Fractyl Health, Inc. ($GUTS)

Good day, everybody. We're going to get going here at the BofA Annual Healthcare Conference and our last company presentation with Fractyl Health. My name is Jason Gerberry. I am -- I cover pharma and biotech here at BofA, and we're joined by Harith Rajagopalan, Co-Founder and CEO; and Lisa Smith Weber (sic) [ Lara Smith Weber ], CFO. So thank you both for joining us here at the conference. Glad to be here. Thanks.

Thank you.

So maybe just get things started with a little bit about Revita, your lead program and a little bit of the why, if you will, what you're looking to solve for, how you're looking to improve upon outcomes for individuals with obesity.

Sure. So Revita is duodenal mucosal resurfacing. It's a catheter-based technology to ablate the duodenal dysfunction that we believe is a root cause of obesity in type 2 diabetes. And our lead indication is what we think to be the largest problem that remains in obesity today, which is how do you achieve durable weight loss maintenance in the absence of ongoing medical therapy. I think it's pretty obvious that GLP-1s have transformed the treatment landscape and have demonstrated extraordinary weight loss, but most people stop taking these medicines within the first year of therapy. The more weight they lose, the more rapidly they regain their weight and whatever metabolic benefits that they had go away as their weight comes back. So there is a deep urgent need for a durable weight maintenance solution. I think you kind of saw from Eli Lilly's data this week in the European Congress of Obesity (sic) [ European Congress on Obesity ] that their approach to trying to tackle that problem is by adjusting the doses of their medicines, which is of some modest effect, but it doesn't actually address the patient need, which is a durable non-pharmacologic weight maintenance solution, we believe we have the first one.

Yes. So in the U.S., it's probably something like 5 million to 7 million people on GLP-1-based therapies currently. Do you have a sense of how many people are off, have tried and have come off?

5 million to 7 million was probably -- well, maybe the right number if you account for all of the churn. But the most recent stats are 1 million people are stopping the GLP-1 each month in the United States.

Interesting number.

1 million people are stopping each month. I mean that just goes to show like how large -- that's for a variety of different reasons. Obviously, cost and access, side effects, but increasingly recognizes the idea that people just don't want to be on medicines to control their weight for the rest of their lives. Once they get to a plateau weight, they're beginning to look for an off-ramp and they'd rather not be on the medicines than on them.

So as you think about maybe framing Revita versus some of the pharmacotherapy alternatives being developed, right, to sort of fill that void, right, amylin targeted approaches or even siRNA-based treatment approaches, do you have a sense of how much that is cost versus not wanting to be on medicine for whatever reason?

I think that cost is a driver, but I will tell you that in Massachusetts, Medicare and Medicaid were covering it with no co-pay to patients and GLP-1 discontinuation rates for obesity was 60% at 6 months, even if you take cost off the table entirely. So I think for some people, cost is a consideration. But I think for others, just the complexity of ongoing access and the need -- the refills and then insurance sort of constraints combined with side effects and ongoing burden, I think they're all inseparable to one another. They just add to the churn and friction of the ongoing management. And when you talk about amylin and other alternatives, I would say like none of them that I see is really solving the friction associated with ongoing pharmacological management of the condition. I'm going to stipulate that more than 50% of patients who are wanting to or needing to stop GLP-1s will not be satisfied by the drugs in the pipeline. Okay. So you made analogy, I think, to LASIK. And I think it's an interesting analog because LASIK is very effective. It can be done relatively quick in a noninvasive way. And it works really well, right?

So maybe how do you think about if you think about the history of LASIK and when it really started to catch momentum, like what the proof point was or the aha moment where it really gained traction with the masses. Was it -- I imagine in the early phases like, wow, I want to do this in my eyes, like I don't want to be the early guinea pig, right, versus after a few years, it's being done, people see how well it works, how high rates of lack of safety issues emerge that then it sort of catches momentum. Like just thinking about it as a commercial analog.

Yes. I think that there is some aspect of asking what is the tipping point. The difference -- I know we call Revita like LASIK for obesity for precisely the reasons that you mentioned. As we've been running our pivotal study for post GLP-1 weight maintenance, though, I would say there's one difference that might speak to the marketability of Revita in this indication, which is obesity is a chronic heterogeneous disease. It has so many different patient journeys. Each individual patient is unique. But the time point of discontinuation is an acute moment of need for that patient for which there is no alternative today. So it is very much like LASIK in that it is a onetime procedure that we believe will have long-lasting effects and can rid the burden of ongoing management. But the marketability, I think, is actually easier because there is this acute need. The moment when the patient needs to stop taking the medicine, what are they going to do, that equivalent does not exist with LASIK. That's what creates an extraordinary opportunity that I think is going to be highly attractive to patients right out of the gate.

Okay. So you have 1-year data REVEAL-1, 2Q, you have REMAIN-1 midpoint cohort 3Q. Maybe just talk about the clinically meaningful threshold here. What's a great outcome for you?

Yes. So 3 major catalysts from our weight maintenance program over the next 6 months. An open-label cohort, REVEAL, will have the first 12-month data. You would expect these patients lost over 20% of their body weight on a GLP-1. All of the data that we see suggests that they should -- they will have regained about 15% total body weight by 1 year, cutting that by more than half. So less than 7.5% weight regain at 1 year, we think would be a phenomenal result. Turning to the remain midpoint data. That's our first randomized sort of Phase II equivalent study, 45 patients, 2:1 Revita versus sham. We will see 12-month data in Q3. There, too, we expect the patients will -- that the sham arm will have regained roughly 15% of their body weight by that time. If we can cut that in half by 7.5% or less regain in the Revita arm, then I think we have a very compelling clinical profile that will have stood the test of a rigorous prospective sham-controlled study. And those 2, I think, are good setups for the pivotal trial, which is fully randomized and is like has shown an excellent blinded safety profile. And we will expect to see that 6-month co-primary endpoint in early Q4 and the totality of that will be the basis for our potential De Novo regulatory filing at the end of this year.

Yes. Can you just remind us the regulatory bar versus the commercial bar?

Sure. Yes. So the regulatory bar is lower than the commercial bar, I would say, clearly. Because the FDA has reviewed all of our safety data across the studies that we've conducted, they've, in some sense, down classified the risk profile for Revita from a potential Class III or high-risk PMA device to a Class II low to moderate risk De Novo pathway. De Novo pathway, because it's lower risk, also has a different efficacy threshold and that efficacy threshold would be considering the totality of clinical evidence or in FDA parlance, reasonable assurance of safety and effectiveness as opposed to valid scientific evidence, which people interpret as like in the PMA, like a single definitive p-value.

Yes. Okay. Maybe talk a little bit about how Revita impacts the patient's metabolic profile, how important those parameters are when you ultimately provide more detailed data and subsequent updates?

So in our REVEAL open-label cohort and in our midpoint pilot data, what we have seen is protection from HbA1c increase. We have seen an improvement in cardiometabolic lipid profiles, a reduction in triglycerides, increase in HDL, substantial improvement in the triglyceride to HDL ratio. And we will also see from the pivotal study, DEXA scan results in individuals who are discontinuing tirzepatide, randomized to Revita versus sham to look at body composition metrics in order to understand the impact there. So I think that the totality of the clinical evidence that we've seen so far suggests that Revita has a broad metabolic benefit. It's like hitting a metabolic reset button. And that affects cardiometabolic lipids, glucose, weight, sugar craving, we'll be seeing body composition for the first time. I think that adds to the clinical and medical need beyond just the patient desire and need to be able to maintain body weight.

Yes. Okay. And durability, I imagine, is going to be an important part of the story, and that will take time to evolve. But as you sit here today and if you're able to show what you aim to show at like 12 months, how should investors think about this as a single one and done versus a retreatment dynamic and the frequency of that as you sit here today? And maybe part of it is like what's commercially viable too, right? How often are people going to want to redo the procedures?

I think 1-year durability is the -- is like the sort of the minimum bar threshold for durability from a commercial standpoint. We've seen in type 2 diabetes 2-plus years of durable efficacy. I don't position Revita as a one-and-done treatment. I think about it as something that may need to be repeated in a fraction of patients after several years. And as you say, we're going to have to see what that looks like. We will be looking at weight trajectories as some indication of what that durability profile looks like. And from 6 to 9 to 12 months, what does that weight look like it's doing in the sham arm versus what it looks like it's doing in the Revita arm? -- it's an opportunity for me to say that the science has advanced in this space quite a bit in the recent past. And it's quite clear now that people who stop -- who've lost significant weight on a GLP-1, when they stop that medicine, they sort of exponentially return to their baseline weight over a period of about 18 to 20 months. And so you see that over and over again from Lilly and SURMOUNT and Novo data that the weight -- the initial weight regain is quite rapid and then it begins to plateau as you get closer to your pre-tirzepatide weight. What that basically shows that the drugs are not doing anything to alter the predrug weight set point. Our hope and our expectation is that Revita will thoroughly reset that weight set point at a lower level. That is a profile I would argue that none of the pharmacologies has the potential to offer, but it will take time for that to get elaborated.

Yes. Okay. And then when we look ahead to 4Q and the REMAIN-1 pivotal cohort, what sort of outcome do you think would enable a regulatory filing off the basis of that?

Obviously, a positive p-value. And I think the sort of -- the constellation is we're very encouraged by. We think we're very well powered to hit a statistical significance on the full cohort in the REMAIN-1 pivotal study. We are also quite convicted that particular enrichment subgroups, those patients who get longer treatment length of ablation and/or those individuals who lost more weight during the GLP-1 run-in phase will have substantially larger effect sizes even than the full cohort. And so we will be presenting data not only on that primary endpoint, but also those key secondary endpoints for which we have prespecified like alpha spending criteria in order to be able to give what we think will be a differentiated and compelling and complete clinical profile by that early Q4 data.

Yes. Okay. And then maybe just talking about the procedure and the dose response and greater ablation length. And what aspect of weight maintenance do you think this greater ablation would lead to greater response rate, deeper response rate and/or just durable response?

I mean let's take -- let's just start with what we know in the field. Semaglutide 1 to 2 milligrams is sort of peaking the efficacy on glucose lowering, but 1.5 to 2.4 milligrams is where you're beginning to see its effect on weight. So the dose response curve of the GLP-1 drugs on glucose is different than the dose response curve on weight. We're seeing the same thing. Our first-in-human study in the type 2 diabetes trial, we saw that 10 centimeters of duodenal mucosal ablation was more effective at glucose lowering than less than 5 centimeters of ablation. Now what we're seeing in our first sham-controlled study in weight maintenance is that patients who get more than 14 centimeters of ablation have better protection from weight regain than people who get less than that. So the glucose and cardiometabolic benefits are achieved with shorter lengths of ablation, but longer lengths of ablation are necessary for the weight effects happens to be just like what we saw from the GLP-1s.

Yes. Can you just remind the listeners just in terms of the greater ablation length, how the trialists are going to be incorporating that in and the data that we get, how that will be split between greater ablation length versus shorter ablation length?

So our per protocol analysis, which is going to -- is a prespecified key secondary endpoint will be in those individuals who get more than 14 centimeters of ablation versus those who got versus sham. What we have advised physicians -- and we just came out of the Digestive Disease Week meeting where we talked about what we are observing in ablation length and how that informs our interpretation of the pivotal and also training for physicians if and when commercially available. For your listeners, the way to think about it is we know from preclinical models and human studies that duodenal dysfunction extends basically from the proximal duodenum through the end of the duodenum and even into the proximal jejunum. And so we've always surmised that there will be a length-dependent effect on cardiometabolic and weight outcomes. Now what we've done is quantified it for the first time and come up with thresholds that we believe will be very clinically meaningful and achievable for physicians. It's gratifying for the GI doctors to know dose-dependent effects are there. That gives them conviction that the biology signal is real and that the mechanism is valid. And it also helps inform how we plan to train physicians to perform the procedure in a scalable but reproducible manner in order to ensure that patients have good outcomes when it's broadly available.

Yes. So I imagine would you envision that the longer ablation length based on what you know today is probably going to be the more likely approach commercially if approved?

Yes, in weight maintenance and in diabetes, that may not be necessary. A shorter ablation length may be adequate.

Okay. And then how would you frame the -- any safety risks, unknowns with a greater ablation length as we sit here today? Are you able to glean anything just from blinded safety assessment? And at this point, all the patients enrolled.

All the patients are enrolled. All the patients are randomized. I mean, to put it glibly, we have ablated hundreds of feet of duodenum through our pivotal program, and we have had an excellent safety profile, and there does not seem to be any correlation between ablation length and safety and tolerability. That's not an accident. I think it's a direct result of our product development team's excellent work in developing a very reproducibly delivered ablation energy that is -- that does not cause -- that has a very, very low risk of injury.

Can you speak at all to like learning curve, how easy it was for investigators to incorporate the longer ablation length and just consistency of that approach when implemented in a trial?

Yes. So we've always -- we've said all along, it takes about 4 to 5 procedures for a physician to learn how to do this well. And that's been anecdotal from prior clinical experience. We were able to prospectively evaluate this in the study as we got physicians to learn how to do the procedure, and we monitor how long the procedures were taking, how many -- what length of ablation they achieved as a function of the number of procedures they had done. And we reaffirmed that 4 to 5 procedure number as being completely accurate. We got every physician to be able to perform adequate length of ablation within that envelope.

Okay. And then you talked a little bit about the protocol violation leading to some data variability in the midpoint data. Do you feel the risk is largely behind the company now? Just thinking about the pivotal cohort.

We feel like the risk is behind the company now. We put the data out in January. There was site level heterogeneity. We feel like we've got a good handle on the sources of that heterogeneity. We explained in our March earnings call what we found, and we have 2 additional opportunities to reassure investors on those questions from the REVEAL data coming up at 12 months and the REMAIN midpoint data coming up at 12 months. We like what we're seeing. We feel very confident that it's behind us.

Okay. And then coming back to the 1-year midpoint data in 3Q, the expectation around robustness of that versus the pivotal cohort at a similar time point and just given that what we discussed about ablation length and any protocol deviations.

So I would expect that the REMAIN-1 midpoint at 12 months is going to give you a very good visibility into the duration of effect at 12 months in the pivotal. It's designed very similarly. I feel like the issues that we identified in some sense have washed out as the patients have gone through 6 and now 9 months of follow-up. What we are seeing suggests to us it's going to give you very good visibility into what you would expect to see from the pivotal.

Okay. Maybe with respect to like the type of clinical trials that pharmacotherapies are conducting and then you think about the De Novo pathway and how physicians will view the robustness of that, thinking more about commercial implication here, right? I guess, do you think that physicians are going to have any differing view on the robustness of that type of data package versus say, an RCT type of data set that you see for megapharmacotherapy?

We have an RCT data set coming. We have -- this is a robust level 1 prospective randomized, double-blinded, sham-controlled prespecified statistical analysis plan. We feel very good about the study design. It's actually the largest sham-controlled study ever conducted in endoscopy. It is the most rigorous sham-controlled study ever conducted in GI endoscopy as well. I don't think that there's anything that we're compromising. The De Novo pathway is simply an acknowledgment of the fact that this is a procedure that has demonstrated an incredibly like well-tolerated, low adverse event rate that is very time limited. We have never seen a late adverse event, say, unlike a pharmacotherapy where you're thinking this person may have to be on this medicine for the rest of their lives. And so you -- and so the safety threshold in some sense, if you think about the risk-benefit curve, like that the risk can persist on these medicines forever. Whereas a risk-benefit curve for a procedure like ours, like if you think about it on XY-axis, the risk essentially drops to near 0 within 7 to 14 days. And so I think that what you're seeing in the FDA's willingness to call this a De Novo is a reflection of their comfort with the safety profile. It is not in any way an aspersion on the quality of the efficacy data that we're planning to generate.

Okay. And then successful and approved, maybe just a little bit on the go-to-market strategy. What this world looks like in terms of endoscopists. I imagine that's going to be the focal point. How many of them are there? How much resourcing would you need to put behind something like the marketing the Revita procedure?

We believe we can get to profitability with a very targeted and efficient commercial model focused on the top 100 to 200 centers in the United States. And so assuming that we choose to do this on our own, we have excellent relationships with the GI endoscopists at the major centers where we would be launching this product. We've built that relationship and credibility over years of being leaders in advancing the science and working with them on our pivotal program. Many of them have been investigators or part of the CEC or part of the DSMB. So that clinical community is intimately familiar with Revita and its potential. They're excited for its potential introduction. Those physicians have a lot of sway in the decision-making at major hospital centers because the endoscopy suite is a top 3 positive contribution margin to a hospital's bottom line. So if a GI endoscopist has a new procedure, which is reimbursed, can deliver a positive contribution margin, they will get what they want. And we have already heard very clearly that they have ample endoscopy capacity in order to be able to support a potential launch of this therapy.

To that point, can you elaborate a little bit how this would play into their workflow and their work streams, time commitment, right? Like -- and what they may need to make a trade-off on? Because I imagine they don't -- sitting with extra time, right, there's probably a trade-off with something to work this into their workflows.

Correct. So Revita was purpose-built to fit into their endoscopy workflow. We require an endoscopy suite that has fluoroscopy or sort of x-ray capability. Most endoscopy centers have more X-ray fluoro time sort of capacity than they have the procedures to fill it with. So roughly 50% of their fluoro time is consumed of those rooms are consumed with procedures that need that room and the other 50 are done there just to be able to use the extra space. What we are hearing over and over again is that the physicians who would do our procedure would hand off the lower contribution margin, simpler procedures to other colleagues to allow them to spend more of their time doing these high-value procedures. And that is like very clearly how this would roll out.

Yes. So as we think about this ecosystem of treatment, right, like it's obesity clinics, primary care, oral therapies, it's a very consumer-driven market, a lot of cash pay, more cash pay than anyone had thought on the pharmacotherapy side. So what I wonder -- I'd imagine these endoscopists aren't driving a lot of that volume, right, to say, hey, maybe patient XYZ, you should consider that. So there probably needs to be some awareness build, right, for the masses around Revita. So how does that get accomplished, do you think?

We've signed a letter of intent with a nationwide provider of bariatric and metabolic endoscopy services. It was called Bariendo. They just recently changed their name to Everself. When they run an ad in the Dallas area on TikTok and/or Instagram, 80% of the people who respond are on a GLP-1 and looking for an off-ramp. So the physicians are -- these centers are actually already learning how to engage with consumers where they are with social media. And there is an incredible pent-up demand for a GLP-1 off-ramp that we think we can tap into.

Yes. Do those dynamics still hold? Do you feel like the rollout of oral therapies, which started at the beginning of this calendar year with oral Wegovy and now Foundayo, the Lilly product, do you find that -- because really, when Lilly was studying Foundayo, even did the ATTAIN-MAINTAIN trial, right, as a "off-ramp" for injectable. And I think patients who went from Sema generally like maintain most of their weight reduction, right? So I'm just kind of curious, do those dynamics in principle still hold in your mind with the rollout of oral therapies and how that will evolve?

The fact that they're running the ATTAIN-MAINTAIN study, I think, gives you a very strong indication of the unmet need that they don't really have a good answer to, in my view. There is not a patient who's on tirzepatide doing well and losing weight who said, if only I could turn this into an oral. They either want to stay on their medicine or they want to get off their medicine altogether. They're not really interested in switching to a different medicine. And my big takeaway from the ATTAIN-MAINTAIN is that it requires a lot of fiddling with dosing over time, which patients are actually not interested in at all. So I can see why that study meets the needs of the GLP-1 manufacturers. I don't see why it meets the needs of the patients. Back to your question on the oral. -- where we see greatest uptake is in individuals who are not beginning the injectable at all. And so that's how you get from 10 million users of a GLP-1 to 30 million initiators on a GLP-1 because there's going to be a lot of people who don't even want to start the injectable in the first place. I'll give my mother, okay? My mother could use a GLP-1. She doesn't want to inject herself because she wants to travel and she doesn't want to deal with the cold storage necessary for the injectable. Now that Wegovy and Foundayo are available, she says, okay, now this is an easy thing for me to do because I don't need to be worrying about how -- where I'm going to be keeping my needles and my syringes when I travel between point A and point B. And then she's like, but the problem is, do I have to take this for the rest of my life? I think about my mother is like a perfect example of like what the issues are. Even if it's an oral, the idea that you have to be wedded to that medicine to keep that lower weight for the rest of your life is a problem in the patient's mind, a problem that needs a solution that we think we can answer.

Okay. And then maybe we have about a minute left here, but Rejuva, some updates there. Maybe if you can just talk about what are the -- as you see the upcoming milestones for Rejuva now with the clinical update.

Rejuva is a smart, potentially one-and-done GLP-1 pancreatic gene therapy. We just got regulatory clearance in the Netherlands to begin a first-in-human study. I think this is a landmark moment in type 2 diabetes therapy development because our target product profile for Rejuva in type 2 diabetes is remission of disease. That does not exist in type 2 diabetes. We believe it is achievable based on what we've seen in the preclinical data. And we're excited that we will be able to potentially dose first patients pending site activation and then begin to see preliminary data in the back half of '26. What you will expect to hear from us on this as you go forward through the year is the first patients getting enrolled and then the first patient getting treated within 1 or 2 weeks, we're going to have a signal on safety, feasibility and tolerability, key initial questions. And then at around 8 to 12 weeks, we'll be getting CGM data that will look at the initial pharmacodynamics on glucose lowering after the gene therapy. If we see a safety or tolerability issue in the very first cases, we'll pause and we'll try to understand what that is. We'll obviously let people know. Once we start to begin to roll out the PD, we're going to be wondering -- we're going to be keep wondering what is the dose that allows us to get a substantial plurality of patients to potential remission. And if we have that, that would be the trigger to move on to larger studies.

Okay. And then Lisa (sic) [ Lara ], just quickly, cash runway and strategies to extend?

Yes. We put out our quarterly results on Tuesday, $63.2 million was our cash balance at the end of Q1. I think a couple of things. We are funded into 2027. That is our cash guidance. Importantly, that is through the pivotal data readout that Harith talked about in Q4 as well as a potential De Novo filing. So we feel like we're very well funded, and we'll have about 5 to 6 months on hand at that time, and we're looking at different options to have some optionality to do that, whatever that next funding event may be at that time.

All right. Great. Well, thank you both for joining us.

Thank you. Appreciate it.

Thank you. All right.

Great. Thank you.