ReShape Lifesciences, Inc.

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

Good afternoon, and thank you for joining the Reshape Life Sciences third 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. Carolina Povian, a member of Reshape's Scientific Advisory Board. Then Tom will review the financial results for the period. We'll 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 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. 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. Paul?

Thank you, Mike. And Thanks to all of you for joining us this afternoon for our third 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. Caroline Epovian, co-director at the Center for Weight Management and Wellness in the Division of Endocrinology, Diabetes, and Hypertension at Brigham and Women's Hospital in Boston, and a professor of medicine at Harvard Medical School. As an expert and key opinion leader in her field, I've asked Dr. Povian to provide her clinical viewpoint related to GLP-1s and their impact on a care continuum for obesity. The most important takeaway from this call is for all of our investors to understand that we remain dedicated to achieving profitability by executing our growth strategies and maintaining our emphasis on creating a shareholder value. Yesterday, I visited with surgeons from one of our centers of excellence in Louisville, Kentucky, known as Lapin of Louisville. This site has implemented the Hive platform and also is part of our co-op marketing program. Despite the pressures from GLP-1 adoption, this center is on pace to have year-over-year lapin procedural growth in 2023, validating that our marketing initiatives are working. There is much to look forward to as we move towards 2024 and we are optimistic about the growth potential for the company. Before I recap our third quarter and subsequent highlights, I'd like to comment on important events occurring within the obesity market today. As most of you already understand, the global 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. I'm sure you are also aware of the growing popularity of GLP-1 agonists that have brought significant benefits to those suffering from type 2 diabetes and have helped those who are obese. We believe that GLP-1 adoption is expanding the medical weight loss market by vastly reducing the stigma that often occurs around obesity and medical intervention, including bariatric surgery. The GLP-1 related big pharma marketing efforts and resulting adoption has helped increase the numbers of people seeking medical attention for this disease, especially by those who have avoided surgery in the past. Given the increasing body of evidence pointing to the fact that weight loss due to GLP-1 usage has limitations related to comorbidities and accessibility, we believe that the market opportunity for the lap band will increase. From a continuum of care perspective, Individuals with obesity on GLP-1 therapy are likely potential candidates for lap band bariatric surgery as the next viable anatomy-preserving weight loss treatment. Shortly, I will have Dr. Povian speak to her personal experience, which is representing what we are hearing from physicians across the U.S., that the GLP-1 adoption, while potentially delaying surgical consults in the short term, is increasing the number of patients who would consider bariatric surgery. In other words, once GLP-1 agonist patients get a taste of weight loss, yet have issues with the drug's accessibility, durability, or tolerance, they will contemplate bariatric surgery, especially a minimally invasive surgery procedure like the lap band. Now, before I introduce Dr. Povian, let me take a few minutes to update you on our progress related to our three primary growth pillars. As you recall, our first pillar is to operate our business with a discipline metrics driven approach to drive predictable revenue expansion through a sustainable and scalable business model. The second 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. Our first pillar remains paramount for Reshape to deliver shareholder value and ultimately profitability. As we consider the impact of GLP-1 adoption for weight loss treatment, which has put pressure on several markets, including bariatrics, it was necessary to take a hard look at our operations, make significant cost reductions while ensuring growth, and that our company adheres to key P&L metrics. Tom will later detail the expense savings we have identified, realized, and are planning for. But in summary, we have identified and implemented effective November 1st cost reductions totaling approximately $8 million, representing more than a 40% reduction in operating expenses for 2024. We are optimizing our marketing spending while making additional reductions in consulting services totaling approximately 2.4 million. We have also executed a reduction in force of approximately 1.2 million. We have decided to temporarily pause our reshaped care program and achieve an estimated savings of 0.8 million while we continue our efforts to secure a self-insured employer to provide reshaped care to their employees. We have also planned for a 0.9 million of reductions for incentive compensation and other payroll related amounts. all part of streamlining our team significantly but without affecting revenue. Our board is aligned with our strategy and will also take a 50% reduction in their compensation. Taken together, these reductions will allow us to focus and invest in our growth drivers while at the same time extending our cash runway. These changes are bold, necessary, and indicative to our commitment to our first growth pillar I established late in 2022. In point of fact, with these 2024 reductions, the company's core operating expense reductions between 2022 and 2024 are estimated at 22 million or 70%. In addition to the necessary cost reduction initiatives related to our first growth pillar, we made significant progress with our newly improved digital lead generation and patient engagement campaign. As I mentioned earlier with Flatband of Louisville, we have seen an increase in the quality of patient leads while successfully reducing costs in targeted markets where our surgeon advocates operate. In particular, our exclusive partnership with Hive Medical allows us to advance lead optimization software that can enhance patient engagement and increase patient volume. This software utilizes 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 any time. Let's now discuss our progress executing our second growth pillar. We are well positioned with our current FDA-approved lap band system, which provides a minimally invasive long-term treatment for obesity, and a safer surgical alternative to more invasive weight loss surgeries. This past June, we filed a PMA supplement with the FDA for the next generation LapBand 2.0 Flex. This product has been designed with physician feedback in order to improve the patient experience. Like the current LapBand, the LapBand 2.0 Flex can be adjusted postoperatively to increase or decrease the band opening depending on the patient's tolerance to band therapy. Additionally, LapBand 2.0 Flex has a new feature called Flex Technology, which acts as a relief valve, enabling larger pieces of food to pass through the narrow passage more easily. Specifically, the band momentarily relaxes before returning to its resting diameter, while minimizing discomfort caused by swallowing large pieces of food. We anticipate approval from the FDA by year-end or early 2024. We believe, based on surge in feedback, that our LapBan 2.0 Flex will be a growth catalyst for the company's LapBan franchise once approved. Also of note, in September, we signed an exclusive royalty-bearing licensing agreement with BIRAD to manufacture, commercialize, and distribute the Obalon gastric balloon system in India, Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, and the Maldives. The license agreement provides for 200,000 upfront payments from BiRAD to reshape and ongoing license payments of 4% on gross sales of the Obalan balloon system in the territories. The agreement is important as it represents the first step towards reintroducing our patented Obalan balloon system. And we believe that BiRAD, with decades of experience manufacturing and distributing medical devices in the vast South Asia market, potentially reaching approximately 20 to 25% of the world's population, is an ideal partner to expand the reach of our technology. We expect this agreement will lay the groundwork to catalyze the successful relaunch and commercialization of the balloon system in markets worldwide. Now given the scope of our second growth pillar to expand our portfolio and global distribution, we have recently engaged the Maxim Group on an exclusive basis to identify strategic merger and acquisition opportunities that provide synergistic partnerships. Engaging Maximum and executing on this initiative is a very high priority for me and the Reshape Life Sciences. As for our third growth pillar, we continue to work closely with our Scientific Advisory Board, or SAB, comprised of internationally recognized experts and surgeons in the obesity and metabolic disease fields. The SAB is fully engaged in helping us develop our launch strategy for our LapBand 2.0 Flex and marketing our suite of weight loss solutions. Now, at this time, I'd like to introduce Carolina Povian from Brigham and Women's Hospital and Harvard Medical School. As previously mentioned, Dr. Povian is a member of our Scientific Advisory Board and has been a key opinion leader and an expert in the field of bariatric surgery for decades. She is also nationally recognized experts on nutrition, metabolism, and obesity medicine. Caroline, I'd like to ask you give to everyone your background and then discuss your view on the recent changes in the field of obesity treatment, including the adoption of GLP-1s and the overall impact you feel they will have on the surgical procedures available today. We'd also like to hear about your experience with combination therapies comprising GLP-1s and other gastric surgeries, including LAPN, to help those who plateaued with their weight loss. Dr. Provine.