ReShape Lifesciences, Inc.

Good afternoon, and thank you for joining the Reshape Life Sciences second quarter 2023 conference call. I would like to turn the call over to Michael Miller from RX Communications.

Good afternoon, and thank you for joining the Reshape Life Sciences second quarter 2023 earnings call. I'm pleased to be joined today by Paul Hickey, President and Chief Executive Officer, and Tom Stankovich, Chief Financial Officer. Paul will provide an overview and update on the company's activities which will include a discussion with Dr. Christine Renfielding, a member of Reshape Scientific Advisory Board. Then Tom will review the financial results for the period. He will then turn the call back over to Paul for some closing remarks, after which we'll 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 investor information section of the website, contains 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. These and additional risk factors 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. As an additional reminder, Reshape stock is listed on NASDAQ, trading under the symbol RSLS. I'll now turn the call over to Paul Hickey, President and CEO of Reshape Life Sciences. Paul?

Thank you, Mike. I'd like to thank all of you for joining us this afternoon for our second quarter 2023 earnings call. After I provide an overview and update on Reshape's activities, we'll be joined by a member of our scientific advisory board, Dr. Christine Renfielding, professor of surgery at NYU Grossman School of Medicine, director of the NYU Legone Weight Management Program, and chief of the Division of Bariatric Surgery. As an expert and key opinion leader in her field, I've asked Dr. Renfielding to provide her clinical insight on lap band, the adoption of GLP-1s, and the impact on the bariatric market. You'll hear from her a little bit later during this call. Before I recap our second quarter highlights, I'd like to discuss and comment on important events occurring within the obesity market today. I will assume that all of you listening understand the size of the obesity market, that obesity is a lifelong disease, and it has an alarming growth rate globally, as well as the significant medical repercussions and associated economic costs. Further, I am sure you are aware of the adoption of GLP-1s worldwide and the prominence of the related big pharma's marketing efforts we are exposed to weekly, if not daily, on television and other media channels. The expanding popularity of GLP-1s has brought significant benefits to those suffering from type 2 diabetes, and the use for weight loss has helped to normalize the stigma that often occurs around obesity and medical intervention. There's no doubt that the related big pharma marketing efforts we're all seeing today have significantly increased the number of overweight and obese individuals who have previously avoided surgery now actively seeking medically managed weight loss. While in the past obesity has been a sensitive topic and treatment has not been normalized, we are pleased to see this shift in perception as well as a greater awareness and acceptance of how critical obesity care is for both adults and children. Shortly, I'll have Dr. Renfielding speak to her personal experience. But across the U.S., physicians are telling us that the GLP-1 adoption, while potentially delaying surgical consults in the short term, will ultimately increase the number of patients seeking out bariatric surgery to augment or replace the GLP-1 therapy and its known limitations. We feel very confident with our lap band and the expected future offering of our Lap Band 2.0, we are uniquely positioned with having the least invasive, safest, and durable weight loss option for these patients that have historically had an aversion to medically managed weight loss and surgery. Now turning back to a discussion of our second quarter highlights and growth initiatives. A key takeaway from today's call is for all of you to understand that we remain dedicated to achieving profitability by executing our growth strategies and maintaining our emphasis on creating shareholder value. Let me remind you of our three primary growth strategies or pillars for growth. The first pillar is to operate our business with a disciplined, metrics-driven approach to drive predictable revenue expansion through a scalable and sustainable business model. Our second pillar is to continue to expand our product portfolio and pipeline across the CARE continuum And our last or third pillar is to continue to validate our evidence-based weight loss solutions, leveraging our scientific advisory board for key insights on strategic initiatives. Now, let me provide you more specifics on our first pillar progress. You'll see in our numbers that executing this growth pillar has impacted almost every department as we maintain discipline and adhere to key P&L metrics. As a direct result of our focus on Pillar 1, I am pleased to report that we are able to recognize a 53% reduction in operating expenses compared to last year's second quarter. Further, in July, in response to the company's revenue shortfall caused by GLP-1 adoption and other market factors, we made additional operational improvements with annualized savings estimated to total more than $4 million. We expect to continue to further optimize our organization to positively impact our operating expense level throughout the remainder of this year and into 2024, ultimately allowing us to extend our cash runway while we continue to invest in our growth initiatives. Our progress with our first growth pillar is also evidenced by a revamped digital lead generation and a patient re-engagement initiative. We are steadily seeing our new marketing efforts yield higher quality and lower cost patient leads, and specific markets that align with surgeon advocates. Key to this improvement is our recently signed exclusive agreement with Hive Medical accessing lead optimization software that will improve patient engagement and increase patient volume by utilizing an AI SMS patient self-service technology. Importantly, data generated during our testing of the Hive platform in the first quarter at select BlackBan accounts where we also have co-op marketing, revealed an impressive 107% plus increase in medical consultation scheduling over the prior quarter. In conjunction with our highly targeted direct-to-consumer marketing campaign, the HIVE platform allows individuals to quickly and easily navigate new patient intake hurdles and book an appointment with a medical professional at any time. Based on our learnings to date, we anticipate that adoption of our co-op marketing and high platform will result in approximately 50% improvement in lead generation at sites executing these best practices. As a part of our strategy to target key touchpoints in the patient's decision process for surgery, we continue to develop an improved website experience, which we are on target to launch towards the end of the third quarter. This new platform will provide for improved customer lead capturing and lead conversion with our shift in tone to joyful, fun, friendly, exciting, and most importantly, patient-centric. The platform will also include comprehensive lead routing automation, leveraging text, email, web chat, and calendar integration to qualify and connect every lead that comes in. We are building these core marketing competencies in-house, including our call center, to align with the high marketing automation and lead nurturing efforts. This nimble marketing strategy will allow us to be more responsive to better address patient leads. Taken together, we believe this strategy will better address patient leads with the intent of increasing conversions and ultimately more lap band surgeries. Now let's discuss our progress executing our second growth pillar, In June, we submitted a PMA supplement application to the FDA for our next-generation lap band 2.0, developed with physician feedback to improve the patient experience. Similar to our current lap band, the lap band 2.0 is adjustable postoperatively to increase or decrease the opening of the band in order to optimize an individual's eating habits and comfort, thereby improving therapy effectiveness. At the same time, a new feature of the lap band 2.0 is a band reservoir technology that serves as a relief valve. Pieces of food that are too large to pass through the narrow passage created by the current lap band can pass through because the new feature allows the band to relax momentarily and then return to its resting diameter. This could allow for increased lap band constriction and result in satiety, while helping to minimize discomfort from swallowing large pieces of food, which may otherwise require emergency and office patient band adjustments. We expect FDA feedback by year end or early 2024 at the latest. As I've noted in the past, surgeons I've spoken with about the improved product believe the lap band 2.0 will allow us to engage new surgeons and re-engage many of those who have used the lap band historically. As a part of our second pillar of growth, we continue to expand awareness of our best-in-class health and wellness program, Reshape Care. Reshape Care is an effective virtual health and wellness program that uses video-based sessions with board-certified health coaches, all on our convenient, easy-to-use app, providing a holistic approach to lifestyle modification. Reshape Care's initial launch has been focused on patients that are either pursuing bariatric surgery or already had bariatric surgery, and we have seen positive outcome responses to our program within this patient population. We are also continuing our discussions with several self-insured employers to provide reshaped care to employees in order to positively impact overall health and thus reduce employers' health care costs. These discussions have a long sales cycle and are often linked to an employer's benefit enrollment period. Importantly, reshaped care is on par with what companies are looking for, with a holistic approach that can be customized to meet the needs of the employer and their employees. In fact, some employers have indicated that Reshape Care has the ability to replace or consolidate three or four vendors from current employer-sponsored wellness programs. We'll provide further details in future updates. Excitingly, with our Reshape Care program, we have recognized that women are seeking healthcare information much more than men and have a unique health care needs. This presents an incredible opportunity for us to have a positive impact on women's health issues by tailoring reshape care to help women advance gracefully through life stages. Lastly, one of our most innovative products under development is our proprietary diabetes block stem neuromodulation, or DBSM device, which I've spoken about in past calls. The DBSN's dual vagus nerve neuromodulation selectively modulates vagal block and stimulation to the liver and pancreas, respectively, to manage insulin and blood glucose levels. We presented compelling preclinical evidence on the DBSN at multiple conferences, including the Keystone Symposium on Type 2 Diabetes in May and the American Society for Metabolic and Bariatric Surgery, or ASMBS, 2023 annual meeting in June. And we'll do so again at the upcoming International Federation of the Surgery of Obesity and Metabolic Disorders, or IFSO meeting, later this month. Notably, this promising technology may be able to reduce diabetics' dependence on medications in a very individualized manner. We have funded the DBSN with non-dilutive NIH grants and will seek additional non-dilutive grants to support further development, potentially including in-human clinical trials. Progress on our last or third growth pillar was achieved with our first meeting with our scientific advisory board in June. Our SAB is comprised of internationally recognized experts and surgeons in the obesity and metabolic disease fields. Their insights are already proving valuable for our growth initiatives to drive revenue and expand our product pipeline. Specific to enhancing our clinical data supporting our products, The SAB is fully engaged in helping us develop our strategies to collect and publish data on both our LapBand 2.0 and data on LapBand patients who are also using GLP-1s as combination therapy. Combination therapies comprising GLP-1s and other gastric surgeries, including LapBand, are being prescribed today to help those who have plateaued with their weight loss. As a result, we are exploring a retrospective study of LapBand in combination with GLP-1s with our goal to have this exciting data peer-reviewed and published as soon as possible. Well, at this time, I'd like to introduce Dr. Chris Renfielding from NYU. As previously mentioned, Dr. Fielding is a member of our scientific advisory board and has been a key opinion leader and expert in the field of bariatric surgery for decades. Chris, I'd like to ask you to give everyone your background and then maybe give your view on the recent changes in the field of obesity treatment, including the GLP-1s and the adoption and the overall impact you feel they'll have on the surgical procedures available today.