Part I [Business](index=8&type=section&id=Item%201.%20Business) Fractyl Health develops disease-modifying therapies for type 2 diabetes and obesity, with lead product Revita and gene therapy platform Rejuva - Fractyl Health is a metabolic therapeutics company developing disease-modifying therapies for **type 2 diabetes (T2D)** and **obesity** by targeting organ-level root causes[30](index=30&type=chunk) - The lead product, **Revita DMR System**, is an outpatient procedural therapy for duodenal dysfunction, with **CE Mark** in Europe and a pivotal U.S. study, **Revitalize-1**, underway[31](index=31&type=chunk)[32](index=32&type=chunk) - The company is developing **Rejuva**, a novel pancreatic gene therapy platform, with first candidate **RJVA-001** for T2D, targeting a first-in-human study in **H1 2025**[34](index=34&type=chunk) Development Pipeline and Anticipated Milestones | Product | Indication | Status | Anticipated Milestones | | :--- | :--- | :--- | :--- | | **Revita** | Weight Maintenance (Remain-1) | Pivotal (2024) | IDE approved Q1 2024; Study initiation H2 2024 | | | Insulin-Treated T2D (Revitalize-1) | Pivotal | Complete enrollment H1 2024; Topline data Q4 2024 | | | CE Mark (Germany Registry) | Launch | Quarterly open label data updates ongoing | | **Rejuva** | T2D (RJVA-001) | Preclinical | Complete IND-enabling studies H2 2024; Initiate FIH study H1 2025 | | | Obesity | Preclinical | Candidate nomination H2 2024 | [Commercialization Strategy](index=62&type=section&id=Item%201.%20Business.Commercialization%20Strategy) Fractyl Health is piloting Revita in Germany and plans a targeted U.S. 'hub-and-spoke' launch, leveraging existing infrastructure for Rejuva - The company initiated a limited commercial pilot for **Revita** in **Germany**, holding a **CE Mark** and **NUB reimbursement authorization**[218](index=218&type=chunk) - In the U.S., **Revita** received **Breakthrough Device designation**, with a **PMA submission** planned for **H1 2025** after the **Revitalize-1** study[219](index=219&type=chunk) - The U.S. go-to-market strategy is a targeted **'hub-and-spoke' model**, focusing on **centers of excellence** and specialized medical professionals[222](index=222&type=chunk) - The **Rejuva platform** is designed to leverage **Revita's commercial footprint**, including its console system and physician base, for rapid commercialization[226](index=226&type=chunk) [Intellectual Property](index=64&type=section&id=Item%201.%20Business.Intellectual%20Property) Fractyl Health protects its technology through 23 issued U.S. and 71 issued foreign patents, 41 registered trademarks, and trade secrets Owned Patent Portfolio Summary (as of March 15, 2024) | Category | U.S. Issued | U.S. Pending | Foreign Issued | Foreign Pending | | :--- | :--- | :--- | :--- | :--- | | **Total Portfolio** | 23 | 25 (+13 provisional) | 71 | 26 | | **Revita-Specific** | 18 | 17 (+3 provisional) | 61 | 19 | | **Rejuva-Specific** | 0 | 1 (+9 provisional) | 0 | 2 | - Owned issued U.S. patents are expected to expire between **January 2032** and **May 2036**, with foreign patents expiring between **January 2032** and **September 2038**[233](index=233&type=chunk) - The company owns **41 registered trademarks** and **10 pending applications** for brands like **FRACTYL**, **REVITA**, and **REJUVA**[239](index=239&type=chunk) - The company also relies on **trade secrets**, **know-how**, and **confidentiality agreements** to protect proprietary information, especially for software[239](index=239&type=chunk)[240](index=240&type=chunk) [Government Regulation](index=67&type=section&id=Item%201.%20Business.Government%20Regulation) Fractyl Health's products are subject to extensive regulation by the FDA (PMA for Revita, BLA for Rejuva) and EU (CE Mark), along with various healthcare laws - In the U.S., **Revita** is regulated as a **Class III medical device**, requiring **Premarket Approval (PMA)** from the **FDA**[254](index=254&type=chunk) - The **Rejuva gene therapy candidates** are expected to be regulated as **combination biologic/device products**, likely requiring a single **Biologics License Application (BLA)**[270](index=270&type=chunk)[272](index=272&type=chunk) - In the European Union, medical devices must comply with the **Medical Devices Regulation (MDR)**, requiring a **CE Mark** for market access[310](index=310&type=chunk)[312](index=312&type=chunk)[314](index=314&type=chunk) - The company is subject to numerous healthcare laws, including the federal **Anti-Kickback Statute**, **False Claims Act**, and **Physician Payments Sunshine Act**[357](index=357&type=chunk)[361](index=361&type=chunk) [Risk Factors](index=109&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant financial, regulatory, clinical, manufacturing, commercial, and intellectual property risks, alongside intense competition and stringent healthcare regulations - **Financial Risks:** The company has a history of significant net losses, reaching **$77.1 million in 2023**, and will require substantial additional capital to fund operations[393](index=393&type=chunk)[397](index=397&type=chunk) - **Regulatory & Clinical Risks:** The business heavily depends on **Revita's success**, facing lengthy and unpredictable regulatory approval processes and uncertain clinical trial outcomes[417](index=417&type=chunk)[432](index=432&type=chunk)[492](index=492&type=chunk) - **Manufacturing & Supply Risks:** Reliance on **third-party** and **sole-source suppliers** for **Revita** and **Rejuva** components increases supply disruption risks[555](index=555&type=chunk)[563](index=563&type=chunk) - **Commercial & Market Risks:** The company faces significant competition and uncertainty in gaining market acceptance and securing adequate reimbursement from payors[520](index=520&type=chunk)[457](index=457&type=chunk) - **Intellectual Property Risks:** Success depends on obtaining, maintaining, and protecting intellectual property, as patents may be challenged, invalidated, or circumvented[601](index=601&type=chunk)[602](index=602&type=chunk) [Unresolved Staff Comments](index=204&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[710](index=710&type=chunk) [Cybersecurity](index=204&type=section&id=Item%201C.%20Cybersecurity) The company implements a NIST-based cybersecurity risk management program overseen by the Audit Committee, with no material threats identified to date - The company developed a cybersecurity risk management program guided by the **National Institute of Standards and Technology Cybersecurity Framework (NIST CSF)**[712](index=712&type=chunk) - Oversight is provided by the **Audit Committee** of the Board of Directors, reviewing controls, security systems, and contingency plans[715](index=715&type=chunk) - Day-to-day cybersecurity risk management is handled by a management team, including the **Director of Information Technology** and a **Security Officer**[719](index=719&type=chunk) - No identified cybersecurity threats have materially affected or are reasonably likely to materially affect the company's operations, business strategy, or financial condition[714](index=714&type=chunk) [Properties](index=206&type=section&id=Item%202.%20Properties) The company's headquarters in Burlington, Massachusetts, comprises approximately 78,000 square feet of office and laboratory space under a lease expiring in June 2034 - The company's corporate headquarters in **Burlington, Massachusetts**, leases approximately **78,000 square feet** of office and laboratory space[721](index=721&type=chunk) - The lease for the Burlington facility expires in **June 2034**[721](index=721&type=chunk) [Legal Proceedings](index=206&type=section&id=Item%203.%20Legal%20Proceedings) The company is not subject to any material legal proceedings - The company is not subject to any material legal proceedings[722](index=722&type=chunk) [Mine Safety Disclosures](index=206&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[723](index=723&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=207&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Fractyl Health's common stock began trading on Nasdaq under 'GUTS' in February 2024, raising **$100.3 million** net from its IPO, with no plans for dividends - The company's common stock began trading on the **Nasdaq Global Market** under symbol **'GUTS'** on **February 2, 2024**, with approximately **101 holders of record** as of **March 15, 2024**[726](index=726&type=chunk)[727](index=727&type=chunk) - The company has never paid cash dividends and intends to retain earnings for business development[728](index=728&type=chunk) - The **IPO** on **February 6, 2024**, raised approximately **$98.9 million** in net proceeds, with an additional **$1.4 million** from underwriters' option in **March 2024**[734](index=734&type=chunk)[735](index=735&type=chunk) - In **2023**, the company issued unregistered securities, including **warrants to lenders** and **1,833,574 stock options** and **604,509 RSUs** to employees and directors[729](index=729&type=chunk)[730](index=730&type=chunk)[732](index=732&type=chunk) [Reserved](index=208&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=209&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company's net loss increased to **$77.1 million** in **2023** due to higher R&D and negative fair value changes, with **$100.3 million** IPO proceeds expected to fund operations through **2025** Consolidated Results of Operations (in thousands) | | Year Ended December 31, | Change | | | :--- | :--- | :--- | :--- | :--- | | | **2023** | **2022** | **Amount** | **%** | | Revenue | $120 | $— | $120 | 100.0% | | Loss from operations | $(50,836) | $(49,385) | $(1,451) | 2.9% | | Other income (expense), net | $(26,255) | $2,932 | $(29,187) | (995.5%) | | **Net loss** | **$(77,091)** | **$(46,453)** | **$(30,638)** | **66.0%** | - Research and development expenses increased by **$3.7 million (10.7%)** in **2023**, driven by higher personnel, stock-based compensation, medical affairs, clinical study, and facilities costs[785](index=785&type=chunk)[788](index=788&type=chunk) - Selling, general and administrative expenses decreased by **$2.2 million (14.6%)** in **2023**, mainly due to a **$2.7 million IPO cost write-off** in **2022** not recurring[789](index=789&type=chunk) - Other income (expense), net, swung negatively by **$29.2 million**, primarily due to a **$19.4 million loss** from convertible notes and a **$6.8 million loss** from warrant liabilities fair value changes[791](index=791&type=chunk)[792](index=792&type=chunk)[793](index=793&type=chunk) - As of **December 31, 2023**, the company had **$33.2 million** in cash, with **$100.3 million** net proceeds from its **February/March 2024 IPO** expected to fund operations through **2025**[796](index=796&type=chunk)[798](index=798&type=chunk)[799](index=799&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=231&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate, credit, foreign currency, and inflation risks, though none have had a material impact to date - **Interest Rate Risk:** The company's **2023 Notes** have a floating interest rate, but a **10% change** in the prime rate is not expected to be material[839](index=839&type=chunk) - **Credit Risk:** Cash and cash equivalents are held at a few financial institutions, with deposits exceeding federally insured limits[840](index=840&type=chunk) - **Foreign Currency Risk:** Risk is currently low as business is conducted almost entirely in **U.S. dollars**[841](index=841&type=chunk) - **Inflation Risk:** While not material to date, high future inflation could significantly increase operating expenses[842](index=842&type=chunk) [Financial Statements and Supplementary Data](index=231&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to the company's audited consolidated financial statements and related notes, appended starting on page F-1 - The company's audited consolidated financial statements for **December 31, 2023** and **2022**, and the independent auditor's report, are included in **Part IV, Item 15**[843](index=843&type=chunk)[943](index=943&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=231&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[844](index=844&type=chunk) [Controls and Procedures](index=231&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of **December 31, 2023**, with no material changes to internal controls identified in Q4 2023 - Management concluded that as of **December 31, 2023**, the company's disclosure controls and procedures were effective at a reasonable assurance level[846](index=846&type=chunk) - As a newly public company, this Annual Report does not include a management assessment or auditor attestation on internal control over financial reporting[847](index=847&type=chunk) - No changes in internal control over financial reporting during **Q4 2023** have materially affected or are reasonably likely to materially affect internal controls[848](index=848&type=chunk) [Other Information](index=232&type=section&id=Item%209B.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q4 2023 - During the three months ended **December 31, 2023**, no director or officer adopted or terminated a **Rule 10b5-1** or non-**Rule 10b5-1** trading arrangement[850](index=850&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=232&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[851](index=851&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=233&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section details the company's executive officers and directors, including CEO Harith Rajagopalan, and outlines its corporate governance, including a code of ethics and an independent audit committee - The company's leadership includes co-founders **Harith Rajagopalan, M.D., Ph.D. (CEO)** and **Jay D. Caplan (President & CPO)**[854](index=854&type=chunk)[855](index=855&type=chunk) - The Board of Directors, chaired by **Allan R. Will**, includes members with diverse backgrounds such as **Senator William W. Bradley**[862](index=862&type=chunk)[868](index=868&type=chunk)[869](index=869&type=chunk)[870](index=870&type=chunk) - A **code of business conduct and ethics** has been adopted, applying to all directors, officers, and employees[873](index=873&type=chunk) - The audit committee consists of **Kelly Barnes (Chair)**, **Marc Elia**, and **Allan R. Will**, with **Ms. Barnes** designated as the **audit committee financial expert**[874](index=874&type=chunk) [Executive Compensation](index=238&type=section&id=Item%2011.%20Executive%20Compensation) In **2023**, named executive officers received significant compensation, largely in equity, with new employment agreements and a non-employee director compensation program adopted post-IPO 2023 Summary Compensation | Name | Position | Total Compensation ($) | Salary ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Harith Rajagopalan | CEO | 3,561,774 | 550,000 | 2,430,014 | 267,990 | 313,500 | | Timothy Kieffer | CSO | 3,462,288 | 92,438 | — | 3,321,650 | 23,200 | | Jay D. Caplan | President & CPO | 2,873,373 | 400,000 | 2,097,678 | 220,507 | 154,000 | - Annual cash bonuses for **2023** were based on achieving corporate goals, including **Revitalize-1** and **Rejuva** progress, and individual performance[880](index=880&type=chunk) - In **2023**, the company granted **stock options** and **dual-vesting RSUs** to named executive officers as long-term incentive compensation[881](index=881&type=chunk)[884](index=884&type=chunk) - Effective upon the **IPO**, base salaries increased for **Dr. Rajagopalan ($610,000)**, **Mr. Caplan ($475,000)**, and **Dr. Kieffer ($225,000)**, with new performance-based options granted[894](index=894&type=chunk)[895](index=895&type=chunk) - A new non-employee director compensation program was adopted post-IPO, including annual cash retainers and initial and annual stock option grants[907](index=907&type=chunk)[909](index=909&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=249&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of **March 15, 2024**, executive officers and directors beneficially owned **25.3%** of common stock, with several institutional investors holding over **5%** - As of **March 15, 2024**, all current executive officers and directors as a group beneficially owned **13,089,394 shares**, representing **25.3%** of outstanding common stock[917](index=917&type=chunk) Beneficial Ownership of 5% or Greater Stockholders (as of March 15, 2024) | Beneficial Owner | Shares Beneficially Owned | Percentage | | :--- | :--- | :--- | | Entities affiliated with Mithril | 6,078,868 | 12.7% | | CVF, LLC | 5,544,669 | 11.4% | | Entities affiliated with General Catalyst | 4,884,186 | 10.2% | | Entities affiliated with Bessemer Venture Partners | 4,770,901 | 10.0% | | Entities affiliated with Domain Associates, L.L.C. | 4,003,135 | 8.4% | | Entities affiliated with Maverick Capital | 3,458,799 | 7.1% | | Harith Rajagopalan, M.D., Ph.D. | 2,912,670 | 5.8% | - Ownership percentages are based on **47,878,269 shares** of common stock outstanding as of **March 15, 2024**[915](index=915&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=253&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) This section details related party transactions, including warrant issuances and pre-IPO agreements that terminated, and confirms the board's majority director independence - In **July 2023**, the company issued warrants to purchase common stock to lenders of its **2022 Convertible Notes**, including **5% stockholder CVF, LLC**[923](index=923&type=chunk)[924](index=924&type=chunk) - Prior to the **IPO**, the company had **Investors' Rights**, **Voting**, and **Right of First Refusal and Co-Sale Agreements** with preferred stockholders, which terminated upon the **IPO**[925](index=925&type=chunk)[926](index=926&type=chunk)[927](index=927&type=chunk) - The company has entered into **employment agreements** with executive officers and **indemnification agreements** with all directors and officers[930](index=930&type=chunk)[931](index=931&type=chunk) - The Board has adopted a policy for related person transactions and determined that **Kelly Barnes**, **William W. Bradley**, **Samuel Conaway**, **Marc Elia**, **Clive Meanwell**, **Ajay Royan**, **Amy W. Schulman**, and **Allan R. Will** are independent directors[932](index=932&type=chunk)[933](index=933&type=chunk) [Principal Accountant Fees and Services](index=255&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section details **Ernst & Young LLP** fees for **2023 ($1.22 million)** and **2022 ($0.89 million)**, primarily for audit services, with an audit committee pre-approval policy Accountant Fees (in thousands) | Fee Category | 2023 | 2022 | | :--- | :--- | :--- | | Audit Fees | $1,187.5 | $772.9 | | Audit-Related Fees | $— | $— | | Tax Fees | $31.6 | $112.4 | | All Other Fees | $— | $— | | **Total** | **$1,219.1** | **$885.3** | - Audit fees consist of fees for the audit of consolidated financial statements and services related to the **IPO**[936](index=936&type=chunk) - The audit committee has a pre-approval policy for all services provided by **Ernst & Young LLP**[940](index=940&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=258&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed with the Annual Report on Form 10-K, including corporate governance documents and material contracts - This item provides an index to the **Consolidated Financial Statements**, which begin on page **F-1** of the report[942](index=942&type=chunk)[943](index=943&type=chunk) - A list of exhibits filed includes corporate governance documents, material contracts, and required certifications[945](index=945&type=chunk)[946](index=946&type=chunk)[948](index=948&type=chunk) [Form 10-K Summary](index=261&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no Form 10-K summary - None[951](index=951&type=chunk) Financial Statements [Consolidated Balance Sheets](index=265&type=section&id=Consolidated%20Balance%20Sheets) As of **December 31, 2023**, total assets increased to **$76.2 million**, liabilities to **$113.9 million**, and cash decreased to **$33.2 million**, with an accumulated deficit of **$346.6 million** Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $33,209 | $49,269 | | Total current assets | $35,648 | $51,629 | | **Total assets** | **$76,212** | **$60,956** | | **Liabilities & Stockholders' Deficit** | | | | Total current liabilities | $11,188 | $7,311 | | Notes payable, long-term | $55,152 | $17,760 | | Lease liabilities, long-term | $28,508 | $465 | | Warrant liabilities, long-term | $19,096 | $407 | | **Total liabilities** | **$113,944** | **$25,945** | | Accumulated deficit | $(346,616) | $(269,525) | | **Total stockholders' deficit** | **$(325,062)** | **$(252,319)** | [Consolidated Statements of Operations and Comprehensive Loss](index=266&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For **2023**, the company reported a net loss of **$77.1 million**, up from **$46.5 million** in **2022**, driven by negative changes in other income/expense and increased R&D costs Consolidated Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Revenue | $120 | $— | | Gross profit | $43 | $— | | Research and development | $38,038 | $34,354 | | Selling, general and administrative | $12,841 | $15,031 | | **Loss from operations** | **$(50,836)** | **$(49,385)** | | Total other income (expense), net | $(26,255) | $2,932 | | **Net loss and comprehensive loss** | **$(77,091)** | **$(46,453)** | | Net loss per share, basic and diluted | $(45.29) | $(31.97) | [Consolidated Statements of Cash Flows](index=268&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In **2023**, net cash used in operations was **$42.8 million**, while financing activities provided **$27.4 million**, resulting in a **$15.7 million** net decrease in cash Consolidated Statement of Cash Flows Data (in thousands) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(42,823) | $(46,243) | | Net cash used in investing activities | $(359) | $(56) | | Net cash provided by financing activities | $27,437 | $4,350 | | **Net decrease in cash, cash equivalents and restricted cash** | **$(15,745)** | **$(41,949)** | - The **$42.8 million** cash used in operations in **2023** was driven by a **$77.1 million** net loss, offset by **$31.3 million** in non-cash charges, including fair value losses on notes payable and warrant liabilities[827](index=827&type=chunk) - Financing activities in **2023** provided **$27.4 million**, primarily from **$28.4 million** in net proceeds from the issuance of the **2023 Notes**[831](index=831&type=chunk)

Announced nomination of RJVA-001 as first clinical candidate in the Rejuva® GLP-1 gene therapy platform; completion of IND- enabling studies expected in second half of 2024 Completed initial public of ering of common stock raising $110 million in gross proceeds; cash on hand expected to fund operations through 2025 BURLINGTON, MA, April 1, 2024 (GLOBENEWSWIRE) – Fractyl Health (Nasdaq: GUTS), a metabolic therapeutics company focused on pioneering new approaches for the treatment of type 2 diabetes (T2D) and ...