Gelesis Holdings, Inc. (GLS) on Q4 2021 Results - Earnings Call Transcript
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss Gelesis' Financial Results for the Fiscal Year Ended December 31 2021. Joining us today are Yishai Zohar, Founder and CEO of Gelesis; and Elliot Maltz, CFO of Gelesis. They will be discussing fiscal 2021 and launch updates on the company's commercial product Plenity. Plenity is indicated to aid weight management in adults with excess water obesity, body mass index of 25 to 40 kilograms per 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 for 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 in 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 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 including 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 this non-GAAP financial measures please see our earnings release for the fourth quarter 2021. I would like to remind everyone that this call will have a webcast replay available via the link provided in today's press release as well as on the company's website at gelisis.com. Now, I would like to turn the call over to the CEO of Gelesis, Yishai Zohar. Yishai?
Yishai Zohar: Thank you and good afternoon, everyone. We are happy you can join us today and I'm glad to be here as the Founder and CEO of Gelesis. 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 2021 financial results. We are transforming weight loss with our proprietary FDA cleared weight management solution called Plenity. We have the potential to help millions of people, it's more than seven out of 10 Americans struggle with excess weight, making it a new universal issue. The surprisingly few scientifically proven tools available for people on a weight loss journey. The data shows the diet and lifestyle modifications don't work for the majority of people in the long-term. Historically many of the medical products that treat overweight and obesity have had a poor safety to efficacy profile and were either pulled from the market for safety reasons or have had limited utilization. Currently, approved drugs and surgery do not address the needs of people who are overweight at the lower end of the BMI continuum, who in many cases do not even qualify for prescribed medical treatment. For the majority of the population that have excess weight, using expensive drugs chronically with safety or tolerability issues or risky surgery are not viable options, so the majority of the population is left without any help. There are 150 million Americans with excess weight or obesity, yet only 2% of this population receives prescription medical treatment. And the Plenity label encompasses the entire population of overweight, starting from body mass index or BMI of 25 to obesity, up to BMI of 40. With Plenity, we have a completely new solution that is inspired by nature and proven by science. Thanks to its unparalleled safety and efficacy profile, we are uniquely positioned to bring an option to people struggling with excess weight, delivered in a completely new way with e-commerce convenience, along with pricing that is both affordable and transparent. Plenity is designed to help people feel satisfied with smaller portions, so they can eat less and lose weight, while enjoying the food they love. Let's go to the science behind how it works. Plenity is made from naturally derived building blocks reach through a proprietary process, form a super absorber hydrogen. It works by releasing thousands of small particles that absorb water in the stomach become small gel pieces and creating a similar composition and texture as eating very large amounts of raw vegetables with meals. Those gel pieces pass through your GI tract naturally without being absorbed. Imagine, feeling about one quarter of stomach with thousands of small gel pieces that have similar properties like vegetables, mixed with every lunch and dinner. Those thousands of gel pieces increase the volume and service of the meals in the stomach and small intestine without any additional calories, which helps the system. Plenity maintains its shape and structure throughout the digestive process and later breaks down in the large intestine. There the water is reabsorbed back into the body and the backbone of the hydrogel is eliminated through your body's natural digestive process. Plenity can help you feel fuller both join meals and between them, helping you eat and snack less. Many Plenity members report that they begin to lose weight within the first few weeks. We are proud to collaborate with some of the top experts in the obesity field on research around Plenity. For example, in our pivotal clinical study, Plenity had proven effectiveness. Six out of 10 patients were responders defined by achieving a clinically meaningful weight loss of at least 5% of their body weight. In fact, these responders at an average rate loss of about 10% or about 22 pounds. They lost 3.5 inches of their waist in just six months. So the weight loss was both, clinically important, and cosmetically significant. Another positive result was the 26% of the participants were what we call super responders, and they lost on average 14% of their weight, or an average of 30 pounds. What really sets Plenity apart for other weight management therapies is its safety and tolerability profile. Remarkably, in this study, we found that Plenity's side effect profile was similar to placebo. This favorable safety profile is related to the biomimetic approach that Gelesis took in its development, which is basically emulating the composition, the cellular structure of hogging water, and the mechanical properties through seamless and texture of raw vegetables. Plenity works with the body's natural digestive processes and importantly it is not absorbed by the body. These compelling results were presented at several important hermetic conferences, including the Obesity Society National Meeting, and were published in a highly cited article in a leading obesity medical journal which also won an Editor Choice Award. Now, I would like to move on to the commercialization of the product. This safety to efficacy profile, I just mentioned, has allowed us very broad prescribing use. Unlike other weight loss prescriptions Plenity can be used down to BMI of 25 which is considered just being a few pounds overweight. In fact about 150 million Americans could qualify for treatment with Plenity. We also brought access for people looking to seek treatment. Our potential members can connect with health care providers for free through a telehealth assessment that takes about 15 minutes, whenever it is convenient for them, or they can see their own doctors to traditional channels. Regardless of using telehealth or not, Plenity will arrive at the member's door in two days for $98 for 28 day treat supply or $1.75 per dose. We completed the first phase of building our commercial scale manufacturing facility at the end of 2021, and we have ramped up supply to meet the strong commercial demand. First and foremost, we are most excited about the enormous reception of our members. We saw a threefold increase in web traffic and a 3.5-fold increase in the number of new Plenity members per day in the first three weeks of our national media campaign launch that kicked off on January 31 of this year. This compares to previous months, when supply was limited, while we built on a manufacturing facility. This equates to approximately 4,700 new Plenity members per week, within the first three weeks of the campaign. This is in addition to the existing members who continue their Plenity prescriptions. About 70% of Plenity members had never tried prescription weight management product before, indicating that Plenity is bringing new members into the category of prescription weight management for the products. Within two weeks of the campaign launch Plenity has reached organic search volume on par with well-established weight management brands according to the data from Google Trends. Demand to both our telehealth and our traditional health care provider channels has quickly reached record size. Gelesis telecom's partner role responded to growing patient demand and placed a total of 40 million in preorders for Plenity last year. Since launch of the campaign, Plenity has become one of the most sought after offering for all platform and it's bringing more new members than any other product. We are thrilled by the feedback we are receiving from thousands of new members who have recently begun their weight loss journey with Plenity. In addition health care provider or HCP prescription of Plenity is up 100% since the media campaign began and 40% of HCP prescriptions were requested by the patient which is a 60% increase from the beta launch benchmark. Now, I would like to turn the call over to our CFO, Elliot Maltz to talk to our financial discussion.
Elliot Maltz: Thank you, Yishai. As background, Gelesis has completed a business combination with Capstar Special Purpose Acquisition Corp. on January 13th, 2022, debuting the following day as a publicly-traded company on the New York Stock Exchange under the ticker symbol GLS. I will now walk through our financial results and accomplishments in fiscal year 2021 and then I'll move on to our projections for 2022. Plenity first became commercially available through our beta launch in 2020 and our member growth in 2021 was significant with 79,100 total members through the end of the year compared to 18,800 members through the end of 2020. This strong growth was despite limited marketing investments and limited product availability as we supplied our beta launch from a pilot manufacturing site, while developing a commercial scale manufacturing facility. The first line of our new commercial manufacturing facility was validated and began producing inventory in the fourth quarter of 2021. We sold approximately 171,000 units in 2021 compared to approximately 41,000 units in 2020, which drove our product revenue net to $11.2 million in 2021, which is a 313% annual increase. Gross profit in 2021 was $1.2 million compared to $0.3 million in 2020 driven by the increased sales volume. Our net loss for fiscal year 2021 was $93.3 million, while our adjusted EBITDA was negative $73.8 million. Moving on to the balance sheet, at December 31st, 2021, we had $28.4 million in cash and $9.9 million in receivables with $13.4 million of inventory in our pipeline to supply the broad commercial launch of Plenity in 2022. The business combination with Capstar that closed in January 2022 resulted in gross proceeds of $105 million. Moving on to our outlook for 2022, we are expecting net product revenues of $58 million, which reflects an approximate 400% annual increase. We are projecting gross profit to be in the range of $25 million to $30 million and adjusted EBITDA in the range of negative $55 million to negative $60 million. Now, I will turn it back to Yishai to provide closing remarks.
Yishai Zohar: Thank you, Elliot. We have developed the science and support to help make a difference in the lives of up to 150 million Americans who struggle with their weight, many of whom had never had a prescription option before. We are proud to have taken Plenity from inception to now be in the position to make it broadly available. Already we have seen incredible demand for Plenity and we are confidently on the path to achieve 400% growth in revenue by the end of 2022. We look forward to executing on our plans and delivering value for our shareholders. In closing, 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 Elliott joining us for the Q&A portion will be David Pass, Chief Operating Officer and Chief Commercial Officer of Gelesis. Our first question goes to Ellie Merle with UBS. Ellie, your line is open. You can go ahead.
Ellie Merle: Hey, guys. Thanks so much for taking the questions. Maybe just in terms of your projections for this year, could you give us a little bit more color in terms of your assumptions, both in terms of the number of new member starts, as well as sort of your assumptions in terms of manufacturing costs and any improvements in terms of the gross margin over the course of the year, as you build up your manufacturing plans? And then a second question, just in terms of the new member growth that you've seen so far in 2022. If you could comment maybe in terms of the initial response you've seen to some of the broader advertising that you've been doing. I did see one of your first ads on Instagram on did recently. But I'm curious, some of the kind of -- any attribution in terms of new member starts that you're seeing, this year versus last year and sort of some of the responses. I know you alluded to it in the prepared remarks about increased web traffic, but anything more that you can provide color on in response to some of the recent uptick in advertising would be helpful. Thanks.
Yishai Zohar: Thank you, Ellie, for the question. So I'll ask Elliot to start with all the financial side and maybe then David could add on the other parts of your question.
Elliot Maltz: Yes. Thank you, Yishai. Good afternoon, Ellie. So we are not currently providing guidance on our forecast for new members to be acquired this year. All we can provide insight on is, the results we've seen thus far give us confidence in our projected $58 million of net product revenue for 2022. And then regarding our cost of goods and projected gross margin, when we completed the scale of our manufacturing facility at our commercial site at the end of last year, we transitioned from a manual batch process to a streamlined semi-continuous manufacturing process, which has significantly higher yields and output and a much lower cost of goods. This was done in tandem with implementing a reconfigured packaging configuration for the full commercial launch that also carries a lower cost of goods. And therefore, we anticipate our cost of goods or, I should say, our gross margin for the year to be approximately 50% of our net product revenue. And maybe David can answer a bit more questions about the commercial site.
David Pass: Hi, Ellie. In terms of kind of what we've seen from a commercial perspective, in terms of the marketing mix, we've been really using a combination of TV digital social and you just saw the ad, as well as out of home. It's a bit early from an attribution perspective as we look at our marketing mix model. But we've really been encouraged by really each piece of the mix. And we're obviously in the process of analyzing what that looks like, as we assess kind of going forward what's the right loan of spend? And importantly, to your question, where we put that in terms of the different channels. But I can say that, the response we've seen in the social channels as well as search have been very strong.
Ellie Merle: Got it. Thanks so much for the color.
David Pass: You’re welcome.
Operator: Thank you, Ellie. Our next question goes to Chris Neamonitis with Jefferies. Chris, your line is open, you can go ahead.
Chris Neamonitis: Great. Thanks for taking the questions. Congratulations on the first public quarter. From the initial member uptick you've seen and now maybe through one or maybe two supply cycles since the campaign launch what are you seeing on reorder metrics? Maybe if you could help us think about purchasing patterns. I know you mentioned previously that, 60% of members are buying multiple kits. But for the other 40% how are you thinking about – or maybe what kind of visibility do you have into future reorders?
Yishai Zohar: Yeah. So I'm sure David would be the best to answer these questions.
David Pass: Sure happy to. So it's a bit early to say, but it looks encouraging. As you mentioned, what we saw initially based upon the campaign starting in January 31 recently. We've start seeing that 60% of members have reordered multiple kits, which is consistent with what we saw in clinical trials, where six out of 10 people were responders and lost that on average 10% of their body weight. What we're seeing as well is that 40% specifically you mentioned what we're hearing so we do – we have a very active voice of customer program. And we're constantly asking the members about their experience. And what we found is that, the folks who decided to stop taking Plenity for whatever reason, 70% of them would be willing or interested in potentially trying Plenity again. That's important for a couple of reasons. One is, obviously as we think about win backs and the natural cycle of people who tried it who had a good experience or a mixed experience coming back. Obviously as we think about the commercial efforts on win back, but also supporting our members on their journey. So we continue to get feedback of what's working for members and what's not and we continually to augment that member experience to improve the overall retention. So we encouraged, what we're seeing. It's a bit early to make a call on it. But potentially going forward, we'd be happy to share that.
Chris Neamonitis: That's great. Thank you for the color. And then, clearly so impressive increases in consumer interest. But I'm wondering is your sense that maybe the elevated levels of consumer interest is having an effect on providers unaided propensity to suggest Plenity to their patients? Any commentary or any degree of interplay there would be helpful. And then – just as a reminder, how should we think about any sort of margin differential from the different sales channels? Thanks.
David Pass: Yeah. No, I think it's a great question as we think about it. Obviously, the health care professional whether it be through telehealth or traditional channel plays a major role in coaching, as well as prescribing Plenity. And what we've seen is even before our campaign started at the end of January, we saw a significant level of interest. As you know we have a sales force out there who are speaking to and doing a great job of educating physicians and health care providers in general with regard to Plenity. And we've seen a nice uptake there. We saw a shift as Yishai mentioned in his opening comments where there was a greater shift where the consumer was asking for Plenity versus the physician prescribing it. But we're still seeing a nice increase regardless of whether it comes from the physician recommending it to the patient or the patient asking the physician. So I think that will continue to play a role both leveraging the telehealth channel and making it easy for our potential future members to get access when it's convenient for them or if they choose to go to their own physician and get Plenity that way. So we really see both as complementary and an opportunity at the end of the day to help our members be successful.
Chris Neamonitis: And then was there any profitability differential based on the sales channel?
Elliot Maltz: Yeah. This is Elliot here and there is a difference between our telehealth business as well as the in-person physician business channel. Our margins are slightly higher on the in-person physician network and that's because effectively there is a platform cost to the telehealth offering and that's not present with the in-person physician network we're effectively only playing -- or paying pharmacy dispensing fees. So our margins are stronger on that front. And we anticipate in the future there will be a mix of business from both channels.
Chris Neamonitis: Very helpful. Thank you gents.
Operator: Thank you Chris. Our next question goes to Ted Tenthoff with Piper Sandler. Ted, your line is open. You can go ahead.
Ted Tenthoff: Thank you very much. I wanted to get a sense from the supply side. So with the facility, how much Plenity can you ultimately make either in terms of patient or scripts or however you're thinking about it, how should we be thinking about capacity from the facility? Thank you.
Yishai Zohar: Thank you Ted for the question. So we just completed our first line last year and soon going to complete the second commercial manufacturing line within a few months. Without getting to the exact numbers of capacity, we are confident that now we have the capacity to make the manufacturing nonissue. In other words, to have the capacity we need for the next year without being any limiting factor.
Ted Tenthoff: Great. Thank you very much.
Operator: Thank you, Ted. Our next question goes to George Farmer with PureTech Health. George, your line is open. You can go ahead.
George Farmer: Hi, guys. Thanks for taking my question. Wondering if you could kind of speak broadly, what do you think peak sales for Plenity could actually be certainly in light of all the other competitors out there? And then maybe you could speak about international growth as well?
Yishai Zohar: Sure. So maybe I'll start first with the peak sales. So what we believe given the broad label and the fact that our label covers 150 million Americans, we believe that Plenity has blockbuster potential as a product. And regarding the second part, I'll let David to cover that as far as the international plans.
David Pass: Yes. So as you may know, we have a CE Mark approval in Europe, and we also have a great partnership with CMS in China. So we're quite encouraged about the opportunity and we're evaluating both global as well as regional and local partnerships going forward. So we see a significant opportunity not just for Plenity to help people struggle with excess weight here in the US but really around the world.
George Farmer: Great. Thanks.
David Pass: No, problem.
Operator: Thank you, George. At this time, this concludes our question-and-answer session. I would like to now turn the call back over to Mr. Zohar for closing remarks.
Yishai Zohar: Thank you very much, everyone. We're very happy to be with you here and hope to have you all next time when we have this meeting at the end of the next quarter.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
