Gelesis Holdings, Inc. (GLS) on Q1 2022 Results - Earnings Call Transcript
Operator: Good afternoon, everyone, and thank you for participating in today’s conference call to discuss Gelesis’ financial results for the fiscal quarter ended March 31, 2022. Joining us today are Yishai Zohar, Founder and CEO of Gelesis; and Elliot Maltz, CFO of Gelesis. There’ll be discussion of fiscal 2022 first quarter and update in the company’s commercial product, Plenity. Plenity is indicated to aid weight management in adults with excess weight or obesity, body mass index of 25 kg to 40 kg square meter when used in conjunction with diet and exercise. For important safety information about Plenity, please see our website at myplenity.com or call 1-844-PLENITY. Following their remarks, we’ll open the call to your questions. Before we begin today, I want to remind everyone that this conference call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements relating to Gelesis’ estimates of its future business outlook, prospects or financial results, including projected sales and EBITDA. Forward-looking statements generally can be identified by words such as anticipates, believes, estimates, expects, intends, plans, predicts, projects, will be, will continue, will likely result and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our amended 8-K and Form 10-K for the year ended December 31, 2021, and those discussed in other documents we file with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to Gelesis or persons acting on Gelesis’ behalf are expressly qualified in their entirety by the cautionary statements included in this conference call. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, listeners are cautioned not to place undue reliance on such forward-looking statements. Also the following discussion may contain non-GAAP financial measures. For a discussion and reconciliation of these non-GAAP financial measures, please see our earnings release for the first quarter 2022. I would like to remind everyone that this call will be available via telephonic replay for two weeks starting today. A webcast replay will also be available via the link provided in today’s press release as well as on the company’s website, at www.gelesis.com. Now, I would like to turn the call over to the Founder and CEO of Gelesis, Yishai Zohar. Yishai, please go ahead.
Yishai Zohar: Thank you, and good afternoon, everyone. We are happy you can join us today. For those listeners who are new to our story, I will make some introductory remarks and then turn the call over to Elliot Maltz, our CFO, to walk you through our first quarter 2022 financial results. Here at Gelesis, we are addressing one of the biggest public health crisis with an entirely new solution. Plenity is an FDA-cleared approach to weight management that helps you fully satisfy with smaller portions so you can eat less and lose weight while enjoying the foods you love. Plenity is not a drug or a food supplement, rather a novel hydrogel that is administered in capsules and acts locally in the GI tract by increasing the volume and firmness of the ingested foods without any caloric value. We offer a new option to people struggling with excess weight, combining strong clinical data with pricing that is both affordable and transparent, and delivering this with an e-commerce convenience. There are 150 million Americans with excess weight or obesity, yet only 12% of this population receives prescription medical treatment. Importantly, Plenity is truly unique. As our label encompasses the entire population of overweight starting from a BMI of 25 to those with a BMI of up to 40 defined as having obesity. This includes tens of millions of people with a BMI between 25 to 30 who generally do not qualify for other prescription weight loss treatments. We believe we have the largest addressable market of any prescription weight management approach from the market today. There are other important advantages, including the unparalleled tolerability profile, a convenient small administration and affordability. This large unmet need is slightly behind the initial significant consumer restriction we have seen for Plenity. Moving now to our first quarter performance. This quarter marked a major milestone for Gelesis when we launched the first wave of our national broad awareness media campaign in February. Up until this point, we have been limited by supply. We offer people two ways to ship our Plenity, through a free telehealth consultation or by visiting their own healthcare provider. Either way, it’s a tool, the product arrives to their home within two days at an affordable price of $98 for a four-week supply. We were very pleased with the results we saw, both through telehealth as well as more traditional channels, since the launch of our campaign. I want to emphasize that the vast majority of the results you are hearing about today occurred once the media campaign was underway in February and March. Following the launch of our campaign, we saw a dramatic increase in web traffic and the number of individuals seeking a new treatment. For the quarter, both these metrics increased by 2.4 times when compared to the first quarter of 2021. We are also excited about the conversion rate, which remains consistent with previous quarters, despite the dramatic increase in the web traffic. So as we scale up the launch, the same proportion of new inquiries are converting to members. This is very encouraging and reinforces our opinion that the right message is reaching the right people. So who are these new members? And what do they have in common? We are seeing that 90% of new members typically complete treatment request within 24 hours of visiting the website, indicating they are visiting the website with the intention of seeking prescription. In fact, 65% from new treatment request is the first time they visited the website and do not require additional follow-up marketing. This is important because it means that our acquisition cost can be very efficient. The online visit takes about 15 minutes and on average, people find out whether they have been approved for prescription within 24 hours. Importantly, about 70% of Plenity members have never tried prescription weight management product before, indicating Plenity is bringing new people into the category of prescription weight management products. As consumer awareness grows for Plenity, we are uniquely positioned to continue to penetrate this category of new users, which should provide a long runway of growth for us over the next several years. Now some highlights for our traditional healthcare provider channel. Notable among growth in the healthcare provider, or HCP, prescription, over 50% of HCP prescription were requested by the consumer, a 100% increase from our baseline before the media campaign began. This is important because we expect the consumer demand, not from active healthcare providers who preliminarily drive uptake in the healthcare provider channel. Of the prescription request initiated by patients, 40% of the patient specifically made an appointment with their doctor to seek out the prescription, 60% of the time, they brought it up during the already scheduled visit. We are very encouraged to see that in Plenity’s limited time from the market, members are already ordering multiple units, three-month units on average within the first year. We are expecting this number to increase even more over time as obesity and excess weight are chronic in nature, and we intend to support both member’s episodic and long-term needs. There is no limit to how long a person can take Plenity, and we expect that those members who have success will seek us out next time they are looking to lose weight. We have been very pleased with the results we saw throughout February and March, demand through both our telehealth and our traditional healthcare provider channels has rapidly reached record high. Throughout this quarter, we have demonstrated our operational ability to scale to meet this significant increase in demand. Even with these large influx of orders, we were able to continue to deliver the same level of convenience we promised to members, a seamless online experience and two-day delivery to a member’s home. We have built the necessary digital and operational infrastructure to execute on that promise. Manufacturing is also a key part of our story as this technology was developed specifically to our products, and it is proprietary to Gelesis. We now have the necessary infrastructure to fully launch the product, and we will continue to expand capacity to keep pace with growing demand going forward. Most importantly, we are thrilled by the feedback we are receiving from thousands of new members who have recently begun the weight loss journey with Plenity. This quarter’s performance cements our confidence that we have the opportunity to make a difference in the lives of millions more. Now, I would like to turn the call over to our CFO, Elliot Maltz, to walk through our financial discussion.
Elliot Maltz: Thank you, Yishai. As a reminder, Gelesis completed the business combination of Capstar Special Purpose Acquisition Corp. On January 13, 2022, debuting the following day as a publicly traded company on the New York Stock Exchange under the ticker symbol, GLS. The business combination results in a gross proceeds of $105 million. I’ll now walk through our financial results and accomplishments in the first quarter of 2022. Plenity’s limited beta launch extended through all of 2021, while we built out the manufacturing and commercial infrastructure needed to fully launch the product. This quarter, we began to build broad consumer awareness of Plenity, with the major inflection point occurring in February when we kicked off our national media campaign. For the three months ended March 31, 2022, we acquired 40,400 new members, with the vast majority of these new members coming onboard in February and March and a more than threefold increase compared to the 14,100 new members acquired in the prior year quarter. Units sold in the first quarter of 2022 were 114,500 versus 49,300 in the prior year quarter, which drove our net product revenue to $7.5 million during the three months ending March 31, 2022, representing a 142% increase year-over-year. I would like to reiterate, we believe this is just the beginning for Plenity, and it could take four-plus years to reach peak market share in the United States. At that point, when there’s broad awareness of the product, we estimate our consumer acquisition costs could be less than $100 per member. Gross profit for the first quarter of 2022 was $2.6 million versus $285,000 in the prior year quarter, which is attributable to the increased sales volume and the lower cost of goods per unit. As Yishai mentioned, manufacturing of Plenity is a proprietary process for Gelesis, and we completed the first phase of our commercial scale at the end of last year, which helps enable significant improvement in our gross margin. Our gross margin in the first quarter of this year increased to 35% from 9% in the first quarter of 2021, and we anticipate further improvement as we continue scaling our manufacturing capacity later this year and next year. Net loss for the three months ended March 31, 2022, was $5.7 million compared to a net loss of $18.6 million in the prior year quarter. While adjusted EBITDA for the first quarter of 2022 was negative $26.9 million compared to negative $13.9 million in the prior year quarter. The change in adjusted EBITDA between the comparative period is due to the increased marketing activities to drive broad consumer awareness of Plenity and sell the product at a full commercial level this year. Moving on to the balance sheet. As of March 31, 2022, we had $34 million in cash and $9.8 million of receivables with $16.3 million of inventory in our pipeline supply in product launch. Our property and equipment, reflecting our manufacturing assets, was $58.3 million. Next, I would like to talk about our outlook for the full year 2022. We continue to expect net product revenues of $58 million, which reflects approximately a 400% increase over 2021. While we are increasingly confident in the demand for Plenity and the trajectory of our business, our projections are contingent on the timing and amount of future anticipated financing. Now I’ll turn it back to Yishai to provide closing remarks. Yishai?
Yishai Zohar: Thank you, Elliot. The success of our recently launched national media campaign underscores that we have the right messaging to reach our targeted consumer. Our focus this year will be to continue to create strong consumer awareness and build on our foundation that we established in the first quarter. We are addressing one of the biggest public health crisis with an entirely new solution, an FDA-cleared approach to weight management that helps you to satisfy with smaller portions. Plenity has the largest addressable market of any prescription weight loss solution on the market today. In closing, we look forward to executing on our growth plans and delivering value for our shareholders. I would like to thank our team for their hard work and dedication. With that, operator, please open up the call for questions.
Operator: Thank you, sir. In addition to Yishai and Elliot, joining us for the Q&A portion will be David Pass, Chief Operating Officer and Chief Commercial Officer of Gelesis. Our first question comes from the line of Ellie Merle from UBS. Ellie, please go ahead.
Ellie Merle: Hey guys. Thanks for taking my question and congrats on all the progress. Maybe just digging a little bit more into some of the learnings from the recent advertising campaign, could you give us a little bit more color on the conversion rate; you mentioned that it stayed consistent with previous quarters, such as the conversion rate that you’re seeing in terms of web traffic to orders placed as well as any learnings from the media campaign around specific types of web traffic or types of advertising that led to maybe a higher conversion rate or higher web visits. And then additionally, maybe just in terms of thinking from the cost perspective of the advertising campaign, how you’re thinking about that on a per patient basis and your plans for future advertising campaigns and if there were any learnings in terms of specific types of campaigns that were more successful versus not. Thanks.
Yishai Zohar: Thank you, Ellie for the questions. So I’ll ask David Pass to answer it.
David Pass: Hi, Ellie. Thanks for the question. So three questions. First, with regard to conversion, I think what we were seeing and we were pleased, as Yishai mentioned in his opening comments that the rate in which people are coming to the site increased tremendously. In terms of when we turned on the broad reach media in beginning of February. And what we saw was, in fact, that the number of people coming to the site and then converting, even going through an online visit and then after the online visit getting a prescription for Plenity remain consistent. Although we’re not providing kind of details on the funnel, what we saw was that scale that went up consistently. So the conversion rate remained constant, which to us was a key metric to make sure that we’re really getting out to the right people, we weren’t just having people come to the site and looking at it versus converting. So we have the right message. We felt good about the people who are coming to the site and then ultimately those became members. So that was really encouraging as we talk about scale and making sure that we were hitting our marks from a strategic perspective as well as from a tactical execution perspective. In terms of the media, there was a lot of learning. So we used not all different vehicles in terms of reaching out to consumers and educating them, but we used many. And what we found was really important as we thought about our target audience. So as you know, we’re targeting folks at the lower BMI range from 25 to 35. And what we found is that’s really driving in. And historically prior to this campaign, we used really search and social from an activation perspective. When we turned on the broad reach media, we saw that linear. Specifically, linear was very effective as well as direct response TV. So those were two channels. And not surprising, as you think about the evolution of media, that’s important in terms of that response. And given the digitally native platform that we’ve created, we’re able to see immediately who’s coming on, and we can assess what that target population looks like. So linear TV was, I think, very attractive. What we also did was, obviously, we’re monitoring closely all of the investments. So as we think about programmatic, we’re able to not necessarily go to individual websites, but we can go to the type of consumer we want. And that proved very successful. And the other thing is, as you start to invest in different media, we’re able to dial down different networks, different times of the day, in terms of the morning spots being very attractive, in terms of having a higher rate response as well as the evening ones. We are particularly excited. We have invested in The Bachelor finale, which is a live finale and in fact, is one of the highest rated in terms of audience response to advertising. And we saw the highest rate ever in terms of website visits during that time slot. So we think there’s an ample opportunity with regard to our target audiences. So many learning that we had. And then finally, with regard to the future, what I’d say is, as we think about the media mix and pulsing, what makes sense, not only the different vehicles that we go out with, but the different types of media that we’re going out with. And specifically, the ones that are working that I described but also starting to look at other types of media, whether it be radio or other things from an integrator perspective to get to different audiences as well as more traditional print. So we’re exploring all those and as we see what the response is, we’re dialing up, we’re dialing back that investment.
Ellie Merle: Got it. That’s incredibly helpful. And I appreciate the color on The Bachelor finale.
David Pass: It was very exciting.
Ellie Merle: I guess just in terms of the trends that you’re seeing in terms of the number of refills and sort of the average duration of use or sort of tenor of the members, maybe I know you sort of commented in the release that you’re seeing an average of, I think, like three months or something supply within the first year. Maybe just any more color in terms of patient trends in terms of, like someone’s committed and they continue to refill every month, and how you’re thinking about that long term in terms of patient compliance. And then similar to that in terms of pricing, I guess from the member experience so far, I guess, what have you sort of learned around maybe the price sensitivity of the members as you think sort of in the future around potential price increases? Thanks.
David Pass: Sure. No problem. So in terms of compliance, as you mentioned and we put in the release, during a limited time on the market, the Plenity members on average are ordering three monthly units, and we expect this to increase over time. And those three monthly units are based upon having opportunity for 12 months. And obviously, we’re just getting into that period where we’re getting more numbers in that time frame. So we’re encouraged with this number for several reasons. Excess weight, unfortunately, is a chronic condition. Many people will likely gain back the weight after they stop any regimen or stop their diet and exercise activity. So the importance is that the majority of people will need either maintenance therapy where really multiple cycles of products, and what’s important is we intend to support our members long term as well as episodic needs. So it’s important that we’re there for them. In addition why we believe there is opportunity to continue to grow that is really the strong safety and tolerability profile. That really allows us to be foundational in terms of therapy, in terms of diet and exercise, and garner significant return business win backs along the way. And then finally, what makes us unique is access. So as I think we’ve spoken in the past on the previous earnings call, we have 30% to 40% of our members who often communicate directly with us. And that really gives us a unique opportunity. The industry average is somewhere around 1% to 2%. So given that we can connect with a good portion of our members, it allows us to create appropriate expectations with them in terms of persistence, time course of weight loss and obviously, the importance of diet and exercise. And ultimately, being able to support them on their journey. So there are multiple things that we can do to support them. The episodic as well as chronically, which will ultimately – hopefully improve that number even more. In terms of your second question in terms of pricing sensitivity, so right now, we are priced at $98 for a four-week supply. And we’re currently doing A/B testing with multiple aspects of our business, including below-the-line testing in terms of pricing sensitivity. So we’re currently evaluating that. Obviously, with the significant level of inflation, that’s a very hot point for consumers as well as we think about our overall business model. So we are testing to evaluate different price points and what makes sense and what the impact is from an elasticity perspective.
Ellie Merle: Great. Thanks so much for the color and congrats on all the progress.
David Pass: Thanks a lot.
Operator: There are no further questions at this time. So this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Zohar for closing remarks.
Yishai Zohar: Thank you, Lauren. I’d like to thank everyone for listening to today’s call, and we look forward to speaking with you when we report our second quarter results in August. Thank you again for joining us.
Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
