Fractyl Health, Inc. (GUTS) Earnings Call Transcript & Summary

All right. Good afternoon, everyone, and thanks for joining us at the Morgan Stanley Global Healthcare Conference. I'm Mike Ulz, one of the biotech analysts here, and it's my pleasure to introduce Harith Rajagopalan, CEO of Fractal Health. Just as a reminder, the format for today is a fireside chat. So if anyone has a question, please raise your hand, and we'll make sure we address it. But before we get started, I just need to read a quick disclosure. Before we get -- for disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that, I'll turn it over to you, Harith, to maybe make some introductory comments, and then we can go into the Q&A.

Sure. So my name is Harith Rajagopalan. I'm the Co-Founder and CEO of Frati. Thanks for having us, Mike. We are developing Revita, duodenal mucosal resurfacing for post GLP-1 weight maintenance. We have pivotal data coming in early Q4, just several weeks away for potentially the first therapeutic option that has the potential to deliver a durable metabolic reset for people with obesity and type 2 diabetes. What that means is the potential for long-lasting clinical benefits in both weight and metabolic parameters even in the absence of ongoing medical therapy. The reason this matters so much is because as everyone knows, GLP-1s have totally transformed the treatment landscape in obesity, diabetes and metabolic disease. We have nearly 30 million Americans on GLP-1s, but 1 million people discontinue GLP-1s each month. And then when they do lose the benefits that they had worked so hard for. So the fundamental question in obesity, I think, has now shifted from how do you achieve weight loss, which we're doing very well with drugs to how do you maintain that weight loss for the long term. And that's where we believe Revita comes in with the first potential option in the space. Revita has breakthrough device designation from the FDA and has a potential de novo registrational filing pathway. And so with pivotal data in hand in early Q4, we anticipate a potential regulatory filing later this year. So it's an exciting time with key pivotal potentially practice-changing data just around the corner.

Yes. So a lot going on near term here and -- you mentioned the unmet need is very high, so there's opportunity there. And I guess, since Revita's a little bit different, it's a procedure, maybe describe the process, kind of what patients go through and maybe how the how it works, I guess, sort of the mechanism?

Yes. So Revita targets a portion of the gut called the duodenum. It's like the hunger center of your gut. And the reason that that's important is because the duodenum is the first place where nutrients are absorbed in the body, and in people with obesity and type 2 diabetes, nutrient sensing and signaling is abnormal. It doesn't work properly. And we believe that this is a very first thing that goes wrong in people when they develop obesity, and it's the reason why people have obesity and diabetes in the first place. So what we have developed is a approximately 1 hour outpatient endoscopic treatment with a proprietary catheter-based delivery system that targets this dysfunctional duodenum with ablation, which is targeted energy delivery directly to this diseased tissue to allow the removal through ablation of that unhealthy tissue and the potentially healthy regrowth or regeneration of a new lining that aims to restore the normal nutrient sensing and signaling mechanisms in the body so that people can go back to maintaining a healthier weight even in the absence of ongoing medical therapy. We believe that unlike pharmacology, which can be very effective, but only works as long as you take it, Revita can actually be a durable metabolic reset by fixing whatever abnormal signaling mechanisms are causing people to have obesity in the first place. That's why we see a lot of potential for it, for the 1 million patients a month who are going to stop a GLP-1 and be at significant risk of weight and metabolic rebound. But beyond the patients, we think that this answers a problem that physicians have when their patients are asking them, okay, I've lost weight on a GLP-1 or I'm having side effects on my GLP-1. I want to stop, I need to stop, but I don't want to regain all of my weight, what do I do? And I think it answers a question for health systems that recognize the importance and the value of treating obesity, but are struggling with drugs that only work as long as people take them, and the majority of people stopping them within such a short amount of time that the long-term health benefits are not actually realized in the real world. I think Revita can be a very compelling answer for all the patients, the physicians and the health systems.

Since its procedure, maybe just talk about some of the side effects, these patients experience?

Yes. So Revita is purpose-built to have a very selective ablation of the mucosa without damaging deeper structures. The way we do this is that we first put saline into the wall of the submucosa in order to create a thermal barrier between the mucosa that we wish to ablate and the muscle layer that we don't want to damage because that's where the pain fibers reside and the structural integrity of the duodenum as well. So our ablation is designed to ablate the mucosa and the superficial submucosa but to prevent injury to the underlying muscle. And as a consequence in recent randomized trials, we have seen that Revita has essentially the same treatment-emergent adverse effect profile as patients who undergo a sham procedure. Most patients do not experience any symptoms at all. Those who do have mild procedure-related symptoms, maybe abdominal discomfort or throat discomfort lasting 1 or 2 days, self-limited, resolving on its own. We think it's a mild peri-procedural profile that potentially supports a very broad outpatient use. Because you got to think about this as a transoral upper endoscopic procedure. And we are doing millions of these types of procedures in endoscopy suites across the country today. So what I think is compelling is that the safety profile and the scalability of the technique can actually meet the need of the very large population of potential GLP-1 discontinuers.

Yes. Can you talk a little bit about just the durability you're seeing with the procedure so far? And do you anticipate patients may need to redose in the future? We have a procedure? And what could that look like?

Yes. So we've done studies in type 2 diabetes for many years. We have collected data out to 2 years in type 2 diabetes where patients who've undergone a single Revita procedure, have had 2 years of durable glucose improvement, metabolic benefit and weight maintenance for that 2-year period of time. We have just begun to see this summer 1-year data from our post GLP-1 weight maintenance setting. We saw that in 2 different patient cohorts that we've been following. One is an open-label cohort called REVEAL-1, roughly 20 patients -- the other is in a randomized controlled setting called REMAIN Midpoint, where that's roughly 45 patients in whom roughly 30 were in the Revita arm. So collectively, we now have about 50 Revita patients with 1 year of follow-up. And the results, I must say, are very encouraging. Approximately 80% of the GLP-1 weight loss has been retained across these cohorts at 1 year. That's a very impressive number. Because when you think about what happens in natural history or in the control arm in our own trials, patients are regaining 55% to 60% of that weight, continuing to regain weight at 1 year, maintaining 80% weight, instead giving up less than 20% of that weight loss is clinically meaningful, better than what we can see from other pharmacological approaches and maintenance, and we think will be very highly compelling if the pivotal trial continues to show what the pilots have already demonstrated.

Can you talk about some of the other things you've learned from these -- your remain midpoint and reveal open-label studies as well?

Yes. That when we started 3 trials in parallel. We started the REVEAL open-label cohort. We started the REMAIN midpoint, which is a proof-of-concept, sham-controlled pilot study. And then we started to remain pivotal, which is the single registrational study that we believe is necessary for registration. For context, the remain pivotal is the 1 to focus on. That's the data that's coming in early Q4 and where we've already brought all the patients that are in follow-up have come back for their 6-month visits and so we're in data cleaning right now. In these 3 studies, we advised endoscopists to ablate at least 10 centimeters of the duodenum, but aim as they develop proficiency with the technique to get to the entirety of the duodenum from the ampulla of Vater to the ligament of trites which are anatomical landmarks. In most people, that's a roughly 16 to 20-centimeter length of duodenum that we advise them to work themselves to. The reason we said at least 10% is because that's where we found effectiveness in our type 2 diabetes trials. But we thought that more would be better for weight maintenance. We just didn't know how much when we started these studies. The second thing we said was we're going to enroll patients who have lost at least 15% of their body weight on the GLP-1. The reason we said you got to lose at least 15% of your body weight on a GLP-1 is because it's now very clear from Lilly, Novo and established literature the more weight you lose on the GLP-1, the more risk you have of regaining weight very rapidly. So in order to see a treatment effect in maintenance, we want more weight loss. We learned from our pilots to refine our sense for those 2 parameters. We found that more than 14 centimeters of ablation was more effective than 10 to 14 centimeters of ablation. We learned that more run in weight loss, such as like more than 17.5% weight loss was more effective than less than 17.5% weight loss. Here's the thing I would leave you with. The pivotal trial statistical analysis plan is now optimized for those lessons. Our per protocol population are those individuals who have achieved more than 14 centimeters of ablation. That's well over half of our pivotal trials population. And we also have worked with the FDA to define a statistical analysis plan that takes the magnitude of running weight loss into consideration for the primary analysis in our pivotal trial. And we believe that with these 2 measures, we are very well set up for a very clinically meaningful effect size from the pivotal trial, which is what we're excited to say. And I'm happy to talk more about what expectations are.

Yes, maybe expectations and a little bit more about the co-primary endpoint and kind of what the bar is on those different end points or combine what you need to sort of show the FDA to get approval.

Yes. So we have 2 co-primary endpoints. So just let's remind you about the pivotal study and its design and then we'll walk through that. So over 300 patients were randomized. They all had achieved more than 15% weight loss on tirzepatide over a period of 20 to 30 weeks. They discontinue their tirzepatide and then that was their baseline pre-randomization visit where their weight was measured. And then 1 week later, they underwent their randomization procedure. They were randomized 2:1 to either Revita treatment of at least 10 centimeters of the duodenal mucosa or a sham procedure where the catheter is introduced, but wasn't activated. Patients remain blinded to their treatment allocation and the assessors of the primary outcome measurements of weight were also remain blinded. So the only person who knew whether they got the treatment or not was the actual performing interventionalists who was not actively involved in their care after that randomization procedure. So a true double-blind. The co-primary endpoints here are effectively an efficacy endpoint at 6 months, which is what is the rate of regain in the Revita arm compared to the sham arm at 6 months. That's what we're going to see in early Q4. And the second co-primary endpoint is effectively a durability responder analysis, which is what proportion of Revita patients maintain at least 5% total body weight loss 1 year after the discontinuation of GLP-1. What do we need to show? We need the pivotal trial to have a statistically significant difference in the 6-month efficacy end point. We also need the durability endpoint to demonstrate that at least 50% of the Revita patients just in the Revita arm, maintain at least 5% total body weight loss from their pre-tirzepatide levels. What we saw in the midpoint cohort when we performed our analysis in the same way as we will in the pivotal is a result that would have been highly statistically significant in a 300-patient positive -- of 300-patient pivotal trial. And on the efficacy endpoint. And on the durability endpoint, we saw over 70% of the patients met that responder analysis at 1 year compared to the 50% threshold that the FDA would require.

Okay. Makes sense. I guess we talked about ablation length and the percent from baseline weight loss, which are 2 important factors. But anything else in terms of like differences in the trial design or patients enrolled in the study versus some of your prior midpoint or other endpoints that might influence the outcome?

Well, one of the benefits of starting these studies concurrently is that we are able to do them all under a single IDE, same protocol, same site, same investigators, same inclusion/exclusion criteria, same physicians performing the procedure. So that allows us to have a lot of consistency from the pilot all the way through to the pivotal. So the lessons we believe can give true read through. The only key difference is actually sway in the favor of the pivotal with respect to run and weight loss, where there's more average run and weight loss in the pivotal than there was in the pilot and on ablation length, where there was more ablation length on average than there was in the pilot. So both of those skew in favor of Revita's efficacy potential.

Makes sense. So you'll share the data early 4Q and then maybe talk about next steps from there once you have the data?

Yes. I mean I think I would say -- let me just say that the primary endpoint is in the intention to treat analysis. And the goal there is to demonstrate a statistically significant result. The enrichment subgroups are those patients who had higher run and weight loss on average and in those who had more ablation length on average. And our goal in those enrichment subgroups is to be able to show more than a 50% reduction versus sham in the rate of regain at 6 months. I think that would be a highly clinically impactful results. If we're able to see that, we'll have top line data in early Q4. Our plan is to submit all of our device manufacturing, our design history file and our 6-month data by early Q4 -- by late Q4 with the FDA as part of the de novo pathway and then to follow up with our 12-month data in Q1. So that leads you from Q4 to Q1. The de novo pathway is roughly a 150-day review process with some time for questions in between. So call it, 6 to 9 months of a review cadence on average. So if all goes well, that means potentially and clearance in the United States by late 2027 enabling an early 2028 launch.

Can you talk about maybe the advantages of de novo and you touched on some of them already.

Yes. I mean when we started this process, this sits in the device side of the house. So this is CDRH. And CDRH for novel devices has a de novo pathway for it's called Class II for low-to-moderate risk and as a PMA pathway or Class III for high risk. We started off in the PMA pathway, but the FDA has reviewed the totality of our safety evidence along the way and has given favorable feedback on that safety. Gives us confidence that we should follow where the dialogue with FDA has gone. We are pursuing the de novo pathway, and we have confidence in that. That's a more efficient, faster, more streamlined process. It establishes Revita as the definition of the category, what's needed for approval through de novo special controls -- for anything else that might follow, but it also accelerates label expansion and product improvements relative to the PMA. So there's a lot of advantages we see in it.

Yes. So for de novo, you start the process with the 6-month data, and then you need to follow it up with 12 months in order to get kind of the approval? Is that part of the process.

We think that the FDA is going to want to see both of the co-primary endpoints. And the plan will be to deliver all of that as soon as it's available.