Fractyl Health, Inc. (GUTS) Earnings Call Transcript

Thank you. and welcome to Factos Health's second quarter 2026 financial results and business update call. As a reminder, this conference call is being recorded. This time, all participants are on listen-only mode. There will be a Q&A session following management prepared remarks. I will now turn the call over to Brian Luque, Head of Investment Relations and Corporate Development at Fractal. Brian, you may now begin. Thank you. This afternoon, we issued a press release that outlines the topics we plan to discuss today. This release is available at.

www.fractal.com under the investors tab. Joining us on the call today are Dr. Harith Rajagopalan, Chief Executive Officer, and Laura Smith-Weber, Chief Financial Officer. During this call, we make forward-looking statements which involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. list of risk factors in our SEC filings, including the quarterly report on Form 10-Q filed today, which I encourage you to review. Any forward-looking statements on the call are subject to substantial risks and uncertainties, speak only as of the call's original date, and we undertake no obligation to update or revise any of the statements, even if subsequent.

caused the company's views to change. It is now my pleasure to pass the call over to Harit. Thank you, Brian. Good afternoon, everyone. Nearly 30 million Americans are now on GLP-1 therapy. Approximately 1 million are discontinuing each month. What happens after discontinuation is now well characterized. On average, patients regain roughly 60% of their prior weight loss within 12 months of stopping therapy, and cardiometabolic benefits begin to erode even earlier. For many patients, the choice is either to resume chronic pharmacotherapy or accept substantial weight loss. Regain. We believe Revita has the potential to offer a third option, durable, drug-free weight maintenance following a one-time endoscopic procedure. A year ago, that was our thesis. Now, we have the first randomized sham-controlled evidence supporting that thesis one year after GLP-1 discontinuation and the most direct read-through to the Remain-1 pivotal cohort expected in early Q4. On our last three calls, I laid out four pillars that give us conviction in RUVIDA. First, the clinical signal is real. Second, our pivotal study is built to win. Third, there is a clear path to commercial value. And fourth, we are funded through definitive data later this year. Let me take each of them in turn, but I'll spend most of my time on the commercial opportunity today. The clinical signal is real. On July 15th, we reported one-year randomized data from the Remain One midpoint cohort. The study asked a simple question. One year after stopping a GLP-1 therapy, how much of the weight loss do patients keep? Revita patients maintained more than 80% of their prior GLP-1 induced weight loss at one year. compared with 46% in the sham arm. The treatment effect held from month six through month 12 under maintained blinding in a cohort where not one patient reinitiated GLP-1 therapy. And an additional piece of confirmatory evidence, the Open Label Reveal One cohort showed a consistent signal in June, with participants maintaining approximately 78% of their prior weight loss through one year after a single procedure. So we now have two different patient populations showing one year of durable weight maintenance and compelling effect size after Revita. This directly addresses the most important question about our six month data presented earlier in the year. Were we producing durable separation or simply delaying weight regain? Dr. Adarsh Thakur of UCLA a principal investigator on Remain One, named that concern on our July call and told us that the curves are now showing hints of a plateau at the one year mark. Two details sit behind those numbers. The strongest results came in patients who achieved complete ablations and higher run in weight loss, the two variables the pivotal study is enriched for. And the sham arm behaved as published literature would expect and predict, providing strong external validity to the study outcomes. I'd like to spend a minute on safety and tolerability because I believe it is one of the largest single drivers of Revita's eventual adoption. one full year, there were zero device or procedure related serious adverse events. In fact, in the midpoint cohort, there were only four mild treatment emergent adverse events in the entire study, all resolved within two days. For a procedural therapy in obesity, this is an unusually clean profile, and it is the reason we believe. adoption by physicians and patients may be substantial. Compare this profile with the only alternative these patients have today. GLP-1 medicines are associated with high rates of GI adverse events. The more potent the agent, the more adverse events. Primary care providers are already referring patients gastroenterologists to help manage these GI side effects. That potential to address a real concern for patients is why a gastroenterologist is prepared to offer this procedure to the patient who walks into clinic or the endoscopy suite, and why a patient who cannot or will not stay on a GLP-1 is willing to try it. Pillar two, the pivotal is built to win. The Remain One Pivotal cohort is a larger, well-powered version of the midpoint cohort, just run larger. Same patient profile, same protocol, same investigators, same blinded dietician oversight. It is the largest sham-controlled GI endoscopy pivotal trial for a novel therapeutic device ever conducted. We completed randomization in February with more than 300 participants across more than 30 sites with more than 20 operators. Importantly, the pivotal is enriched for the two variables that were associated with greater treatment effect. The threshold for a complete ablation is 14 centimeters. In the pivotal, the median ablation length is 16 centimeters and the mean is closer to 17. The threshold for higher run-in weight loss is approximately 17.5 percent, in the pivotal, mean run in weight loss is 18.3%. We have two co-primary endpoints and based on the data we've generated to date, we estimate both are well powered above 95%. The first is percent total body weight regained between Ravida and Sham at six months. The required margin is a separation of roughly 2.5% and the midpoint MITT result using the pre-specified statistical analysis plan submitted to the FDA clears that comfortably. The second is the responder rate. The FDA-mandated pre-specified performance goal is a single-arm result of at least 50% of patients maintaining at least 5% total body weight loss at 12 months. In the midpoint cohort, that figure was 73% in the MIT. TT population and above 90% in the complete ablation population. Every operational metric that we believe is important to the pivotal success continues to track favorably. Retention remains well above 90%. Medication resumption remains below our model assumptions. The blinded adverse event profile remains consistent with what we have seen across prior studies, reinforced by our DSMB interactions. We remain on track to report top-line 6-month primary endpoint data in early Q4 2026 and expect to report top-line 12-month data from the Remain One Pivotal cohort in Q1 2027. On the regulatory front, we have favorable FDA feedback in hand that ReVita's safety profile is consistent with a moderate risk rather than a high-risk device classification. We remain on track for a potential de novo submission in late Q4 2026, following the six-month pivotal data readout. As with all applications, final pathway determination will follow FDA's review of the complete safety data set, which we intend to include in the submission. Pillar 3, the path to commercial value. One overarching point, the trends that are shaping the GLP-1 market strengthen Revita's commercial opportunity. They expand the addressable market, they increase the potential treatment effect, or they improve the economics, and often all three at once. We'll take you through the detail at our Investor Day in September. First, the market opportunity is well understood by all key stakeholders. FDA has granted Ravida Breakthrough Device designation for post-GLP-1 weight maintenance. CMS has begun covering GLP-1s for weight loss while openly raising concerns about frailty and about the affordability of a therapy taken for life and physicians are already fielding the question. Patients are asking obesity medicine specialists how long they need to stay on the medicine at the moment they are provided the first prescription and gastroenterologists are now taking referrals for GLP-1 side effects with no off ramp to offer as of yet. And here is the part I think is most underappreciated. It does not need a new site of care either. These patients are already in GI clinics and GI labs every day, and the endoscopy suites, physician expertise, and clinical workflows are already in place. Second, we view the oral era as a demand engine. One question we often hear is whether more convenient GLP-1 therapies reduce the need for Ruvida. The evidence to date suggests the opposite. Most oral GLP-1 initiations are new prescriptions rather than switches, and there is no evidence that oral formulations the barrier to stopping. Every initiation, oral or injectable, is a potential future discontinuation and need for an off-ramp. Third, the next generation of these medicines may increase rather than diminish Ravida's treatment effect. As next generation therapies deliver even more weight loss, the need for a durable off-ramp only grows. In the Remain program, the placebo-adjusted Ravida treatment effect in the midpoint cohort increased with greater run-in weight weight loss. The more weight a patient lost on drug, the greater the weight regain after discontinuation, and the larger the measured Revita benefit. Fourth, payers are converging on the need for a durable solution. A major development this year was the introduction of the Medicare GLP-1 Bridge demonstration, having gone live on July 1st in a population that has both the highest obesity prevalence and high discontinuation risk. CMS administrators expect single-digit million number of patients under Medicare to be on GLP-1s within the next year. The Bridge Program sunsets at the end of 2027, and the major payer objection is not that obesity treatment does not work, their concern is the affordability of treatment that continues indefinitely, together with poor adherence and high discontinuation in real-world practice. That is exactly the challenge Revita is designed designed to address. Pillar four, we are funded through definitive data. Fourth and finally is our capital situation. Laura will take you through the quarter in detail, but let me state our posture plainly. We ended the quarter with $47.1 million in cash. Our runway extends into early 2027, beyond the pivotal data readout and through a potential de novo submission. Our ATM facility remains closed. We do not plan to raise capital before we have pivotal data in hand. The marked reduction in cash outlay in the second quarter versus the first or versus next year versus last year reflects the completion of pivotal randomization, and sustained fiscal discipline across the organization. This is a deliberate choice grounded in conviction. We believe the pivotal data will be positive and we are choosing to operate inside our existing capital envelope through the most consequential two quarters in this company's history as a signal of management's alignment with shareholders. Turning briefly to Rejuva, our smart GLP-1 gene therapy platform targeting long-term metabolic remission from a single dose. In Q2, we received clinical trial authorization in the Netherlands to initiate the phase 1-2 first in human study of Rejuva 001. We have also now received Ethics Committee approval in Australia. We believe Rejuva-001 is the first AAV-based gene therapy candidate to enter clinical development for type 2 diabetes. OO1 is a one-time beta-cell targeted gene therapy designed to enable nutrient responsive, physiologic GLP-1 expression within the pancreas delivered by a minimally invasive endoscopic ultrasound guided infusion. The design intent is to avoid the high circulating drug levels that drive the side effects associated with systemic GLP-1 therapy. The primary objective of the first in human study is to evaluate the safety and tolerability of OO1 together with the feasibility and safety of delivery to the pancreas using the Rejuva system. Secondary objectives include assessment of glycemic effect using continuous glucose monitoring and mixed meal tolerance testing, characterization of GLP-1 secretion, and evaluation of immune response. The study uses staggered sentinel dosing in which the first participant is monitored for a minimum of 14 days and their safety data reviewed before any additional participants in that cohort are dosed. We expect to dose the first patient subject to imminent site of activation and patient enrollment and to report preliminary data in the second half of this year. Importantly, Rejuva's clinical development is funded within our existing runway and does not compete with Revita for capital. Before I hand to Lara, here is our near-term calendar. In early September, we will host an investor day to walk through the commercial opportunity, our market access strategy, and the health economics work our new Senior Vice President of Market Access and Commercial Strategy, Mike Zumdahl, and his team have been leading. In early Q4, we anticipate reporting top-line six-month randomized data from the Remain One pivotal cohort. In late Q4, we anticipate our potential FDA de novo marketing application submission. And in Q1 next year, we anticipate reporting top-line 12-month data from the Remain One pivotal cohort. Laura?.

Thank you, Harith. Research and development expenses were $13.8 million for the second quarter of 2026, compared with $21.2 million for the same period in 2025. The decrease of $7.3 million was primarily related to reduced spending on our ReVita and Rejuva programs. SG&A expenses were $5.3 million for the quarter, compared with $4.9 million for the same period in 2025. The increase of $0.4 million was primarily driven by higher stock compensation expense. We reported a net loss of $25.5 million for the second quarter of 2026, compared with a net loss of $27.9 million for the same period in 2025. The $2.4 million decrease was driven by a $7 million reduction in operating expenses, partially offset by a $5.1 million higher non-cash loss from the change in fair value of our warrant liabilities with smaller movements in debt fair value and interest income. Adjusted EBITDA was negative $16.3 million for the quarter, compared with negative $24 million in the second quarter of 2025, a $7.7 million improvement driven by reduced operating expenses excluding stock compensation. As of June 30th, 2026, we had $47.1 million in cash and cash equipment. I want to draw your attention to one point on run rate. The first quarter carried certain one-time costs associated with completing Remain One's pivotal cohort randomization. The second quarter does not. Cash used in operations was approximately $16 million in Q2, which is a better reflection of our post-randomization run rate than Q1. Based on our current business plans, we believe our cash position will fund operations into early 2027, beyond the anticipated Remain One Pivotal Data readout in early Q4 2026, and through a potential de novo submission in late Q4. With that, I'll turn it back to Haris. Haris Karim, Thank you, Laura.

I'm going to close where I started with our four pillars. First, the clinical signal is real. We now have randomized sham-controlled one-year data showing 80% GLP-1-induced weight loss maintained versus 46% with sham. Second, the Pivotal is built to win. It's the same experiment, run larger, powered above 95% on both co-primary endpoints, and enriched on both of the variables we now know drive effect size. The last six-month visit happens this month, and we remain on track to report top-line data in early Q4. Third, the path to commercial value is clear and we are building on it now rather than waiting. The market already exists, the patients are already seeing GI physicians, and payers are converging on the need for a durable alternative. And fourth, we are funded through definitive data. Our runway extends into early 27. There is no planned raise before pivotal data. I want to thank the patients in our pivotal study who have trusted us with their health and their persistence and the investigators and operators who have executed this trial with real skill. I want to thank our employees who's focused through an demanding stretch has been exceptional and I want to thank our shareholders whose conviction in the science makes all of it possible. Operator we are ready to take questions.

Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Michael DeFiore of EverQuery. I saw your line is now open.

Hey guys, thanks so much for taking my questions. Two for me. One regarding profitability. I think in the past you said that you believe that FATL can be profitable with a targeted launch into the top 100 to 200 US centers. My question is what procedure volume per center is embedded in that profitability assumption and how quickly do you expect trained physicians to ramp to that level?.

And then I have a follow up. Well, that's actually a wonderful question that preps for our investor day that's coming in early September, where we can address our view on the commercial opportunity ahead of us. But I'm not going to front run with specific numbers in that regard. I will say that that embedded in that is also the health economic value from from Revita and we are finalizing our numbers now. With 50 patients with one year of follow up from Reveal and Remain, we believe that the health economic value proposition is greater than we had previously realized. That helps us gain confidence in the potential profitability from the health economic value we can deliver. With respect to your question on training, as we've observed now across multiple studies, it takes less than five procedures for a physician to feel comfortable doing our procedure. We expect to continue the same preceptorship program that we ran in our pivotal study quite successfully, I might add, as we get new physicians comfortable with using this procedure. The benefit that we have is that the procedure that we're asking them to learn how to do leverages existing skills, doesn't really ask them to do anything that they don't otherwise know how to do, and therefore can be very easy for them to intuitively understand what needs to happen. From a patient perspective, the advantage is that this is a one-time intervention that is not... anatomy altering and has what we believe to be a very compelling safety profile that's why we think it's going to be compelling to both physicians and patients but more numbers on the model should be presented as a story in our investor day with an understanding the health economic value as well.

Great. Thanks, Karit. I have one more follow-up question regarding reimbursement, trying to get a sense if there's any remaining risk on the patient coverage side. Like what criteria do you expect payers or Medicare to impose around prior GLP-1 use? the degree of prior weight loss, BMI, documented discontinuation, et cetera, before reimbursing for a beta. Thank you.

I expect that Medicare will follow the, I expect that payers will be looking very carefully at the patient population that was studied and pre-specified in the pivotal trial. And While I can't speak to what the label might say, I would expect that the payers are going to look very carefully at this, at least 15% run in weight loss and the use of GLP-1 therapy or GLP-1-based therapy rather than terseptide specifically. And... This is an interesting conversation that we will look forward to having with Pivotal Data in hand with payers. I can tell you that in the conversation we've had in the last quarter with payers, Medicare in particular is concerned about the muscle mass loss associated with the GLP-1s and the frailty as it particularly applies to the elderly population. population, combined with the fact that they're expecting millions of people to start GLP-1s because of this bridge program, and because that program has a shelf life of about 18 months, there is clearly a view that a lot of patients will be needing to be discontinuing next year, and they're thinking hard about it. what the implications of that are. Very helpful, thank you. Thank you.

Thank you. We'll move on to our next question. Our next question comes from the line of Jason Gerberry of Bank of America. Your line is now open.

Hey, guys, thanks for taking my questions. Another one on reimbursement, upon approval, What is the expectation in terms of how the transitional coverage for emerging technologies, that you have breakthrough device designation, are there any risks to that in terms of when you'd be filing? Anything you need to be aware of in terms of the importance of filing timeline and or de novo versus a PMA filing? So that's my first question. And then secondly, you mentioned in the press release the company building out commercial infrastructure for Revita as the data readouts approach. a little bit more on those efforts, you know, what sort of size of commercial infrastructure that you believe you'll need to support ReVita. Thanks.

Sure. So with respect to initial payment, there is a mechanism called transitional pass-through through CMS that has a quarterly review cycle and a statutory requirement for payment that is actually quite clear. Breakthrough devices have an exemption through transitional pass-through. meaning that breakthrough devices that achieve regulatory clearance or approval are sort of automatically in scope so long as they are novel and so long as the price of that novel device doesn't fit into an existing price. CPT schema. So ours, we believe, fits all of those criteria. And so the applications go in on a quarterly basis. They are reviewed in a rolling manner. And so every three months, new transitional approved or clear devices get transitional pass-through payment. So we feel like the tailwinds are strong pass-through rule, the sort of criteria that I just laid out, will be in place for the next several years, and we believe we will qualify once cleared. And that allows us to have confidence that Ruvita can have reimbursement from day one at the time of launch, which is a really strong place to be. And that ties to our view on the commercial infrastructure. We'll have more to say about this in our September Investor Day. points that I'd want to convey are that we envision a very targeted and efficient center of excellence model focused on hospitals where we already have very strong relationships. And as Mike alluded to earlier, the top 100 to 200 endoscopy sort of health systems do at least half of the endoscopies in the United States. And so all of these top centers have endoscopists are focused on doing bariatric and metabolic endoscopy, we have strong relationships there. And we will initially focus on them because we believe that health systems can funnel patients in very efficiently, enabling us to launch with a smaller team that's highly focused on high throughput.

centers. Thank you. One moment for our next question. Our next question comes from a line of Chase Nickerocker of Greg Holland. Your line is now open.

Good afternoon. Thanks for taking the questions. Maybe just first from me, Could you just confirm whether or not the final SAP was submitted and if there was any response or correspondence with the agency as it relates to some of the recent tweaks? Thanks.

Yes, final SAP was submitted. I think we mentioned that in our July call. And we are locked and loaded heading into our database lock.

you know in the next several weeks was there any response or kind of correspondence with with FDA's or you know kind of around that.

There was. There was clearly a response from the FDA. It's all sort of within the nuances. I would say that it was down in the schema of details rather than high level, nothing of materiality for us to discuss.

Great. And then just last, a little bit of a bigger picture question. But can you just remind us the extent of your patent estate as it relates to other kind of ablation technologies? particularly as it relates to weight maintenance, as we think about now having a de novo approval rather than a PMA? Can you just kind of speak to your patent protection?.