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.

Thanks, Paul. Good afternoon. As Paul mentioned, I am the co-director of the Center for Weight Management and Wellness in the Division of Endocrinology, Diabetes, and Hypertension at Brigham and Women's Hospital, and I'm a professor of medicine at Harvard Medical School. My interest in obesity began 35 years ago when I was a fellow in nutrition and metabolism at the New England Deaconess Hospital. After completing my internal medicine residency there. I was lucky and honored to have studied under George Blackburn, who is considered the father of nutrition and obesity medicine. And since that time, I have focused completely on obesity and nutrition. Obesity is a disease, and its many serious complications exert a heavy toll in both human and economic terms. More than a third of adults in the United States have obesity. In fact, it's 42% of the population. And they are subject to elevated rates of type 2 diabetes, hypertension, dyslipidemia, and cardiovascular disease. The 42% of Americans who suffer from obesity with a BMI over 30 will likely go on to develop type 2 diabetes and heart disease. The negative effect on quality of life is enormous. GLP-1s and other, we call them NUCHES, nutrient-stimulated hormonal therapies, are having a tremendous positive impact in that more people than ever are asking about treatment for their obesity. We have learned almost all that we know about GLP-1s and other gut hormones from our experience with bariatric surgeries. which works by altering the secretion of gut hormones. In addition, we've learned from laparoscopic banding that the use of GLP-1s and other new shifts would be complementary with the lap band to facilitate long-lasting weight loss. We're utilizing as many of the GLP agonists as we can since they're analogs of naturally occurring gut hormones that can be helpful in reducing body weight by now up to 20% and even more since today's approval by the FDA of ZEP bound. Unfortunately, insurance companies and the government haven't kept up with the science and don't really embrace obesity as a disease. So these powerful drugs are not ubiquitously covered. and they're certainly not covered by Medicare or Medicaid. In just the last year, at our Center for Weight Management and Wellness at Brigham, we've seen more than 10,000 unique patients just on the medical end. So not bariatric surgery or bariatric endoscopy, but the medical weight management end saw 10,000 patients. I believe that the utilization of DLP1s and NUSHs will ultimately increase the number of patients Who would consider surgery? In other words, well, first of all, the 10,000 patients are certainly coming in seeking medical treatment, but I'm able to convince those patients with BMIs over 40, over 35, more than I used to, that surgery really is a better option. a better option for them. And I'm seeing this anecdotally over the past six months. And also, once patients on NUCHES understand that they can lose weight by altering the gut hormone and they feel so much better, yet have issues with accessibility, durability, tolerability of drugs, they may contemplate bariatric surgery more often, and we are seeing this to be true. And that includes minimally invasive procedures like the lap band. And we have been able to convince many patients with BMIs over 40 that surgery remains their best option, and we're seeing this again in the last six months or so since certainly since the advent of Wagobe and Manjaro. Now, even though this is true, bariatric surgery is still underutilized in the United States. Only 1% of patients eligible for the surgery get the procedure done annually, 250,000 procedures done annually. If the same thing happened with cardiac surgery, we would say this was negligence. But the problem is overlooked with obesity. Bariatric surgery is like getting your gallbladder out, but patients feel they have the erroneous idea that this is aggressive surgery and that people regain their weight, which, of course, is not true. Many patients also don't see their obesity as a disease. The nooshes are helping patients understand that they have a disease because they take the medication and they feel full for the first time in their life. And if they want to continue feeling that way and losing more weight, they understand now that they're understanding more and more to consider bariatric surgery, including the lap band. In order to effectively treat obesity, it's imperative. that a combination of interventions such as diet, exercise, medications like our nooshes, endoscopy, and bariatric surgery, including the lap band, be employed at different stages of a patient's weight loss journey. Combination therapy, including GLP-1s and nooshes for those who plateau with their weight loss from bariatric surgery, will help individuals get back on track. That said, to ensure patients receive the appropriate treatments, It's crucial for medical and surgical societies to collaborate on the development of guidelines that stratify patients based on BMI and determine which medications and procedures can be used alone or in combination. I certainly hope that these insights that I have gotten now from my 35 years of experience and, you know, most importantly over the past few years, I hope these insights have been helpful. I look forward to answering questions later during the call. I'll pass the call back to Paul.

Oh, boy. Thank you, Carolyn. That was, I think, hit the spot, and I think that was appreciated by the listeners, and I'm sure there'll be questions for you. But as a leader in your field, I truly appreciate your participation and hearing your opinions firsthand. So before I turn over the time, just a few more thoughts. You know, based on what you heard so far, we do remain very confident that with our lap band and expected future offering the lap band 2.0 flex, that we as a company are uniquely positioned with the least invasive, safest, and most durable weight loss option for those patients that have historically had an aversion to medically manage weight loss and surgery. Given the growing 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 lap band will increase. And from a continuum of care perspective, these patients are likely potential candidates for bioptic surgery as a next viable weight loss treatment. I'd now like to turn the call over to Tom Stankovich to provide a recap of our financial performance. Tom?

Thanks, Paul. And once again, thank you all for joining our webcast this afternoon. As a reminder, a full discussion of our financials is available in our press release and 10Q. As Paul mentioned earlier, in November, and in response to continued pressure on the company's revenue caused by the adoption of GLP-1s, we are reorganizing the company and have identified cost reductions of approximately $8 million or more than 40% just for 2024 alone. Specifically, a reduction in force of approximately $1.2 million in November and December and $300,000 more budgeted costs phasing in early 2024, as well as $900,000 of reductions in incentive compensation and other payroll-related amounts have been implemented across all expense categories. Core operating costs in total have been reduced by approximately $5.4 million. which includes reductions in selling and marketing costs of $2.4 million without affecting our continued marketing spend optimization. Costs related to the pause of reshape care totaled $800,000. Expenses related to G&A totaled $1.3 million, primarily in professional and consulting fees and insurance costs. R&D expenses totaled $900,000, which primarily included consulting and reduced patent fees. Positionally, Third quarter, 2023, core operating expenses were 37% lower than the third quarter of 2022. Taken all together with actions thus far, we've made significant progress reducing our core operating expenses, cutting approximately $22 million, or 70%, between 2022 and 2024. A full discussion of our actual financials is available in today's press release and 10Q. So I will just take a moment to review key financial metrics for the third quarter ended September 30th, 2023. Our revenue totaled 2.2 million for the three months ended September 30th, 2023, which represents a reduction of 600,000 compared to the same period in 2022. The growing popularity of GLP-1 prescription drugs for weight loss treatment is the primary reason for the decrease in sales volume in the US and internationally. We have focused our new marketing strategies through targeted and AI-supported digital media campaigns near bariatric surgery centers while reducing costs and increasing efficiencies. We expect that these efforts will come to fruition during the fourth quarter of 2023 and beginning of 2024. Our continued focus on increasing demand for the lap band system and recently launched three new sizes of calibration tubes will grow revenues. We anticipate receiving FDA approval for the LapBan 2.0 Flex late this year or early in 2024, followed by a U.S. product launch that should contribute to increased sales going forward. Gross profit for the three months ended September 30, 2023, was $1.3 million, compared to $2.1 million for the same period in 2022, a decrease of $800,000. Gross profit as a percentage of total revenue for the three months ended September 30th, 2023 was 60% compared to 75% for the same period in 2022. The decrease in gross profit percentage is due to the decrease in sales volume primarily related to GLP-1 drugs coming to market. Nevertheless, it is the highest gross margin percentage in any quarter this year as some of our cost reductions have had a positive impact on gross margins during the third quarter. Sales and marketing expenses for the three months ended September 30th, 2023 decreased by $800,000 to $1.8 million compared to $2.6 million for the same period in 2022. The decrease of $800,000 is primarily due to a decrease in advertising and marketing expenses as we re-evaluated our marketing approach and moved to a targeted digital marketing campaign. General and administrative expenses for the three months ended September 30th, 2023 decreased by 1.7 million to approximately 2.1 million compared to 3.8 million for the same period in 2022. The decrease is primarily due to reduction in payroll related expenses and personnel changes and reductions in professional services. Additionally, other reductions included intangible asset amortization as the company impaired its finite intangible assets during the fourth quarter of 2022, and a decrease in rent and insurance costs for the expired lease of our former Carlsbad, California location. Research and development costs for the three months ended September 30th, 2023 remained consistent with the same period in 2022 with professional services. Not GAP adjusted EBITDA loss was 2.9 million for the three months ended September 30th, 2023, compared to a loss of $4.2 million for the same period last year. We ended the quarter with $1.5 million of cash and cash equivalents and remained debt-free on our balance sheet. With the $2.8 million in net proceeds from our recent public offering in October and the cost reductions detailed during the call, we will preserve cash and extend the company's cash runway. As we finish 2023 and move into 2024, We anticipate our revenues increasing and a continued reduction in our operating expenses. With that, I will now turn the call back over to Paul.

Thank you, Tom. Before we open the call up for Q&A, it's important to reiterate, as both Tom and I have detailed, that we have and will continue to significantly reduce operating expenses across all categories so we can invest in our growth initiatives. The bold steps we have taken to reorganize the company will help to ensure sustainability and scalability. We continue to prioritize investments, including marketing automation to support scalable lead acquisition, segmented consumer-centric messaging via an updated website for improved patient engagement, and a frictionless booking system with qualified providers, while further reducing lead generation costs. Taken together, we expected to increase lap band procedures and ultimately revenue. We will continue to develop and offer a portfolio that is differentiated from the competition with transformative technologies that consist of a selection of patient-friendly, non-anatomy-changing, lifestyle-enhancing products, programs, and services that provide alternatives to more invasive bariatric surgeries to help patients achieve healthy, durable weight loss. At the same time, we will continue to work with our world-class scientific advisory board to continue to execute on our plan for success in a global market that is changing in historic fashion to normalize safe and effective treatments for obesity. This concludes our prepared remarks, so now we would like to open the call to your questions. Operator?

Thank you. And to ask a question, please press star 11 on your telephone and wait for your name to be announced. To draw your question, please press star 1-1 again. Please stand by. We'll plot the Canadian roster. One moment for our first question. Our first question will come from the line of Anthony Vendetti from Maxson Group. Your line is open.

Thank you. Thanks for that overview, Paul, and for also Dr. Caroline O'Kovian. That was very helpful. to hear your view. Maybe starting with Dr. Povian, you know, obviously there's a lot of news surrounding the GLP-1s today. Lilly's was approved for weight loss or obesity. And, you know, there's also, as you discussed, there's comorbidities, there's there's potential adverse side effects. We don't know at what level at this point, right, other than what the studies are showing. And I guess we'll find out over the next 12 or 24 months as this rolls out. But what is your expectation? You know, it's obviously impacting sales for the lap band, for bariatric procedures as patients and consumers decide to try something new. Do you think it's a 12 month process before they realize maybe the cost or the side effects for some of them are not worth it? Is it two to three years before some of that sort of data starts to set in or some of the apathy for GLP-1 maybe starts to set in or the initial sort of shiny new toy starts to wear off. What's your best guess on how, certainly your guess is much better than mine, but what's your best estimate as to when all this sort of plays out? And just trying to get a good understanding of that.

Yeah, well, what I'm seeing, you know, we have We have five doctors, three nurse practitioners, two PAs, and RDs in our medical practice, obesity medicine. We saw 10,000 new patients last year. The decrease in bariatric surgery came from COVID, first of all. The COVID numbers went down, as you all know, and, you know, are starting to recover, but part of it is most, you know, I don't see the decrease in bariatric surgery. I am seeing an increase. You know, bariatric surgeons in my practice are telling me there's a decrease, but, you know, it takes a while for the 10,000 patients we saw last year just in the medical arm. to get through the program. We have 4,500 patients on our waiting list just for medical treatment. They're trying to get in and they have to wait eight months to one year to see one of our medical practice providers. Why is that? There aren't enough obesity medicine specialists in the United States to quell this demand. Therefore, All these great new niches, that's fantastic. But the primary care providers can't, they don't have the resources in their practices to prescribe because of the prior authorization headache, which requires new FTEs just to process the prior authorization. And then they don't know how to give the drugs. They don't know how to provide diet and exercises. So primary cares just don't have the resources to do this. So it's relegated to obesity medicine specialists. There are only 65,000, 7,000 obesity medicine specialists in the United States. So what I'm trying to say here is that we all have a backlog. And once the patient gets in, over the past six months, what I have seen and my colleagues have seen is that we're able to get them in as a new patient. and we give them the patients with a BMI over 40 or over 35, we're looking them in the face and saying, I know you want to go on Wagovi. I can't give you Wagovi. There's a shortage. Plus, when the shortage is relieved, yes, I can give you Wagovi. You realize you're going to have to be on it for the rest of your life, and you're going to get a 16% weight loss. Or I get, I lost 15 pounds on Wagovi. And I want to lose more. You know, your BMI is 50. The way you're going to lose more is bariatric surgery. And so I'm able with all of these patients, because of the shortage, because of the fact that they realize that they need to be on an injection for the rest of their lives, or because they've got weight loss. And they got the 16% weight loss that the Gobi can give, but not more. And in a patient who needs to lose 100 to 150 pounds, that's not going to work. So I'm able now to convince patients to get a consultation with one of our bariatric surgeons. And we have 10 of them. And they have appointments next week, whereas I have an 8-month to 12-month waiting list. Okay. All right. So that's what's happening. But it's good. Yes, you're right. It's going to take some time to get these patients through. On top of that, you know, we have the laparoscopic adjustable gastric band. I have always wanted to combine the lap band with a GLP-1 and now a noose because now we have you know, ZEP bound and we have duals and triples coming down the pipe because then you get the restriction of the lap bands with the change in gut hormone milieu with the multitude of nootches that are coming down the pipe. So this is going to provide a less, let's say, less aggressive form of surgery with a medication that can hopefully achieve weight losses of more than 20%, of more than 25%. That's very helpful.

In the situations where the patient's goal is to lose more than 16% or 20%, how often do you recommend bariatric surgery versus, you know, the lap band with the GLP-1? And, you know, are there instances right now where you're just recommending the lap band without the GLP, and then you could do the GLP-1 later? You know, I'm just wondering, how are you right now, you know, guiding or advising your patients?

It runs the gamut because what you need to understand about our center is we have bariatric surgery, but we also have bariatric endoscopy with Chris Thompson, the world's leaders in endoscopic devices and procedures. But within bariatric endoscopy, we are definitely, and with bariatric surgery, we are definitely adding GLP-1 to both endoscopic and bariatric surgery procedures, what we are, and the lap band, what I do recommend initially is if you're going for bariatric surgery, either the sleeve gastrectomy or the laparoscopic adjustable band, certainly not, you know, or even the endoscopic procedures, we don't add a noose right away. We want to, because you don't want to get excessive weight loss because you're going to lose muscle and fat. You lose muscle and fat anyway, especially with the more aggressive bariatric surgery procedures like the bypass, even the sleeve, the sleeve, the bypass, and the biliopancreatic diversion, you're losing almost half muscle because you're losing it so fast. You don't want to do that. That causes sarcopenia and a lower resting energy expenditure, and it's bad. And those patients don't do well. What you want to do is get, you know, a good amount of weight loss with one procedure, if you're going to use a procedure. And then when you plateau, you either plateau or you don't lose as much as you wanted, which is often the case. Or you do great, but then a year later you regain some weight. Then you add the noose. Okay? I see. So you don't want to do everything at once.

Anthony, this is Paul. Dr. Apovey and I thank you for that insight, all the answers you provided. I wanted to add one more point. Maybe you can add to it as well. In terms of the numbers of people that you're seeing, just kind of reminding, Anthony, I know we've talked about this before, where there's, as mentioned during the call, there's only 1% of the people that in prior years, decades, 1% that could have surgery or are seeking out surgery. And our belief is, and I think that's what Dr. Povian was affirming, that there's more people now beyond that 1% that are seeking care, specifically with the GLP-1s being as popular with the big marketing push from big pharma. And then it's the timing. I know that I'd love to have that answer too, right? But the timing for nationwide, on average, centers that are unlike Brigham and Women's and the Center of Excellence that Dr. Povian has formed over the years, I'm sure has changed. ways of managing their timetable that are completely different across the board. As you look at smaller centers and centers that are less apt to have all the experience that you get out at the Brigham. And again, our only counter to kind of the GLP-1 marketing push is our marketing efforts, which I think I noted briefly that, you know, the one center that was one of our three pilots, Lapin and Louisville, actually coming in with more procedure growth this year than last year with Lapin, you know, based on the fact that they are doing the marketing, they are doing the things that we put in place, and it's working. So that's exciting for us. But Carolyn, would you agree that you would have more pent-up demands for people that are coming in to see you this year versus previous years because of what's happened over the last six months?

There's no doubt. There's really no doubt. We're seeing patients, many more patients than we used to because of the media attention on obesity, not just the medications, but just the fact that patients are finally realizing Doctors are, but it's the patient who needs to understand what they have is not shameful. That's what I said on 60 Minutes. It's the shame that stops people from going to see the doctor about their obesity. And this is finally ending because we're finally understanding that if there's a pill or an injection that can help you lower your body weight set point, it can't be a matter of willpower. Because it's not. And that's what's changed. And that's why we can get patients in because they're looking for medication, but suddenly they're amenable and open to the idea of bariatric surgery. I'm not hearing anymore like I used to. Oh, doc, I don't want that surgery. I know I can do it on my own. I'm not hearing that anymore.

Okay. That's great.

That's a godsend.

Okay, great. That's very helpful, and obviously it sounds like your center is a center of excellence, and you have a line and a huge backlog of patients. But shifting gears, Paul, maybe just on two other points here. The agreement you signed, the exclusive royalty-bearing agreement with BioRed, Metasys, the private company for the Ovalon gastric balloon system. Where is that in terms of being rolled out? Is that something that's going to be rolled out before the end of the year? Are they going to start selling that in 2024? And maybe just any other expectations around that agreement?

Yeah, I think BI-RAD has aggressive goals there. The project has kicked off in terms of we signed the agreement and we've got the two teams, you know, from BI-RAD and from Reshape engaging in, as you'd expect, sort of the weekly, the appropriate cadence of project meetings. And they have aggressive timelines that they've stated. I think, you know, the knowledge transfer could take longer in terms of getting, you know, what we know over into their hands so they can execute more the production. And then beyond the production, it's about verification, validation of their process so that it has the same level of global quality that is needed to pass muster with the regulatory bodies worldwide. So I'd expect that, you know, I think we're all pushing to do something this year and to have, I'm sorry, we're sitting here now in mid-November. We were pushing to get something done this year. I think we're now looking at something that has to be in the first part of next year. But, yeah, both sides are eager to get initially BI-RAD to get this product produced and get it done the right way so we can start the next phase of this. But I'll definitely keep you updated on progress and milestones as we define them and have some predictability to them. I won't be shy about sharing those with you.

Okay, excellent. And then on the cost cutting, $8 million in 24, is that going to – are there going to be some one-time charges in the fourth quarter that we're in right now to account for that? And if so, do you have – do you or Tom have a handle of what that might be?

Yeah. Thanks, Andrew. Yeah, sure. Absolutely. You know, we're not anticipating any big charges in Q4 as a result of all of this. And if there were, there would be one time in nature. But as of right now, I'm not expecting anything anything in the millions of dollars, if you will. So to answer your question directly, no, not expecting anything material. Will there be some? Yes. You can imagine that there would be some costs related to when you do a reduction in force, there's most likely going to be some severance costs and those types of things. So we'll accrue for all of that during Q4.

Okay, great. Thank you for all that information. I'll hop back in the queue.

Great. Thank you. And this concludes our question and answer session. I would now like to turn the conference back over to Paul Hickey for any closing remarks.

Great. Thank you. I hope that you value our transparency and consistency of what we've expressed during this call. and that you're able to appreciate our enhancing the efficiency and reliability of our company through the revamping of the organization to continue our quest to grow shareholder value as a sustainable and scalable company. We will continue to work diligently to build on our commitment to provide evidence-based personalized devices and therapeutics as we remain optimistic about the long-term growth potential for the company. Special thanks to Dr. Pobian for participating in today's call. As always, I want to thank all of our current and past employees, our board members, customers, consultant advisors, suppliers, existing and new shareholders for your continued support of Reshape as we progress on our mission to become the premier physician-led weight loss company. I look forward to continuing to engage with our stakeholders, healthcare partners, and shareholders.

This conference has now concluded. Thank you for attending today's call. You may now disconnect. Everyone have a great day.