 40% historical LAP-BAND sales, we're very anxious to get this going quickly. As we announced last month and in line with the time line that was laid out in the fourth quarter call, we signed on highly experienced distribution partner in Australia, our number one international market for LAP-BAND. And as of April 1st, we will now realize full revenues from that country. We're also on track to finalize our distribution partners and recognize European sales midyear. Additionally, as I've spent much of the past weeks reconnecting with many of my contacts around the globe to reinvigorate their interest in LAP-BAND, we're very pleased with the enthusiasm from perspective doctors and distributors regarding this potential to reestablish LAP-BAND as a standard of care. We continue to believe that the LAP-BAND is the perfect complement and precursor for our next generation ReShape Vest and that the LAP-BAND business will position our organization incredibly well. We believe the ReShape Vest will be the next step for the bariatric surgeons following the 20 year accomplishments of the LAP-BAND. With the incredible work that has been done to get the LAP-BAND distribution and system in place particularly outside of the U.S., we will be prepared to successfully commercialize the Vest. We've now had six patients treated in our ENDURE II trial for the ReShape Vest in the European Union. As a reminder, the trial will include a total of up to 95 patients at 8 to 10 investigational sites located throughout Europe. One year data from enrolled subjects will be used to support the CE marking application for the Vest and we will continue to follow patient outcome for two years. We estimate receiving CE marking approval in the fourth quarter 2021. With are very pleased with our financial results from the first quarter of 2019, which was our first full quarter selling the LAP-BAND at ReShape Lifesciences. Our sales in the first quarter of 2019 alone exceeded our entire 2018 revenue and this was without full recognition of LAP-BAND revenue outside the U.S. We're extremely excited to continue building upon this momentum and the enthusiasm around the LAP-BAND. And I look forward to providing you with some guidance on our expectations for the remainder of 2019 once I've spent more time with the business and our extraordinary team. I will now turn the call back over to Scott, who will walk you through our financial results, Scott?

Thanks Bart. Moving to our financial results for the first quarter of 2019. For the three months ended March 31, 2019, we reported sales of $3.1 million as compared to revenues from continuing operations of $450,000 in the three months ended December 31, 2018, and compared to revenues from continuing operations of $139,000 for the three months ended March 31, 2018. Our revenue numbers reflect $2.6 million in U.S. shipments and $500,000 of product that was sold to Apollo to support the OUS LAP-BAND operation. As a reminder, as part of our transition services agreement, Apollo has continued to sell the LAP- BAND OUS at a transfer price until we have established our infrastructure in those markets. Apollo reported net revenues of LAP-BAND products to OUS customers of $1.7 million and we are working diligently to bring this opportunity in-house so that we can begin to recognize these global revenues. We estimate that total worldwide LAP-BAND revenues in Q1 2019 to be approximately $4.3 million. We reported gross profit of $2.2 million in the first quarter of 2019 compared to $372,000 in the three months ended December 31, 2018 and $79,000 for the three months ended March 31, 2018. The gross margins of 72% are right in line with our expectations, as we work through our integration plans to eventually bring on the OUS sales process in-house. We anticipate that our margins will improve as this integration takes place between now and the end of the year. Selling, general and administrative expenses for the quarter were $5.4 million as compared to $4.3 million for the fourth quarter of 2018 and compared to $6.3 million for the first quarter of 2018. Included in SG&A expenses this quarter were $1.7 million of non-cash items related to stock-based compensation, amortization and depreciation. We anticipate that our SG&A spend will continue in the $5 million to $5.5 million per quarter range as we bring on the OUS sales process and incur the associated fees. The SG&A expenses for Q4 of 2018 reflects only the selling and marketing expenses associated with the LAP-BAND product for the sub-period from December 18th through the end of the year. SG&A expenses for quarter one of 2018 includes $785,000 of non-cash expenses. After accounting for the non-cash expenses, we have decreased our SG&A expenses by approximately $2 million for the same period in 2018. Research and development expenses were $1.1 million for the three months ended March 31 2019, compared with $2.4 million for the same quarter in 2018. This is attributable to the limited R&D necessary on the LAP-BAND product in the current quarter and our Q1 2018 R&D expense included substantial development expense associated with both the Gastric Vest and the vBloc products. We anticipate our R&D expense will continue in the $1 million to $1.2 million per quarter range. As of March 31 2019, the Company's cash, cash equivalents and short-term investments totaled $1.8 million also included on our March 31, 2019 balance sheet is $2 million of subordinated convertible debentures from our March 28, 2019 financing. During this financing, we entered into a definitive agreement with two healthcare-focused institutional investors, which notes were issued in a private placement for a purchase price of $2 million with a principal face value of $2.2 million, reflecting a 10% original issue discount. The notes mature in three months on June 28 2019. However, if not repaid, will initially be convertible into shares of common stock at a conversion price equals to the lesser of $0.33, or 80% of the average of the lowest two volume weighted average prices of the Company's common stock during the 20 days prior to conversion. In connection with this financing, the Company amended the exercise price of warrants to purchase up to 8 million shares of common stock held by the investors that were issued on November 28, 2018, from $1.50 per share to a $0.01 per share. For the first quarter of 2019, after adjusting for the non-cash charges included in our financial statements, our monthly cash burn was under our target amounts of $800,000 per month at $767,000 per month. We are targeting our net monthly burn for the remainder of 2019 to continue to be in the $800,000 per month range. Our financing strategy is to proceed with another capital raise, as we continue to invest in growing our LAP-BAND sales and the infrastructure to support a growing business. As Bart and our leadership team complete our business review over the next couple months, we plan to provide more specific guidance on our expectations for 2019. With that, I will turn the call back over to Bart.

Thanks, Scott. I cannot be more pleased to be at ReShape Lifesciences. As I mentioned earlier, I've spent the past 25 years in various operational and commercial leadership roles within the obesity space, with the bulk of my career spent with the LAP-BAND. Given my experience in building and growing organizations, products and sales obesity in laparoscopic markets in general and with LAP-BAND specifically, I feel like this is a great fit. In the short time, I've been at ReShape, I'm very encouraged to have already started a productive dialogue with many bariatric surgeons and the broader obesity community around the globe. I saw unique opportunity in ReShape and that there is truly a growing awareness of obesity, and there is a jewel of a technology that has been sidelined in the LAP-BAND. There is a real data on the market and it's been confirmed, there's an unmet need for a safe, effective and anatomy sparing solution for weight loss. We have an opportunity to rebuild this market from the ground up with a well known product that has solid long-term data demonstrating these capabilities, and I cannot be more excited to help bring the LAP-BAND back to doctors and patients around the globe. I look forward to spending more time with all of our stakeholders over the upcoming months and providing updates on all our strategies and processes. We thank our employees and investors for their support and look forward to sharing continued success with you in the future. Thank you again to everyone for joining the call today. End of Q&A: Ladies and gentlemen, thank you for your participation in today's conference. This does conclude today's program. You may all disconnect. Everyone have a wonderful day.