Gelesis Holdings, Inc. (NYSE:GLS) Q2 2022 Earnings Conference Call August 15, 2022 8:30 AM ET
Company Participants
Anna Heller – IR
Yishai Zohar – Founder & CEO
Elliot Maltz – CFO
David Pass – COO & CCO
Conference Call Participants
Operator
Hello, everyone. And welcome to the Gelesis’ Second Quarter 2022 Earnings Conference Call. My name is Daisy, and I’ll be coordinating today’s call. You’ll have the opportunity to ask your question at the end of the presentation. [Operator Instructions]. I would now like to hand the call over to your host Anna Kate Heller to begin. Anna, please go ahead.
Anna Heller
Good morning, everyone. And thank you for participating in today’s conference call to discuss Gelesis’ financial results for the second quarter ended June 30, 2022. Joining us today are Yishai Zohar, Founder and CEO, Gelesis; and Elliot Maltz, CFO of Gelesis. We’ll be discussing the fiscal 2022 second quarter and providing business updates on the company’s commercial product, Plenity. Following the remarks, we’ll open the call for your question. In addition to Yishai and Elliot, joining us for Q&A portion will be David Pass, Chief Operating Officer and Chief Commercial Officer of Gelesis.
Before we begin today, I want to remind everyone this conference call may contain forward-looking statements as we find 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 to not 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 second quarter 2022. A webcast replay of this call will be available via the Investor Presentation section of the Company’s Investor Relations website at ir.gelesis.com.
Now, I would like to turn the call over to the Founder and CEO of Gelesis, Yishai Zohar. Yishai?
Yishai Zohar
Thank you, Anna Kate and good morning, everyone. We are happy you can join us today. I will start by providing update on our business and then turn the call over to Elliot to walk you through our second quarter 2022 financial results and full-year outlook. As a reminder, Plenity is a novel, orally administered FDA cleared weight management therapy that helps people feel satisfied with smaller portions so they can eat less and lose weight while still enjoying the food they love. Plenity is the only approved weight management treatment for people with a BMI as low as 25kg and all the way up to a BMI of 40kg. We believe we have the largest addressable market of any prescription weight management approach on the market today.
We have seen strong uptick in Plenity across the BMI spectrum with roughly 35% of members with a BMI between 25kg to 30kg demonstrating that our marketing efforts are successful in reaching consumers that are not quaintly firm by other prescribed solutions. We launched the first wave of our national broad awareness media company in February. And since then demand for both our telehealth and our traditional healthcare provider channels has reached record highs with significant growth achieved for the second quarter in a row.
Following the launch of the company, we have seen a dramatic increase in web traffic and the record numbers of individuals seeking a new prescription. During the second quarter of 2022, we acquired over 43,000 new members which is more than three times the number of new members acquired in the second quarter of 2021 and recognized $9 million of product revenue while selling approximately 130,000 units, furthermore we have seen growth over the first quarter of 2022 with second quarter product revenue increasing by around 20%.
In June, we announced that our distribution partner Ro placed an additional $50 million pre-order for Plenity bringing gross total pre-paid orders for Plenity to $55 million. Our partnership will continue to help us reach new customers for Plenity as Ro is a leading direct to patient healthcare company with a strong distribution network. We offer two ways to seek out Plenity. For a free telehealth consultation or by visiting their own healthcare provider. In a way, if approved, the product arrives to their home within two business days at an affordable price of $98 for four weeks supply. We are very pleased with the results we saw both to telehealth as well as more traditional channels, since the launch of the campaign.
Importantly, about 70% of Plenity members have never tried prescription weight management product before. As consumer awareness rolls for Plenity, we are uniquely positioned to continue to penetrate this category of new users which should provide a long runway of Ro for us over the next several years. We believe this is just the beginning for Plenity. And I will now take a few minutes to talk about what we are doing looking forward to position us for success. As we expect the visiting market to reach more than $50 billion by 2030 and as focus shift primarily to treatment of obesity before downstream consequences, we are well-positioned and differentiated in the overweight and pre-obesity category to support both episodic and long-term needs.
We also see an important opportunity to support individuals in more advanced stages of obesity as the therapy before or after other interventions. As the obesity therapeutic category is growing rapidly, we are excited to deliver a differentiated option for patients that have advantageous and synergies compared to and with other options. Healthcare professionals, players, and patients are engaging more than ever in this critical area effecting over a 150 million people in the U.S. alone. Launching a new product and creating consumer awareness is capital intensive. It is prudent given the uncertainty in capital markets to reduce investments to preserve our resources and focus on the most cost efficient ways to drive value. While driving awareness with the launch of a new brand has been our primary use of capital, we are now choosing to reduce commercialization spends and adjust accompanying guidance.
Over the time, we believe we will be able to grow and ramp sales more efficiently to reduce our reliance on the capital markets as we build towards the long-term potential of Plenity to become a foundational therapy for weight management.
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. I will start with our financial results for the second quarter 2022 and then turn to our guidance for the full-year. for the three months ended June 30, 2022, we acquired over 43,000 new members, more than a 3/4th increase compared to the 14,000 new member acquired in the same quarter in the prior year. Units sold in the second quarter of 2022 were approximately 130,000 compared to 33,000 in the same quarter in the prior year, this drove our product revenue to $9 million during the second quarter of this year representing a 310% increase year-over-year. This strong growth was driven primarily by the mix of new and returning members which has kicked off from the National Media Campaign as well as the mix of monthly and quarterly treatments being ordered by members.
We have realized significant improvement in the cost of manufacturing the product since we commissioned our commercial manufacturing facility at the end of last year and streamlined our packaging supply chain. Our gross margin increased to 46% during the second quarter of 2022 compared to 8% in the same quarter in the prior year. With the increase in sales volume, this resulted in gross profit of $4.2 million for the second quarter of 2022 and $6.8 million year-to-date compared to less than 200,000 in the second quarter of 2021 and less than $0.5 million for the six months ended. We’re very encouraged by our success in controlling cost on track we’re scaling our production levels to meet growing demand. Net loss for the three months ended June 30, 2022, was $12.5 million compared to a net loss of $24.7 million in the same quarter in the prior year. While adjusted EBITDA for the second quarter of 2022 was a loss of $24.2 million compared to a loss of $16.6 million in the same quarter in the prior year.
The change in adjusted EBITDA between the comparative periods is due to the increased marketing activity to drive broad consume rise of Plenity and sell the product at a full commercial level this year. Selling and marketing expenses were consistent between Q1 and Q2 of 2022 that increased by about $15 million this quarter compared to the same quarter in the prior year. Despite being in the early growth phase of Plenity’s full commercial launch, it’s encouraging to see product revenues grew quarter-to-quarter while our selling and market expenses remained stable.
Moving on to the balance sheet. At June 30, we have $25.3 million in cash and $10.7 million in receivables with $18.8 million inventory in our supply chain. We are also pleased to note, that in July we closed a private placement of $25 million in promissory notes with existing investors which further improves our financial position.
Also last week, we entered into a $50 million committed equity financing agreement with B. Riley which we expect will provide us with increased financial flexibility. Any issuance of equity under this facility will be taken opportunistically as business and market conditions warrant and with the best interest of our shareholders at the forefront. We remain encouraged that our long-term investors and partners seeking our potential in front of us and recognize our continued growth especially in our first full launch year.
Now, I will turn to our outlook for the full-year 2022. While demand for Plenity remain strong and we’re increasingly confident in the trajectory of our business, our projections have always been contingent on the timing and amount of raising additional financing. As noted earlier by Yishai, we are anticipating reduced levels of investment in selling and marketing in the second half of this year relative to the first half.
Accordingly, we are adjusting our guidance for the full-year 2022. Product revenue is expected to be in the range of $27 million to $30 million compared to an estimate of $58 million previously. Gross profit is expected to be in the range of $11 million to $13 million compared to the rate of $25 million to $30 million previously. And adjusted EBITDA loss is expected to be in the range of $75 million to $80 million compared to a loss in the range of $55 million to $60 million previously. These estimates however couldn’t prove if the company raised additional capital this year beyond what we’ve already disclosed.
Now, I’ll send it back to Yishai to provide closing remarks. Yishai?
Yishai Zohar
Thank you, Elliot. We continue to focus on creating strong consumer awareness for Plenity to build on the foundation that we established during the first two quarters of this year. There has been incredible momentum in the obesity care industry and we are well-positioned with our uniquely differentiated product to take an important place in this growing category as a foundational therapy. We are more than excited by the feedback we are getting from our members some directly to us and many others on social media. Plenity is changing people’s lives. The long term potential of Plenity and Gelesis is stronger than ever than we are working hard to bring this important solution to many millions of people struggling with excess weight aiming to deliver value for our shareholders.
With that, operator, please open up the call for questions.
Question-and-Answer Session
Operator
Yishai Zohar
I would like to thank everyone for listening to today’s call. And we look forward to speaking with you when we report our third quarter results. Thank you again, for joining.
Operator
Thank you everyone, for joining today’s call. You may now disconnect your lines.
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