Fractyl Health, Inc. Common Stock (NASDAQ:GUTS) Q2 2024 Earnings Call Transcript

Fractyl Health, Inc. Common Stock (NASDAQ:GUTS) Q2 2024 Earnings Call Transcript August 14, 2024

Operator: Good afternoon, and welcome to Fractyl Health’s Second Quarter Financial Results and Business Updates Call. As a reminder, this conference call is being recorded. At this time, all participants are in a listen-only mode. There will be a Q&A session following management’s prepared remarks. I will now turn the call over to Stephen Jasper. Stephen, you may now begin.

Stephen Jasper: Thank you. This afternoon we issued a press release that outlines the topics we plan to discuss today. This release is available at www.fractyl.com under the Investors tab. Joining us on the call today are Dr. Harith Rajagopalan, Chief Executive Officer and Lisa Davidson, Chief Financial Officer. Before we begin, I would like to remind everyone that statements made during this conference call that do not relate to matters of historical fact, including statements about our objectives and anticipated clinical milestones, preclinical or clinical trial data, the impact of any of our product candidates, the design initiation, timing and results of clinical enrollment and any clinical trial or readouts, the potential launch or commercialization of any of our product candidates or products, the sufficiency of our cash, cash equivalents and investments to fund our operating activities for any specific period of time should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are intended to be subject to the Safe Harbor protection provided by the Reform Act. Actual results could differ materially from those indicated by the forward-looking statements due to the impact of risks, uncertainties and other important factors. Participants are directed to the risk factors set forth in Fractyl’s quarterly report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2024 and the company’s other filings with the SEC. Any forward-looking statements made today speak only to Fractyl’s operations as of today. Fractyl disclaims any duty to provide updates to its forward-looking statements even if subsequent events cause the company’s views to change. It is now my pleasure to pass the call over to Harith.

Harith Rajagopalan: Thank you, Stephen and good afternoon everyone. Thank you for joining us on today’s call. I am proud of the progress we’ve made in the past quarter at Fractyl Health as we continue to deliver on our promise to develop transformative therapies that can prevent and reverse metabolic disease. Several recent achievements underscore the potential of our platform. In the past quarter, we have seen the FDA has awarded Revita a Breakthrough Device Designation for weight maintenance after GLP-1 drug discontinuation. We’ve also seen Revita’s Real World Registry in Germany, having demonstrated through one year of follow up in an initial cohort substantial and sustained weight loss and blood sugar control in patients living with obesity and type 2 diabetes.

We have had a significant expansion of our REVITALIZE-1 pivotal study protocol and potential patient population for Revita for glucose control in type 2 diabetes and an award winning data presentation of our Rejuva gene therapy platform at the American Diabetes Association, which I will discuss later. At the same time, we are disappointed in the disconnect between our substantial progress over the last several quarters and our share price. Considering the challenging financial circumstances in the market, we are committed to managing our business with financial discipline, a heightened sense of urgency and a keen focus on operational execution. We value the support and feedback from our shareholders and would be happy to engage further to discuss our strategy and prospects.

The management team and I are incredibly optimistic about the near-term prospects for the company and based on our track record and significant progress made since going public in February, we are confident in our ability to execute upon major upcoming value drivers over the next few quarters, which I am excited to walk through today on our call. As we advance our two platforms, Revita and Rejuva, we see an opportunity to truly bring an end to obesity by developing and delivering disease modifying therapies that offer scalable, sustained solutions to the disease. We are laser focused on achieving key upcoming data milestones across both programs that will de-risk our clinical, regulatory and commercial opportunity.

LASIK: Obesity is the single most significant opportunity in healthcare today. We know GLP-1 drugs have been shown in large clinical trials to be very effective in helping patients achieve weight loss and other cardiometabolic benefits. However, there was considerable debate about how to quantify the true impact these drugs will have on healthcare outcomes in the Real World. Why is that? Higher rates of GLP-1 discontinuation have been reported by multiple groups and are now in fact already old news.

Wegovy:

Truveta: This implies that there’s a very high rate of GLP-1 experimentation in the market today, but also that the majority of patients who stop taking the drug do not start another drug within one year at least, and therefore are not going to benefit from the drugs that are available long enough to see the benefits that the clinical trials are showing. What’s more, there are a large number of individuals who have not yet tried a GLP-1 drug. Broad payer reimbursement has become a key hurdle to unlocking access, and it is clear that expanded coverage will depend on Real World results to demonstrate durable weight loss maintenance, the kind of results that we believe Revita can offer. So it’s becoming clear that chronic administration of GLP-1, combined with potential side effects, high costs and distribution issues, has resulted in truly abysmal long-term adherence.

The obesity market is in a situation where, having now substantially solved the problem of short-term weight loss, the incredible unmet need in obesity has shifted to the problem of durable weight maintenance. What is so differently needed for patients is a reliable and effective off ramp from GLP-1 drug therapy. However, innovation in the space by other competitors cannot solve the problem of adherence and is rather therefore focused on a zero sum game of superiority to existing drugs. All these alternatives are competing against each other for only one piece of the puzzle, which comprises the minority of patients who are willing to comply with a lifelong chronic drug regimen. It is clear that major players are beginning to pay very close attention to the issues around weight maintenance and the limitations of the drug product form in the treatment of obesity.

We were incredibly proud to share that earlier this month, the FDA recently granted Breakthrough Device Designation for our Revita system for use in maintaining weight loss after discontinuing GLP-1 drugs. Breakthrough Device Designation allows for acceleration of development, assessment and FDA review for premarket approval. We and our scientific advisors believe that this is a momentous event in the field of obesity management because to our knowledge, Revita is the first and only device developed for obesity to receive Breakthrough Device Designation. The FDA has clearly specified that weight maintenance is defined as the achievement and maintenance of clinically meaningful weight loss for one year after the discontinuation of therapy. And despite the development of a range of products for obesity, ranging from peptides to small molecules to antibodies to even siRNA approaches, we are unaware of any other products in development that can come anywhere close to maintaining metabolic benefits for one year after discontinuation.

Our confidence in Revita is validated by what we’re seeing in our Real World Registry study in Germany, which continues to show impressive clinical results in the first tranche of patients who have achieved one year of follow up. At baseline prior to Revita these 11 patients has a median age of 62 years, median body weight of 111 kilograms, and advanced type 2 diabetes with an average of 15 years since diagnosis of diabetes.

HbA1c: We will be presenting data in larger numbers of patients at a scientific meeting later this year. So data from this Real World Registry, while relatively small numbers at one year so far, validate the results that we have seen from pooled analyses of over 100 Revita clinical trial patients who had previously been followed for a year or more. The data from Germany are a promising indicator, therefore, for our weight maintenance to REMAIN-1 pivotal study as well as our type 2 diabetes REVITALIZE-1 pivotal study. We believe the German registry experience also provides important read through for the potential on-label results Revita may see in other regions, including the United States, if and when approved. What’s more, we look ahead to the next several quarters in Germany, where Revita has a CE Mark label to treat inadequately controlled type 2 diabetes despite the use of glucose lowering medications, where we have enthusiastic investigators and patients who are now one year post Revita leading lives that are generally healthier and less burdened by disease and disease management than before Revita.

Given the feedback from physicians and patients within the registry and these remarkable clinical results for patients who would rather live with poorly controlled type 2 diabetes than take another medication and are opting for Revita to improve their glucose control and to lower weight without needing more medicines, we are gratified to have a waiting list of hospitals and physicians throughout Germany who would like to begin offering Revita for their patients. And we anticipate offering Revita at additional centers in Germany over the course of the next several quarters, and to turn attention from purely running a registry in the country to begin to inform and educate patients and physicians to see if Revita is right for them. As we’ve been ramping up our REMAIN-1 study for weight maintenance, our focus has been on leveraging centers of excellence with GI endoscopists who are already involved in our REVITALIZE clinical program.

In particular, we’ve developed strong relationships with GI endoscopists who have a specific area of interest in bariatric and metabolic endoscopy, given the critical role of the gut in controlling obesity and metabolic disease. Something we’ve been told time and again from doctors is that they have an overwhelming number of patients who are desperate to lose weight and to keep it off, and many bariatric and metabolic focused endoscopists who we are recruiting for the clinical trials are already building obesity practices due to high demand for their services. Many of them have a ready pool of patients who are potential Revita candidates within their own GI groups and a motivation to build these practices to offer additional therapies for a larger number of patients.

These GI doctors also have deep relationships with primary care physicians who already refer patients to them, allowing for a natural referral network for patients to be identified and treated in endoscopy centers. After speaking with these doctors, we are confident that our focus on these highly trained specialists will allow us to build a significant network of physicians, who can easily introduce the approximately 40-minute Revita procedure seamlessly into their practice. Millions of patients with obesity and type 2 diabetes are already seeing gastroenterologists regularly and millions of endoscopies are performed annually for people with obesity and type 2 diabetes. Of the estimated 20 million endoscopies that are performed each year in the United States, roughly 40% of people, or 8 million endoscopies, are already being performed annually for people with obesity in the U.S. So these patients are already coming to endoscopy, already getting procedures, and Revita is purpose built to fit into this high volume, highly scalable workflow.

What this allows is a targeted and efficient commercial model that would allow us to focus on bariatric and metabolic endoscopists, to help build on their existing practices to offer Revita for potential indications that they cannot currently offer today. This is not the same approach as prescribing an oral or injectable agent for weight loss, but we do believe this is a highly attractive therapeutic alternative to the clearly very large segment of patients who are looking for a durable weight loss solution without being on chronic drug therapy. We look forward to speaking more about our targeted and efficient commercial model and the path forward to that in future quarters. Back to Revita clinical development. As you’ll remember, REMAIN-1 is our pivotal study for weight maintenance after GLP-1 drug discontinuation in obesity.

Having obtained FDA IDE approval for this study at the end of Q1, we are pleased to report that we have now initiated the study and are actively enrolling at several centers in the United States. We see incredible enthusiasm from physicians and patients as we begin to ramp up study enrollment and we anticipate reporting a midpoint data analysis in the second quarter of 2025, which will evaluate approximately 45 patients who have been randomized and followed for 12 weeks post-treatment with Revita or sham. These are patients who were not previously on tirzepatide who will be achieving 15% total body weight loss and then tirzepatide will be discontinued and they will be randomized and then followed for 12 weeks.

HbA1c: We will be presenting data in larger numbers of patients at a scientific meeting later this year. So data from this Real World Registry, while relatively small numbers at one year so far, validate the results that we have seen from pooled analyses of over 100 Revita clinical trial patients who had previously been followed for a year or more. The data from Germany are a promising indicator, therefore, for our weight maintenance to REMAIN-1 pivotal study as well as our type 2 diabetes REVITALIZE-1 pivotal study. We believe the German registry experience also provides important read through for the potential on-label results Revita may see in other regions, including the United States, if and when approved. What’s more, we look ahead to the next several quarters in Germany, where Revita has a CE Mark label to treat inadequately controlled type 2 diabetes despite the use of glucose lowering medications, where we have enthusiastic investigators and patients who are now one year post Revita leading lives that are generally healthier and less burdened by disease and disease management than before Revita.

Given the feedback from physicians and patients within the registry and these remarkable clinical results for patients who would rather live with poorly controlled type 2 diabetes than take another medication and are opting for Revita to improve their glucose control and to lower weight without needing more medicines, we are gratified to have a waiting list of hospitals and physicians throughout Germany who would like to begin offering Revita for their patients. And we anticipate offering Revita at additional centers in Germany over the course of the next several quarters, and to turn attention from purely running a registry in the country to begin to inform and educate patients and physicians to see if Revita is right for them. As we’ve been ramping up our REMAIN-1 study for weight maintenance, our focus has been on leveraging centers of excellence with GI endoscopists who are already involved in our REVITALIZE clinical program.

In particular, we’ve developed strong relationships with GI endoscopists who have a specific area of interest in bariatric and metabolic endoscopy, given the critical role of the gut in controlling obesity and metabolic disease. Something we’ve been told time and again from doctors is that they have an overwhelming number of patients who are desperate to lose weight and to keep it off, and many bariatric and metabolic focused endoscopists who we are recruiting for the clinical trials are already building obesity practices due to high demand for their services. Many of them have a ready pool of patients who are potential Revita candidates within their own GI groups and a motivation to build these practices to offer additional therapies for a larger number of patients.

These GI doctors also have deep relationships with primary care physicians who already refer patients to them, allowing for a natural referral network for patients to be identified and treated in endoscopy centers. After speaking with these doctors, we are confident that our focus on these highly trained specialists will allow us to build a significant network of physicians, who can easily introduce the approximately 40-minute Revita procedure seamlessly into their practice. Millions of patients with obesity and type 2 diabetes are already seeing gastroenterologists regularly and millions of endoscopies are performed annually for people with obesity and type 2 diabetes. Of the estimated 20 million endoscopies that are performed each year in the United States, roughly 40% of people, or 8 million endoscopies, are already being performed annually for people with obesity in the U.S. So these patients are already coming to endoscopy, already getting procedures, and Revita is purpose built to fit into this high volume, highly scalable workflow.

What this allows is a targeted and efficient commercial model that would allow us to focus on bariatric and metabolic endoscopists, to help build on their existing practices to offer Revita for potential indications that they cannot currently offer today. This is not the same approach as prescribing an oral or injectable agent for weight loss, but we do believe this is a highly attractive therapeutic alternative to the clearly very large segment of patients who are looking for a durable weight loss solution without being on chronic drug therapy. We look forward to speaking more about our targeted and efficient commercial model and the path forward to that in future quarters. Back to Revita clinical development. As you’ll remember, REMAIN-1 is our pivotal study for weight maintenance after GLP-1 drug discontinuation in obesity.

Having obtained FDA IDE approval for this study at the end of Q1, we are pleased to report that we have now initiated the study and are actively enrolling at several centers in the United States. We see incredible enthusiasm from physicians and patients as we begin to ramp up study enrollment and we anticipate reporting a midpoint data analysis in the second quarter of 2025, which will evaluate approximately 45 patients who have been randomized and followed for 12 weeks post-treatment with Revita or sham. These are patients who were not previously on tirzepatide who will be achieving 15% total body weight loss and then tirzepatide will be discontinued and they will be randomized and then followed for 12 weeks.

REVEAL: Turning toward Revita for type 2 diabetes, our goal with REVITALIZE-1 is to establish Revita as a safe, effective and straightforward treatment alternative to medication escalation for patients with type 2 diabetes. As we are beginning to see in Germany, we believe patients may choose this as early as second line or as an alternative to initiating injectables or insulin or escalating insulin therapy. The common factor influencing patient behavior is the desire to have better disease control while avoiding medication escalation. In June, we announced our plans to significantly expand our revitalized one pivotal study of Revita to include patients with type two diabetes who are inadequately controlled on any glucose lowering agent, including GLP-1 and/or insulin, thereby expanding our potential U.S. treatment population by about six-fold.

We continue to enroll this study and anticipate reporting top line data in mid-2025. Finally, we wanted to turn to our nutrient responsive GLP one gene therapy platform, Rejuva. We continue to generate preclinical data that excites the scientific and medical community for the potential game changing nature of this platform. We have shared new head-to-head preclinical data comparing Rejuva to semaglutide, which demonstrated that treatment with Rejuva yielded robust and durable weight loss in mice with diet induced obesity and also enabled sustained weight maintenance following semaglutide withdrawal. Importantly, mice treated with Rejuva demonstrated a greater relative proportion of loss of fat mass to lean mass than those treated with semaglutide, and this has been flagged, as you know, as a significant potential risk with currently approved GLP-1 drugs.

With these exciting accomplishments, we are now gearing up for a catalyst-rich second half of 2024, including key inflection points across both platforms. In Revita, we will have initial data from the REVEAL open-label cohort in weight maintenance by the end of the year, in addition to ongoing updates from our Germany Real World Registry data impacting Revita’s potential in both obesity and in type 2 diabetes. In Rejuva, we anticipate completing IND enabling studies for Rejuva-1, our first candidate targeting type 2 diabetes, as well as additional data presentations on the Rejuva GLP-1 platform and major scientific congresses in the second half of the year. We will also be nominating our second candidate, Rejuva-2, for obesity in the second half of the year.

We are very excited with the progress our team has made and the near-term data we plan to share across both programs, which we believe will reinforce our leadership position in addressing the massive unmet need in obesity to offer sustained solutions for obesity and metabolic disease. And before I pass the call over to Lisa, I also want to provide another business update. Allan Will, our longtime Chair of the Board, has decided to step down from our Board after 12 years of distinguished service. We are fortunate to have benefited from Allan’s guidance as Chair over these last 12 years. His leadership helped us to grow from an early stage research company to a public company with two pivotal studies in two major disease categories and an exciting gene therapy pipeline.

We are grateful for his years of service and we wish him the very best. Allan will serve as an advisor to Ajay Royan, who has been appointed as the new Chair of the Board. I am pleased that Ajay will step in as Chair during this critical inflection point for Fractyl. His passion, extensive experience and strategic vision will be invaluable as we accelerate development of our products towards potential regulatory approval and commercialization. With that, I will now turn the call to Lisa to provide an update on our second quarter financials. Lisa?

REVEAL: Turning toward Revita for type 2 diabetes, our goal with REVITALIZE-1 is to establish Revita as a safe, effective and straightforward treatment alternative to medication escalation for patients with type 2 diabetes. As we are beginning to see in Germany, we believe patients may choose this as early as second line or as an alternative to initiating injectables or insulin or escalating insulin therapy. The common factor influencing patient behavior is the desire to have better disease control while avoiding medication escalation. In June, we announced our plans to significantly expand our revitalized one pivotal study of Revita to include patients with type two diabetes who are inadequately controlled on any glucose lowering agent, including GLP-1 and/or insulin, thereby expanding our potential U.S. treatment population by about six-fold.

We continue to enroll this study and anticipate reporting top line data in mid-2025. Finally, we wanted to turn to our nutrient responsive GLP one gene therapy platform, Rejuva. We continue to generate preclinical data that excites the scientific and medical community for the potential game changing nature of this platform. We have shared new head-to-head preclinical data comparing Rejuva to semaglutide, which demonstrated that treatment with Rejuva yielded robust and durable weight loss in mice with diet induced obesity and also enabled sustained weight maintenance following semaglutide withdrawal. Importantly, mice treated with Rejuva demonstrated a greater relative proportion of loss of fat mass to lean mass than those treated with semaglutide, and this has been flagged, as you know, as a significant potential risk with currently approved GLP-1 drugs.

With these exciting accomplishments, we are now gearing up for a catalyst-rich second half of 2024, including key inflection points across both platforms. In Revita, we will have initial data from the REVEAL open-label cohort in weight maintenance by the end of the year, in addition to ongoing updates from our Germany Real World Registry data impacting Revita’s potential in both obesity and in type 2 diabetes. In Rejuva, we anticipate completing IND enabling studies for Rejuva-1, our first candidate targeting type 2 diabetes, as well as additional data presentations on the Rejuva GLP-1 platform and major scientific congresses in the second half of the year. We will also be nominating our second candidate, Rejuva-2, for obesity in the second half of the year.

We are very excited with the progress our team has made and the near-term data we plan to share across both programs, which we believe will reinforce our leadership position in addressing the massive unmet need in obesity to offer sustained solutions for obesity and metabolic disease. And before I pass the call over to Lisa, I also want to provide another business update. Allan Will, our longtime Chair of the Board, has decided to step down from our Board after 12 years of distinguished service. We are fortunate to have benefited from Allan’s guidance as Chair over these last 12 years. His leadership helped us to grow from an early stage research company to a public company with two pivotal studies in two major disease categories and an exciting gene therapy pipeline.

We are grateful for his years of service and we wish him the very best. Allan will serve as an advisor to Ajay Royan, who has been appointed as the new Chair of the Board. I am pleased that Ajay will step in as Chair during this critical inflection point for Fractyl. His passion, extensive experience and strategic vision will be invaluable as we accelerate development of our products towards potential regulatory approval and commercialization. With that, I will now turn the call to Lisa to provide an update on our second quarter financials. Lisa?

REVEAL-1: Turning toward Revita for type 2 diabetes, our goal with REVITALIZE-1 is to establish Revita as a safe, effective and straightforward treatment alternative to medication escalation for patients with type 2 diabetes. As we are beginning to see in Germany, we believe patients may choose this as early as second line or as an alternative to initiating injectables or insulin or escalating insulin therapy. The common factor influencing patient behavior is the desire to have better disease control while avoiding medication escalation. In June, we announced our plans to significantly expand our revitalized one pivotal study of Revita to include patients with type two diabetes who are inadequately controlled on any glucose lowering agent, including GLP-1 and/or insulin, thereby expanding our potential U.S. treatment population by about six-fold.

We continue to enroll this study and anticipate reporting top line data in mid-2025. Finally, we wanted to turn to our nutrient responsive GLP one gene therapy platform, Rejuva. We continue to generate preclinical data that excites the scientific and medical community for the potential game changing nature of this platform. We have shared new head-to-head preclinical data comparing Rejuva to semaglutide, which demonstrated that treatment with Rejuva yielded robust and durable weight loss in mice with diet induced obesity and also enabled sustained weight maintenance following semaglutide withdrawal. Importantly, mice treated with Rejuva demonstrated a greater relative proportion of loss of fat mass to lean mass than those treated with semaglutide, and this has been flagged, as you know, as a significant potential risk with currently approved GLP-1 drugs.

With these exciting accomplishments, we are now gearing up for a catalyst-rich second half of 2024, including key inflection points across both platforms. In Revita, we will have initial data from the REVEAL open-label cohort in weight maintenance by the end of the year, in addition to ongoing updates from our Germany Real World Registry data impacting Revita’s potential in both obesity and in type 2 diabetes. In Rejuva, we anticipate completing IND enabling studies for Rejuva-1, our first candidate targeting type 2 diabetes, as well as additional data presentations on the Rejuva GLP-1 platform and major scientific congresses in the second half of the year. We will also be nominating our second candidate, Rejuva-2, for obesity in the second half of the year.

We are very excited with the progress our team has made and the near-term data we plan to share across both programs, which we believe will reinforce our leadership position in addressing the massive unmet need in obesity to offer sustained solutions for obesity and metabolic disease. And before I pass the call over to Lisa, I also want to provide another business update. Allan Will, our longtime Chair of the Board, has decided to step down from our Board after 12 years of distinguished service. We are fortunate to have benefited from Allan’s guidance as Chair over these last 12 years. His leadership helped us to grow from an early stage research company to a public company with two pivotal studies in two major disease categories and an exciting gene therapy pipeline.

We are grateful for his years of service and we wish him the very best. Allan will serve as an advisor to Ajay Royan, who has been appointed as the new Chair of the Board. I am pleased that Ajay will step in as Chair during this critical inflection point for Fractyl. His passion, extensive experience and strategic vision will be invaluable as we accelerate development of our products towards potential regulatory approval and commercialization. With that, I will now turn the call to Lisa to provide an update on our second quarter financials. Lisa?

Lisa Davidson: Thank you, Harith. In the second quarter of 2024, revenue was generated from our commercial pilot in Germany and enabled patients to enroll in the German Real World Registry Study. Turning to operating expenses, research and development expense in the second quarter of 2024 were $16.8 million compared to $9.1 million for the same period in 2023. The increase during the quarter was primarily due to the initiation of the REMAIN-1 study, the progress made in the REVITALIZE-1 study and continued development of the Rejuva program, as well as increased personal related expenses including stock-based compensation. Selling, general and administrative expense in the second quarter of 2024 was $6.2 million, compared to $2.8 million in the same period in 2023.

The increase was primarily due to professional service expenses and other costs associated with operating as a publicly traded company and increased personnel related expenses, including stock-based compensation. For the second quarter of 2024, we reported a net loss of $17.2 million, compared to a net loss of $30.2 million for the same period in 2023. The decrease in net loss was primarily attributed to the noncash change in fair value of notes payable and warrant liabilities, as well as increased interest income offset by the increase in operating expenses. As of June 30, 2024, we had cash and cash equivalents of $102.4 million. Based on our current development plans, we believe cash and cash equivalents will be sufficient to fund our operations through expected key company milestones into Q4 2025.

I will now turn the call back to Harith.

Harith Rajagopalan: Thank you, Lisa. As you can see, we’ve made significant progress over the last quarter to take advantage of our unique opportunity to become an industry leader in weight maintenance. Maintenance while there seems to be a new drug targeting obesity every month that promises improved tolerability or a new mechanism, the truth remains that they are all seeking to tackle the obesity epidemic in the same way through chronic administration, which is simply not sustainable for most people. At Fractyl, our goal is to provide solutions that free people from the burden of obesity and metabolic disease through sustainable solutions that have lasting benefits and do not depend on long term adherence. As we enter the second half of 2024, we have several key clinical and preclinical milestones that have the potential to help us realize our vision of delivering durable disease modifying therapies to patients suffering from metabolic disease.

I would like to take this opportunity to thank the patients and physicians who continue to put their trust in us and our products, the employees at Fractyl, who are laser focused on delivering life changing therapies, and you, our shareholders. We are grateful for your support and more optimistic than ever before about our prospects to deliver on our promises. And with that, we will now open the call up for questions. Thank you very much.

Operator: [Operator Instructions] Our first question comes from the line of Jason Gerberry of BofA.

Q&A Session

Unidentified Analyst: Oh, hi, this is Che on for Jason this afternoon. Thanks for all the update and thanks for taking up questions. We have two questions, maybe the first one on Revita. Given you have some data coming out from the review, one open-label data in fourth quarter, I’m hoping that you can maybe provide a little bit more color on your expectation for the open-label data in 4Q. How large might the sample size be and would you expect to follow up to be sufficiently long enough to get an initial read on the efficacy in weight maintenance? And looking more broadly into next year, you will also have some control data from the REMAIN-1 study in second quarter 2025, hoping you can provide some color to discuss how might the initial Review-1 data help inform the Revita’s therapeutic potential ahead of the bigger second quarter 2025 update? And then I have a follow up after this.

Harith Rajagopalan:

REVEAL: We anticipate that within four to eight weeks patients will have an increase in hunger and will have steadily increasing weight regain, if they do not benefit from the therapy, because that is what we have seen from studies of semaglutide withdrawal or tirzepatide withdrawal in the randomized trials that they have presented, but also in routine clinical practice. We’re giving patients digital scales that will allow us to get daily readings on what their weights are, and we’ll be getting them to come into the clinic at week four and then again at week 12. And we’re going to have data from the first 10 patients emerging at the end of the year and we anticipate enrolling a total of 20 patients in this open-label study. So we’ll have accruing data into Q1 of 2025.

I do believe that if Revita is helping preserve weight loss in these individuals, you’re going to begin to see that very soon after they stop their GLP-1, you’re going to see that based on how hungry they feel, you’re going to see that based on how their weight trajectories look. And I do believe that that will be predictive, as is the German Registry data of what we might expect to see in terms of the ability to sustain a lower weight for a prolonged period of time. Now, turning to your question about the REMAIN midpoint data analysis, we have heard from, from players in the space that control data would be valuable in order to be able to de risk the clinical and regulatory opportunity for Revita in weight maintenance. And so we have built into the study a plan to do an interim, sorry, a midpoint analysis of 45 subjects at 12 weeks of follow up, wherein there will be a two to one randomization between Revita and Sham.

So the basic question is, what does the trajectory of weight regain look like in the Revita arm versus the sham arm over that 12-week period of time? And are we beginning to see that there is a separation between the two groups that would enable us to predict the likelihood of success in achieving our primary endpoint efficacy, endpoint at 24 weeks. And that’s the data that we will begin to present in Q2. And you can obviously imagine that we’ll be continuing to follow those patients and we’ll give you data, updated updates into the back half of 2025 as well.

Unidentified Analyst: Got it. Before I move to my second question, I just want to confirm your fourth quarter data. You said you expect maybe somewhere around 10 patients worth of data. Will they have, say four week of follow up so that you can get an initial week on the efficacy and weight maintenance or would you expect to follow patients longer, maybe sometime in the 2025 before you can get a read of the weight maintenance therapeutic potential?

Harith Rajagopalan:

SURMOUNT-4:

Unidentified Analyst: Got it, thanks. And maybe moving on to my second question on Rejuva your GLP-1 gene therapy, I’m curious can you provide a bit more color on how close you are to completing the IND enabling work? Do you expect a regulatory hurdle for, at least for clinical trial initiation to be pretty straightforward based on conversations you may have already had with the regulator or regulators, and given your plan to initiate a first in human study first half next year, curious when my investor can expect to see initial human data for the Rejuva program. Thanks so much.

Harith Rajagopalan: Yes, great question, Che. I think that, we have met with regulators in Europe to discuss our Rejuva-1 preclinical development, and we have alignment with them on the preclinical animal models to be used, which are the db/db mice and the Yucatan pig, small animal model for efficacy, large animal model for safety, toxicology because it mimics the human route of administration. We already have extensive experience and have already shown data on all of the above with RJVA-001 candidates and are working our way through the same with our development candidate itself. We do. We’ve also come to an alignment with regulators about the types of bio-distribution studies that need to be completed and the patient population being individuals who are inadequately controlled with type 2 diabetes, who are already on a GLP-1 drug therapy and are able to benefit from it and tolerate it in order to be able to de risk both the safety and the potential efficacy of the Rejuva-1 candidate in that type 2 diabetes patient population.

So we have alignment on all of those things. I do think that we have some work to do to finalize the CMC requirements, and we will be working to gain greater clarity on that in the second half of 2024. And that will be the major next step before we feel like we’re ready to file for a first in human study.

Unidentified Analyst: Oh, great. So do you talk about — do you have any expectation for any — the timing for initial human data? Do you expect maybe some in preliminary safety data in second of 2025 or too early to tell at this point?

Harith Rajagopalan: We do expect that, I think that you’re going to get some, the safety that you’re going to be looking to pay attention to here is the procedure itself causing any injury and we are feeling confident that it won’t be based on our expensive experience in preclinical models because of our experts who have been advising us in the development of this technique. Nevertheless, that should be an early signal and then you’re going to be wondering about the safety of the AAV itself. And that’s usually a question that emerges over a four to six-week period of time immediately after the intervention. But the questions around the efficacy and safety of the GLP-1, as you know from other gene therapies, will take weeks to months. And I think that that’s going to be a question that we’re going to begin to be able to answer in the back half of 2025.

Unidentified Analyst: Great, thanks so much for all the color. Looks like a lot of different data updates for various across your pipeline portfolio next 12 months and we look forward to seeing those updates evolve.

Harith Rajagopalan: Great, thank you so much.

Operator: Thank you. Our next question comes from the line of Mike Ulz of Morgan Stanley.

Michael Ulz: Hey guys, thanks for taking the question. Maybe just to follow up on some of the earlier questions related to obesity, and not sure how much you can comment here, but just if you could talk about the early rate of enrollment in REMAIN and just maybe how that’s tracking versus your expectations. Thanks.

Harith Rajagopalan: Hi Mike. We started enrolling earlier this month. We just announced it today. What we are seeing is that there’s a lot of interest and enthusiasm where there’s a bunch of patients who are lining up in the first centers to come in. This is consistent with what other people see in obesity trials, which tend to enroll five times as rapidly as some other studies. And so we’re feeling encouraged, but it’s still very early days and we’d be happy to update you later on in the year as it progresses and we have a little few more data points that we can call upon.

Michael Ulz: Yep, makes sense. And are you seeing more, are you seeing faster enrollment maybe in the REVEAL sort of open-label cohort versus REMAIN just because patients will have the opportunity to get on a GLP-1 first?

Harith Rajagopalan: Yes. So to be clear, the sites that are actively enrolling so far are sites that are obesity centers. Not yet the endoscopy centers and so we are going to be enrolling the REVEAL portion at hospitals that offer the endoscopy because of for logistical reasons. We anticipate those patients will start coming in later on in the quarter. These first patients who are coming in are the ones that we’re starting to put on tirzepatide so that we can see the randomized data, because that’s a long poll on the tent for us.

Michael Ulz: Got it. Makes sense, thanks.

Harith Rajagopalan: Thank you.

Operator: Thank you. Our next question comes from the line of Umer Raffat of Evercore.

Umer Raffat: Hi, guys. Thanks so much for taking my question, and congrats on all the progress this quarter. Just two questions from me. One is one of revisit the open-label registry data that you reported recently. I think last week, the weight loss data in this data cut definitely seemed to have improved versus the three-month data cut presented at the DDG meeting in May. So I’m curious to see how this new data cut varied among individual patients. Also, in the DDG analysis, I think roughly one-third of the patients were on GLP-1s at baseline. And my question is, how far along into their GLP-1 therapy were they at baseline? Were they already kind of at steady-state, or did they just begin? And then I have a follow up.

Harith Rajagopalan: Great question. So, if you look back at our pooled analysis from our Revita clinical studies, what you will observe is a trend towards greater weight loss over time, over the period of one year, in about 100 patients who were treated and followed in Revita clinical studies, people with type 2 diabetes. So that, I think, is consistent with what we are seeing here in terms of the profile of weight loss over time. And this is a really interesting question, why is the weight loss increasing? You asked about how long people had been on GLP-1s and of these — and I think you’ve rightly pointed out that of the 14 patients who were at six months earlier, five of them had been on GLP-1s. Of the 11 patients who are now on GLP-1s, I’m sorry, of the 11 patients who are now at one year exactly four of them were on GLP-1s at the time that they enrolled in the study.

And we understand from the treating physician that they had been on GLP-1s for some period of time. But we really do not have detailed retrospective EMR data to confirm exactly how long they had been on those drugs. However, a couple of them were on Trulicity, and so you could imagine they probably weren’t recently put on Trulicity. And so that suggests to me that they’ve been on the weight loss on their GLP-1s for some length of time. One of these patients switched their GLP-1 from one agent to another during the follow up period. Two of them stayed on their GLP-1s throughout the follow up period, and the other one stopped their GLP-1 during the follow up period and then did not resume it through one year of follow up. So there are a lot of people in the real world, a lot of medication changes happening for these patients.

And as a doctor who took care of these patients, and as a son of a person with type 2 diabetes, I can tell you I’m like super sympathetic to the effort required for chronic medical therapy for people with multiple diseases. Lots of different doctors changing medicines all of the time to address symptoms, side effects, formulary changes, drug, drug interactions, all of the things in the real world that impact a drug’s ability to have an effect that you don’t really see in Phase 3 clinical trials. Despite all of that, what’s kind of surprising is that 10 of the 11 patients have either reductions or stable medicines over a one year period of time, and yet are seeing profound improvements in weight and in blood sugar control. That’s just as strong, if not stronger, at one year than it was at one, three and six months.

So that’s a positive sign for us. But obviously, we’ll be continuing to follow more patients, and we have a public presentation of more data coming up in the fall where we can go through a lot more information, including patient level data at various time points, and really give a lot more color on what we’re seeing with larger numbers of people, which is going to be important.

Umer Raffat: Okay, so that kind of preempted my follow up question to that. It was that like, because I know in the DDG data cut at three months, there was considerable variability in the weight loss. I was going to ask whether there were any notable baseline or disease state characteristics differences in patients who didn’t lose that much weight. But if you can’t comment now, I’ll just wait until later on in the year.

Harith Rajagopalan: Yes, I think we’ll wait till later on in the year, but I don’t think we’re seeing anything that’s different than what other obesity drugs are showing in terms of a waterfall plot of weight over time, but we will go into that in more detail later in the year. Thank you, Mike.

Umer Raffat: Okay. And then my follow up question is on. It’s actually a clarification question on Rejuva regarding the seminal obesity data that was presented at ADA in the DIO mice. And my question was the semaglutide dose received in mouse, what was the equivalent human dose of that?

Harith Rajagopalan: Well, in order to be consistent to the db/db data that we had generated earlier, we chose exactly the same dose per kilogram in the mice that we had used in the earlier db/db studies, which was the maximum glucose lowering drug concentration seen in semaglutide in those mice. So it would be equivalent to the top dose of what’s prescribed for type 2 diabetes in those mice.

Umer Raffat: Okay, excellent. And just, I guess, one really quick follow up question for the Rejuva obesity construct, which is still yet to be nominated, in addition to the human GLP-1 promoter that will presumably be included in this construct. Could you speak to any updates as to what you’re thinking in terms of additional mechanisms that this construct might include, and whether adding those additional mechanisms may kind of offset or mitigate the activity or efficacy of the original GLP-1 construct component?

Harith Rajagopalan: One of the challenges that we have here is an abundance of riches. Candidly, all of these metabolic hormones are small peptides. They can be put together combinatorially or they can be acting independently. For instance, you could imagine a GLP-1 alone or you could imagine a GIP/GLP-1 combination, or you could imagine an amylin alone, or any combination thereof. So there are a lot of potential variables to work through. And so we are liking what we’re seeing with GLP-1 alone. We’re also liking what we’re seeing in GIP and GLP-1 combinations. And we think that this platform that leverages the human insulin promotion can have a lot of optionality to it. And we’re working through some of that. And when we nominate the candidate, we’ll explain to you our rationale for why we chose what we chose, but just know that we are thinking through all of the possibilities here in order to choose the best path from a clinical regulatory perspective, with a principal focus on ensuring that what we’re doing is going to be safe for the population that we’re treating.

And I think that has to be the first objective for this therapy because the efficacy signal that we’re seeing in terms of obesity with GLP-1 alone is already very, very meaningful in the preclinical models. So if we’re going to add other mechanisms in, we’re going to have to be thoughtful about the tradeoff between what we already know and what we still have to learn. We’ll tell you more later this year.

Umer Raffat: Excellent. Listen, thanks so much for taking my questions, again, congrats on the progress.

Harith Rajagopalan: Thank you very much. Now, in order to wrap-up, I want to thank everyone for joining us this afternoon. We appreciate your continued interest and your support and we look forward to continuing to share updates on our progress as we seek to change the landscape of obesity and type 2 diabetes. Thank you so much. Talk soon.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.