Fractyl Health(GUTS) - 2025 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the company's unaudited financial data and management's analysis for the quarter Financial Statements (unaudited) The unaudited condensed consolidated financial statements for Q1 2025 show a net loss of $23.7 million and a significant decrease in cash to $42.1 million, indicating a going concern uncertainty Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $42,108 | $67,464 | | Total current assets | $47,045 | $71,763 | | Total assets | $83,040 | $108,077 | | Total current liabilities | $18,801 | $19,775 | | Total liabilities | $76,665 | $79,653 | | Total stockholders' equity | $6,375 | $28,424 | Condensed Consolidated Statements of Operations (in thousands) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $0 | $33 | | Research and development | $19,435 | $14,424 | | Selling, general and administrative | $5,324 | $7,132 | | Loss from operations | $(24,759) | $(21,542) | | Net loss | $(23,735) | $(3,322) | | Net loss per share, basic and diluted | $(0.49) | $(0.17) | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(25,079) | $(11,711) | | Net cash used in investing activities | $(448) | $(1,059) | | Net cash provided by financing activities | $171 | $101,002 | | Net (decrease) increase in cash | $(25,356) | $88,232 | - The company has a history of operating losses and an accumulated deficit of $439.0 million as of March 31, 2025[41] - Management has concluded that substantial doubt exists about the Company's ability to continue as a going concern within one year from the report's issuance date[41] Management's Discussion and Analysis of Financial Condition and Results of Operations The MD&A details the company's strategic shift to prioritize the REMAIN-1 study and Rejuva platform, reporting a Q1 2025 net loss of $23.7 million, and expressing substantial doubt about its going concern ability Business Overview and Strategic Reprioritization Fractyl Health initiated a strategic reprioritization on January 31, 2025, to focus on the REMAIN-1 pivotal study for Revita and advance its Rejuva gene therapy platform, pausing investment in Revita for T2D - On January 31, 2025, the company approved a Strategic Reprioritization to prioritize its REMAIN-1 pivotal study for Revita and advance its Rejuva gene therapy platform[97][35] - As part of the reprioritization, the company has paused additional investment in its Revita programs for T2D, including the REVITALIZE-1 pivotal study and the Germany Real-World Registry study[97][35] - The company plans to submit its first Clinical Trial Application (CTA) module for its gene therapy candidate, RJVA-001, in June 2025, with plans to dose the first patients in 2026, pending regulatory authorization[96][107] Results of Operations Q1 2025 revenue dropped to zero, R&D expenses increased by $5.0 million due to Revita and Rejuva programs, while SG&A expenses decreased by $1.8 million, leading to a significant increase in net loss Comparison of Operations (Q1 2025 vs Q1 2024, in thousands) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $0 | $33 | $(33) | (100.0%) | | Research and development | $19,435 | $14,424 | $5,011 | 34.7% | | Selling, general and administrative | $5,324 | $7,132 | $(1,808) | (25.4%) | | Loss from operations | $(24,759) | $(21,542) | $(3,217) | 14.9% | | Net loss | $(23,735) | $(3,322) | $(20,413) | 614.5% | - R&D expenses increased by $5.0 million, primarily due to a $2.2 million increase in Revita clinical expenses for the REMAIN-1 study and a $2.5 million increase in Rejuva program development[115] - SG&A expenses decreased by $1.8 million, mainly due to a $2.4 million decrease in stock-based compensation[116] Liquidity and Capital Resources As of March 31, 2025, the company had $42.1 million in cash, sufficient only into Q4 2025, raising substantial doubt about its going concern ability and requiring additional financing to meet debt covenants - As of March 31, 2025, the company had cash and cash equivalents of $42.1 million[129][41] - Management believes existing cash will only fund operations into the fourth quarter of 2025, which is not sufficient for the next twelve months, raising substantial doubt about the company's ability to continue as a going concern[129] - Without additional financing, the company will not be able to comply with the minimum liquidity covenant related to its 2023 Notes[129] - In March 2025, the company filed a Registration Statement on Form S-3, allowing for the potential offering of up to $300.0 million in securities[125] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market risk disclosures since its last Annual Report, with primary risks including interest rate, credit, foreign currency, and inflation - There have been no material changes to the market risk disclosures from the company's Annual Report on Form 10-K[152] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting identified during the quarter - Management concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective at the reasonable assurance level[154] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[156] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, and other disclosures Legal Proceedings The company reports that it is not currently subject to any material legal proceedings - The company is not subject to any material legal proceedings[158] Risk Factors This section details numerous risks, including limited operating history, substantial net losses, going concern uncertainty, lengthy regulatory approval processes, reliance on third parties, intense competition, and intellectual property challenges Risks Related to Financial Condition and Capital Requirements The company faces significant risks due to its limited operating history, accumulated deficit of $439.0 million, and substantial doubt about its ability to continue as a going concern without raising additional, potentially dilutive, capital - The company has a limited operating history, has not completed any pivotal clinical studies, and has no products approved for commercial sale in the United States[160] - The company has incurred significant net losses since inception, with an accumulated deficit of approximately $439.0 million as of March 31, 2025[163] - There is substantial doubt about the company's ability to continue as a going concern, as it requires substantial additional capital to execute its operating plan and may be forced to delay or eliminate programs if funding is not secured[168][171] Risks Related to Development, Regulatory Approval and Commercialization Significant hurdles exist in product development and commercialization, including lengthy and unpredictable regulatory approval processes, risks of clinical study failures, and challenges in securing market acceptance and adequate reimbursement - The regulatory approval process with the FDA and comparable foreign authorities is lengthy, costly, and inherently unpredictable[189] - The company is substantially dependent on the success of its lead product candidate, Revita, and its Rejuva gene therapy platform, both of which face significant development and regulatory risks[259][262] - Even if products are approved, securing coverage and adequate reimbursement from third-party payors like Medicare and private insurers is critical and uncertain[230][231] Risks Related to Manufacturing The company's reliance on third-party, often sole-source, manufacturers for critical components and materials creates significant supply chain, quality control, and regulatory compliance risks, compounded by the vulnerability of its single manufacturing facility - The company relies on third-party manufacturers for sub-assembly components for Revita and materials for its Rejuva platform, increasing the risk of supply chain disruptions[317] - The company depends on third-party sole-source suppliers for certain components of Revita, and any interruption in these relationships could materially harm the business[329] - The company's single facility in Burlington, Massachusetts, for research, development, and manufacturing is vulnerable to natural or man-made disasters, which could halt operations[332][333] Risks Related to Intellectual Property Success hinges on obtaining and defending intellectual property, but the patent landscape is complex, with risks of non-grant, invalidation, infringement litigation, and challenges in protecting trade secrets - The company's commercial success depends on its ability to obtain, maintain, and protect its intellectual property, but the scope of patent protection can be uncertain and may not be sufficiently broad[370] - The company faces the risk of infringing on the intellectual property rights of third parties, which could lead to costly litigation or require obtaining licenses on unfavorable terms[389][394] - If unable to protect the confidentiality of its trade secrets and proprietary information, the company's business and competitive position could be harmed[408] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the quarter, and no material change in the intended use of IPO net proceeds - There were no unregistered sales of equity securities during the quarter[475] - There has been no material change in the expected use of the net proceeds from the company's IPO[477] Defaults Upon Senior Securities The company reports that there were no defaults upon senior securities during the period - None Mine Safety Disclosures This item is not applicable to Fractyl Health, Inc - Not applicable Other Information No information requiring disclosure in a Form 8-K was identified, and no director or officer adopted or terminated a Rule 10b5-1 trading arrangement during Q1 2025 - During the three months ended March 31, 2025, no director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement[483] Exhibits This section lists the exhibits filed with the Form 10-Q, including required CEO and CFO certifications and incorporated documents - The report includes required certifications from the CEO and CFO under Rule 13a-14(a)/15d-14(a) and Section 1350 of the Sarbanes-Oxley Act[484]