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

Thanks. Earlier this afternoon we put out a press release covering the topics we intend to address today. You can find that release at www.fractyl.com, on the Investors tab. With us on today's call are Dr. Harith Rajagopalan, our Chief Executive Officer, and Lara Smith Weber, our Chief Financial Officer. Before we get started, there's one adjustment to how we're running things. For the first time ever, we asked all of our shareholders to send in questions for management and vote on them through Say by Robinhood. Once our prepared remarks are done, I'll read a selection of the shareholder questions that received the most votes, and after that the operator will open the line to our covering analysts. Our thanks to everyone who participated. On this call we'll be making forward-looking statements, and those carry risks and uncertainties that could cause actual results to differ materially from what those forward-looking statements suggest. A comprehensive list of risk factors appears in our SEC filings, including the quarterly report on Form 10-Q that was filed today, which we encourage you to review. Any forward-looking statements made on this call are subject to substantial risks and uncertainties and speak only as of the call's original date, and we undertake no obligation to update or revise any of these statements even if subsequent events cause the company's views to change. With that, it's now my pleasure to hand the call over to Harith.

Thanks, Brian, and good afternoon, everyone. Around 30 million Americans are receiving GLP-1 therapy at this point. Roughly 1 million people stop taking GLP-1s every month. Even so, among those using GLP-1s, just 1 in 12 Americans are still on them for obesity when 3 years have passed. So what happens to the 11 out of 12 who discontinue? Typically, 85% of patients put weight back on, and about 2/3 of that weight returns within a year; this is a systemic pattern rooted in biology, not a personal failure of willpower, and things do not have to stay this way. So why does the weight return? Our view is that the answer lies in the gut. Unhealthy eating habits these days accelerate the aging of cells within the gut. In plain terms, such alterations make us more vulnerable to obesity. What's more, a gut that has aged can retain a metabolic memory that perpetuates the disease. GLP-1 drugs have demonstrated that substantial weight reduction is attainable, yet they fail to undo the fundamental cellular factor behind obesity, and they don't restore a healthy gut either. The core issue remains unaddressed. Revita aims to accomplish both. Its purpose is to reset the metabolic memory of the gut via a single outpatient procedure engineered to ablate the compromised, unhealthy duodenal lining, allowing healthier tissue to grow back in its place. Think of it as LASIK for obesity. So the gut is now operating in concert with a person's weight-loss plan instead of fighting it. That opens the door to improved overall health and to weight loss that can truly endure even once the medication is no longer being taken. Last month, we put that notion through the toughest stress test we could design. In REMAIN-1, participants were driven to rapid, substantial weight reduction, and then high-dose tirzepatide was halted abruptly; it represents the most extreme real-world scenario imaginable, and the trial met its 6-month co-primary endpoint with high statistical significance. Today I'd like to take you through three points. To start, I'll cover what the REMAIN-1 top line revealed, the reasons we consider it clinically meaningful, and what comes next as we aim to finish the study in Q1 2027. Next, I'll explain why the market is ready for Revita, and third, how we have rebuilt fractal around it. After that, Laura will walk you through the quarter. I'll finish with 3 milestones that lie ahead: filing our de novo marketing application later this quarter, 12-month co-primary and key secondary end points in the first quarter of 2027, and clarity on the CMS rapid reimbursement rule. Every one of these value-accretive milestones is funded by the cash we have on hand. Let me address each one in order. So, what did the REMAIN-1 top line reveal? REMAIN-1 was built to deliver a quick, clean read on how safe and effective Revita is when used for weight upkeep after GLP-1 therapy. The study enrolled adults with obesity who had no prior GLP-1 exposure; they began tirzepatide and continued until they had dropped a minimum of 15% of body weight. On average, participants lost 18.3% of their weight over about 25 weeks, and roughly half reached the top 15-milligram dose. The drug was then stopped, and participants were randomized 2:1 to Revita or to a double-blind sham procedure, with 308 participants making up the modified intention to treat population. The trial met its 6-month co-primary endpoint with strong statistical significance, a p-value of 0.0023. People who stayed on Revita kept about 80% of the weight they'd lost while taking tirzepatide, and however we slice the data — the primary analysis and every prespecified sensitivity analysis — the result came out highly statistically significant, with a p-value showing two to three zeros. If anything, we view the comparison with sham as conservative, because participants were roughly three times as likely as those on Revita to go back on an anti-obesity medication, which could be masking Revita's real effect. Two findings I'd like you to remember. First, the effect grew larger over time. From month 1 to 3 to 6, the separation between Revita and sham kept widening at each visit, and it almost doubled from month 3 to month 6. In our pilot, Revita patients leveled off at roughly 80% of their weight loss still retained at 1 year. The pivotal trial, so far, is tracking that same pattern. Second, what does this mean for a single patient? Six months after stopping tirzepatide, 1 in 3 Revita participants were weight stable or had dropped even more weight, and close to half retained at least 80% of their weight loss. Also, if we take the 12-month responder endpoint method and apply it at 6 months as a post hoc analysis, over 97% of Revita participants kept clinically meaningful weight loss at 1 year, versus a performance goal of more than 50%. The formal test of that second co-primary endpoint will come with our 12-month data in the first quarter of 2027. We also continue to observe a dose response with ablation length. In our pilot, the benefit was clearest above 14 centimeters. With a much larger study, we now have the numbers and granularity to see it more precisely. Looking at a post hoc analysis, you begin to see separation from sham at a dose as low as 12 centimeters, and that separation keeps improving as the ablation gets longer across the entire duodenal length of about 20 centimeters. Patients who did best in our study got the full treatment of 20 centimeters or more, and their regain was under half that of sham. REMAIN-1 gives us not just the evidence behind the de novo submission we plan for later this quarter, but also evidence that tells us how to train physicians so they get maximum effect from the procedure once it's approved. Every extra 2 centimeters takes roughly 2 centimeters, and as physicians gained experience during the study, they made their ablations longer. Once we have the six- and twelve-month data, that should give us enough to pin down the right duration of treatment for use in the real world. On top of that, the dose response we're seeing offers an extra advantage. Since the duodenum is such a novel target, demonstrating a dose response adds credibility and confirms the target—which is something physicians keep telling us over and over. On safety, the profile was consistent with what we've come to expect from Revita. There were no serious adverse events related to the device or the procedure, no deaths, and no unanticipated adverse device effects. The related events were mostly mild, and nearly all of them occurred only on the day of the procedure. So REMAIN-1's next clinical milestone is straightforward; during the first quarter of 2027, we anticipate top-line 12-month data from the second co-primary endpoint. Should both co-primary endpoints be achieved, our key secondary endpoints—among them complete ablation and higher run-in weight loss—would then be formally tested in sequence. At 12 months, success looks like this. First, we hit the second co-primary endpoint, the prespecified performance goal. Judging by what we observe at 6 months, our confidence in that outcome is high. Second, with longer ablation lengths, we want to see an even larger effect, just as we demonstrated at 6 months. Our hope is that the Revita arm receiving complete treatment retains the majority of its weight loss at 1 year. The physicians with whom we've spoken, along with our patient market research, indicate that a full ablation ought to be the expected standard procedure for Revita, provided it receives authorization.

Let's shift our focus now from the data to what happens in the doctor's office. In a consumer-facing market, physicians won't be walking patients through placebo-adjusted differences; what they'll say instead is: here's the result you can realistically hold onto. The REMAIN-1 top line sent a very clear signal that patients may be able to retain the bulk of the weight they worked so hard to lose, with serious side effects remaining unlikely. So let's turn to why the market stands ready for Revita. During our Commercial Strategy Day in September, we laid out our reasoning for seeing Revita's launch as an activation of the market rather than its creation. Our commercial approach is a focused, efficient launch at bariatric and metabolic centers of excellence — the patients, the interventional physicians and surgeons, the procedure rooms, and the payer precedent are all already there. What is lacking is a lasting off-ramp. Each year, roughly 4 million Americans stop taking a GLP-1 after dropping at least 15% of their body weight and land in the BMI range we studied; that is the population REMAIN-1 enrolled. Those patients are concentrated in ASMBS centers of excellence that we can identify by name. There are approximately 1,000 accredited bariatric centers in the United States. Our launch plan is focused on the top 100 to 200 of them, and a lot of those are sites we're already familiar with from our clinical program. Each of those centers is already seeing over 2,000 GLP-1 patients every year, and at maturity we modeled 250 to 500 Revita procedures per center annually, which is well within what each center can handle. The metabolic interventionalist physicians at these centers already have the skills and the enthusiasm for procedures such as Revita; and half a day of training plus roughly 4 proctored cases in REMAIN-1 got them to proficiency. That's supported by a capital-efficient center of excellence model — which is the reason we think a launch can be handled by a commercial team in the tens, rather than the hundreds. In 2025, ahead of our pivotal data, we had third-party market research done covering approximately 750 patients, prescribers, and hospital stakeholders. From that research, three findings stand out. First, patients have a strong grasp of discontinuation risks. Close to 8 in 10 patients already knew about weight regain after stopping a GLP-1 and were very concerned by it. More than 80% placed a onetime procedure that allows them to stop their GLP-1 without regaining weight among the features they value most. Those expressing the greatest interest were patients currently taking a GLP-1. It's striking that even with the widely recognized advantages of staying on GLP-1 therapy over the long haul, one out of every three GLP-1 users we surveyed said they'd prefer to quit their GLP-1 and have a hypothetical endoscopic procedure instead of continuing their medication. Prescribers also told us that the evidence carrying the most weight with them is what happens to patients in the Revita arm — which is precisely how REMAIN-1 reads out. Next, patients want to make this choice jointly with their physician, and that's encouraging for Revita. The metabolic interventionalists we're centering our launch on already see these patients in their practices, and they're eager to offer them Revita should it receive clearance. Third, the physicians who perform procedures are ready. Physicians doing interventional work in the study are very keen to take up Revita, and what worried them was money and proof that it works — precisely the areas our reimbursement efforts and REMAIN-1 were built to tackle. So our launch is aimed at metabolic interventionalists — bariatric surgeons and advanced endoscopists — people already treating GLP-1 patients and already carrying out procedures. The independent doctors who came to our Commercial Strategy Day and joined our data calls during the past few months said this topic comes up in their practices every single day. A question we hear frequently: would oral GLP-1s alter that situation? Our view is no. For patients, the biggest draw was being able to give up either a once-weekly shot or a pill taken daily. An oral medication taken once a day might alter the way someone uses a GLP-1 and could bring more people to start one, yet it won't shift how they feel about continuing a GLP-1. Our position is straightforward: each time a patient begins treatment, whether by mouth or by injection, that person represents a possible future discontinuation, and having an off-ramp available is a treatment alternative that's needed. That leads me to reimbursement, which involves 3 components, and during the past quarter all 3 have achieved meaningful progress. Regarding coding, on October 2 the AMA released Category III CPT Code 1122T along with a dedicated code for the Revita procedure, effective January 1, 2027. Regarding reimbursement, should Revita secure CMS transitional pass-through status—and our expectation is that it will—hospitals could then recoup both the catheter expense and their contribution margin through the initial launch phase. Turning to coverage, CMS has put forward RAPID, a novel coverage route that might synchronize Medicare coverage with FDA authorization for breakthrough devices. What remains unresolved for Revita is the mechanism by which devices such as ours, whose pivotal trials are already in progress, would be able to take part in Rapid. Feedback received during the comment period was tremendous. Over 160 comments came in, and virtually all backed an on-ramp, among them the leading medical societies and the device industry associations, MDMA and AdvaMed. A number of them got more specific and brought up Revita by name; ASGE and ASMBS cited Revita as an illustration of the kind of device CMS has to figure out a fix for. They were also backed by a joint letter from AGA and ASGE, the Obesity Action Coalition Patient Advocacy Group, and top bariatric and endoscopic physicians who wrote in a personal capacity. We should know by early January whether CMS puts an on-ramp in place. Should Revita make the cut, that could give us a meaningfully stronger coverage position than what our base case presumes. And keep in mind that the Medicare GLP-1 bridge program is widening GLP-1 access for seniors through the close of 2027. And a federal program is establishing, and putting a time limit on, precisely the population that Revita was built to serve. Patients are available. Physicians are ready, and a reimbursement route is emerging. Revita is designed to fill that gap; let's now turn to how Fractyl has been restructured around Revita. Following consultation with our Board on October 21, we chose to streamline operations, staffing and the business so we can concentrate intensely on Revita's near-term goals. The objective is to reach our forthcoming clinical, regulatory and early commercialization milestones as efficiently as possible. That required reducing headcount by roughly 45% and halting in-house work on our Rejuva gene therapy program. With biotech financing as it stands today, we have a responsibility to adjust to what's actually happening—and that's what we've done. It was difficult to endure. These choices impact teammates who contributed to getting Revita where it is. Every one of them matters to me, and I appreciate all their efforts in building Fractyl into what it is now. As these adjustments take hold and spending on our pivotal trial tapers off, we anticipate quarterly cash used in operations will drop by roughly 50%, reaching about $8 million by the close of Q2 2027. With the planned de novo submission and our 12-month pivotal data factored in, our cash runway now reaches into the second quarter of 2027. This month we also welcomed Mike Wartell to our Board as an independent director.

Michael has a great deal of experience from serving on boards of both public and private companies, and we’re pleased to have his point of view as we work toward the milestones in front of us. I’d also like to express my thanks to Jay Caplan, our wonderful co-founder and former President and a dear friend of mine, who played a key role in helping build this company. Jay stepped away from his executive roles at the end of October. What all of this adds up to is a smaller company that is more efficient and more focused, with 1 priority: delivering on Revita’s near-term milestones. Lara?

Thanks, Harith. What defines this quarter is discipline. We've brought operating expenses down now, and there's a clear route to reducing what we spend in operating cash each quarter by about half. R&D expense came to $12.5 million in the third quarter of 2026, versus $17.5 million during the same period in 2025. That $5 million drop mostly reflected less spending on our Revita and Rejuva programs, along with lower personnel-related expenses. SG&A expenses totaled $6.2 million this quarter, compared with $5.2 million during the same period in 2025. That $1 million increase was mainly the result of higher personnel-related and stock compensation expenses. For Q3 2026, the net loss was $14.2 million, compared with a net loss of $45.6 million in the same quarter of 2025. That $31.5 million decrease was driven by a $25.7 million favorable swing in the noncash fair value of our warrant liabilities and a $4 million cut in operating expenses, along with smaller changes in the fair value of notes payable and in interest income. Adjusted EBITDA for this quarter was negative $16 million, compared with negative $20.8 million in Q3 2025 — a $4.8 million improvement, driven by lower operating expenses excluding stock compensation. Cash and cash equivalents stood at $31.5 million as of September 30, 2026. I want to call out 1 point regarding our run rate. Operating cash usage was a bit under $16 million for Q3, still reflecting REMAIN-1 pivotal cohort costs and the cost base we had prior to reprioritization. Once the cost cuts kick in and pivotal spending falls, we anticipate quarterly operating cash spend will drop by roughly 50%, reaching about $8 million by the close of Q2 2027. We expect severance and related charges of around $2 million, with most of that hitting in Q4. Given the operating plan we have in place now and the cost savings we expect to achieve, we think the cash we hold will carry us through operations until the second quarter of 2027 — enough to cover our planned de novo submission as well as the anticipated one-year top line data from the REMAIN-1 pivotal cohort. With that, I'll hand things back to Harith.

Thanks, Lara. To close, I'll come back to my opening point. Revita is designed to reset the gut's metabolic memory, and REMAIN-1 achieved its six-month co-primary endpoint with strong statistical significance under the hardest stress test we could design. Patients and physicians are present, and the reimbursement route is forming. We have restructured Fractyl around Revita, with the runway to clear the milestones right ahead of us. There are three milestones I'd like everyone watching over the coming months. The first one is filing our de novo marketing application, and we're aiming to kick that off late in the fourth quarter of 2026. Second comes our 12-month pivotal data in the first quarter of 2027 — that includes the second co-primary endpoint, the key secondary endpoints, and the dose-response analyses. What does success look like there? Hitting the regulatory performance goal and getting back roughly half of sham at full ablation lengths. Third is getting clarity on the CMS rapid reimbursement rule. By Q1, we should know whether CMS carves out an on-ramp for devices such as Revita whose pivotal trials are already underway, and we're optimistic they'll establish such a path. Past that, a possible FDA marketing authorization is anticipated in late 2027, with a potential U.S. commercial launch following in early 2028. My thanks go to the patients and remain on who placed their health and their persistence in our trust, to the investigators and operators whose execution of this trial has shown real skill, to our employees — including the colleagues departing this quarter — whose focus through an unusually demanding stretch has been exceptional, and to our shareholders, among them the many individual investors who sent us questions for the very first time, whose conviction in the science makes all of it possible; this is a moment Fractyl was built for. Our attention has never been sharper on making good on what lies ahead. Brian, why don't we begin with those questions.

Thanks, Harith. We'll start with questions our shareholders sent in through Say by Robinhood. I'll read a selection of the ones with the most votes, and I'll combine a few that overlap. So, the first question is: what specific steps are the Board and management taking to rebuild credibility with investors, including institutional investors?

I appreciate the question being put straight to me. Credibility comes from following through on commitments, and there are 4 steps I would highlight. First, the data: REMAIN-1 achieved its 6-month co-primary endpoint in a randomized, double-blinded, sham-controlled trial, and the result carried high statistical significance. Second, discipline. Together with our Board, we took difficult decisions last month so the company would be focused entirely on Revita and placed on a course to reduce quarterly operating cash spending by roughly half. Third, governance. This month, Mike Wartell joined our Board as an independent director. And fourth, we stay committed to maintaining an ongoing dialogue with our institutional and retail investors alike. Going forward, we expect to be measured on execution, de novo submission, 12-month data and clarity on Rapid.

Good. The next question pulls together a few funding-related ones. What is the company's plan for financing the milestones ahead? And are you looking into strategic partners, licensing deals, or possibly an acquisition?

We closed out the quarter holding $31.5 million in cash and cash equivalents. According to the operating plan we have in place right now, we think that amount is enough to keep funding operations into the second quarter of 2027, carrying us through the planned de novo submission and the 12-month REMAIN-1 data. The reprioritization that we announced in October should lower quarterly operating cash spending by roughly 50%, bringing it to about $8 million by the close of the second quarter of 2027. So under our present operating plans, the milestones we described are covered by the cash we currently have on hand. Past those milestones, additional capital will be required to bring Revita to market, and we will consider every option while keeping shareholder value in mind. On the strategic front, we do not comment on specific discussions, and we would only update you if there were something definitive to report. What I can tell you is that each milestone we deliver potentially widens the options available to us.

Okay, and the final investor question concerns the length of ablation. According to your data, longer ablations produced superior outcomes. Which training or procedural measures are you implementing to ensure that patients in real-world practice reliably get the full treatment length, or 20-plus centimeters?

That is a really good question. Honestly, the answer is fairly straightforward. When we did our analysis, we observed a stronger treatment effect at the longer ablation lengths, which matches what earlier studies showed, and in the post-hoc analysis the patients who got to 20 centimeters experienced the largest effect, with no safety signal tied to it. With the current device, physicians in REMAIN-1 did reach that length. Every extra 2 centimeters adds roughly 2 minutes, and these results shape the procedural parameters we have proposed to the FDA. Should Revita be approved, they will also shape the physician training program we plan for launch.

Alright, that brings the shareholder questions to a close. Thanks to all of you who sent one in. Operator, could you go ahead and open it up for the analysts?

Angela here, filling in for Whitney. I’ve got a question about the Medicare patient population. Given that the bridge program ends at the end of ’27, it sounds like that group could really make up a meaningful share of Revita patients. And since you’re going after the top 10% to 20% of high-volume accredited metabolic and bariatric centers, could you perhaps share what percentage of patients at those centers are Medicare patients right now?

Sure. Thanks for the question, Angela. I’d say that, yes, we are planning an early launch that is predicated on Medicare patients. What you’re asking is complicated, because until about 6 months ago, relatively few patients were Medicare patients. But in our conversations in the last several weeks alone, what we’re seeing is that every one of our centers with whom we’re in dialogue is experiencing a rapid rise in the number of Medicare patients who are specifically seeking GLP-1s through this bridge program. Earlier in the quarter, we heard from David Ricks, the CEO of Eli Lilly, that 700,000 patients had joined the GLP-1 bridge program across the United States. That figure is a fraction of what Medicare anticipates will be in the United States. It will be roughly 4 million to 5 million people on the GLP-1 bridge by around this time next year. So if you assume that there are roughly 30 million people on GLP-1s today, and let’s say that’s a relatively steady-state number, it’s going to grow by about 4 million to 5 million GLP-1 patients who come from the Bridge program alone. That’s our expectation.

Understood. If I may jump in right away with a second question, building on something a shareholder raised. Given that you've now seen longer ablation lengths and stronger efficacy, I suppose, would you expect doctors might need more training than was earlier assumed, because a longer length may have to be ablated?