Fractyl Health(GUTS) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements The unaudited financial statements show a significant net loss, a decrease in cash, and substantial doubt about the company's ability to continue as a going concern Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $22,291 | $67,464 | | Total assets | $62,006 | $108,077 | | Total liabilities | $80,218 | $79,653 | | Accumulated deficit | $(466,934) | $(415,310) | | Total stockholders' equity (deficit) | $(18,212) | $28,424 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Revenue | $0 | $76 | | Research and development | $40,586 | $31,186 | | Selling, general and administrative | $10,252 | $13,374 | | Loss from operations | $(50,838) | $(44,527) | | Net loss | $(51,624) | $(20,551) | | Net loss per share, basic and diluted | $(1.05) | $(0.57) | - The Company has a history of operating losses, with an accumulated deficit of $466.9 million as of June 30, 2025[48] - Management has concluded that there is substantial doubt about the Company's ability to continue as a going concern within twelve months from the report's issuance date[48] - In August 2025, the Company completed an offering of common stock and warrants, receiving net proceeds of approximately $20.7 million[44][98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its focus on metabolic disease therapies, recent clinical progress, and a critical liquidity position that raises going concern doubts Business Overview and Recent Developments The company is prioritizing its Revita program for post-GLP-1 weight maintenance and advancing its Rejuva gene therapy platform with a European regulatory submission - The company is prioritizing the REMAIN-1 pivotal study for Revita, which evaluates its potential to maintain weight loss after patients discontinue GLP-1 medication[105][108] - Positive 3-month data from the REVEAL-1 Cohort of the REMAIN-1 study showed that 12 of 13 participants maintained or lost weight after stopping GLP-1 therapy[116] - For the Rejuva platform, the company submitted the first module of a Clinical Trial Application (CTA) in Europe for its lead candidate RJVA-001[109][122] - The company entered into a non-binding Letter of Intent (LOI) with Bariendo Inc. to evaluate a potential collaboration for using Revita as a post-GLP-1 weight maintenance intervention[124] Results of Operations The company generated no revenue in H1 2025, while a significant increase in R&D expenses drove a wider net loss compared to the prior year Comparison of Results for the Six Months Ended June 30 (in thousands) | Line Item | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $0 | $76 | $(76) | (100.0%) | | Research and development | $40,586 | $31,186 | $9,400 | 30.1% | | Selling, general and administrative | $10,252 | $13,374 | $(3,122) | (23.3%) | | Loss from operations | $(50,838) | $(44,527) | $(6,311) | 14.2% | | Net loss | $(51,624) | $(20,551) | $(31,073) | 151.2% | - The $9.4 million increase in R&D expenses for the six-month period was primarily driven by a $4.4 million increase in Revita-related clinical expenses and a $5.7 million increase in Rejuva-related development[147][148] - The $3.1 million decrease in SG&A expenses for the six-month period was mainly due to a $3.7 million decrease in stock-based compensation[150] Liquidity and Capital Resources The company's liquidity is critically low, with existing cash insufficient to fund operations for the next twelve months despite recent financing efforts - As of June 30, 2025, the company had $22.3 million in cash and cash equivalents, which is not sufficient to fund the operating plan for at least twelve months[170] - The company raised approximately $20.7 million in net proceeds from its August 2025 Offering of common stock and warrants[166] - The company is subject to a minimum liquidity covenant of $10.0 million under its 2023 Notes agreement and will not be able to comply without additional financing[157][170] Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(46,278) | $(30,448) | | Net cash used in investing activities | $(546) | $(1,319) | | Net cash provided by financing activities | $1,651 | $100,997 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to various market risks, with no material changes reported since the end of the 2024 fiscal year - The company is exposed to interest rate, credit, foreign currency, and inflation risk, with no material changes to these risks reported during the quarter[192] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the quarter's end, with no material changes to internal controls - Management concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective at the reasonable assurance level[194] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[195] PART II OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not currently a party to any material legal proceedings - The company is not subject to any material legal proceedings[198] Item 1A. Risk Factors The company faces numerous significant risks, including its financial condition, regulatory hurdles, third-party reliance, competition, and intellectual property protection Risks Related to Financial Condition and Capital Requirements The company has a history of significant losses and an urgent need for capital, creating substantial doubt about its ability to continue as a going concern - 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[200] - The company has incurred significant net losses since inception, with an accumulated deficit of approximately $466.9 million as of June 30, 2025[203] - Substantial doubt exists about the company's ability to continue as a going concern, as existing cash is not sufficient to fund operations for at least twelve months[210] Risks Related to Development, Regulatory Approval and Commercialization The company faces a lengthy and unpredictable regulatory approval process for its product candidates, with uncertain clinical outcomes and reimbursement challenges - The regulatory approval process for medical devices and biopharmaceutical products is lengthy, time-consuming, and inherently unpredictable[230] - Clinical studies are expensive, difficult to design, and have uncertain outcomes, with the potential for substantial delays[243] - The company's Rejuva gene therapy candidates are expected to be regulated as a combination product, which may add complexity to regulatory approval[274] - Commercial success depends on obtaining adequate coverage and reimbursement from third-party payors, which is uncertain[269] Risks Related to Business and Strategy The business is substantially dependent on its two lead candidates and faces significant challenges in gaining market acceptance and competing with established firms - The company is substantially dependent on the success of its lead product candidates, Revita and Rejuva[299] - The medical device and biopharmaceutical markets are highly competitive, and the company faces significant competition from larger companies with greater resources[323] - Market acceptance of the company's products is not guaranteed and depends on convincing physicians, hospitals, and payors of their benefits[313] Risks Related to Manufacturing The company relies on third-party and sole-source suppliers for manufacturing, creating supply chain risks, and concentrates its operations in a single facility - The company relies on third-party manufacturers for components and materials, increasing the risk of supply shortages and cost issues[355] - The company depends on third-party sole-source suppliers for certain Revita components, and an interruption could materially harm the business[364] - The company's research, development, and manufacturing operations are conducted in a single facility, making it vulnerable to disasters or other interruptions[369] Risks Related to Intellectual Property The company's success depends on its ability to obtain and defend its intellectual property amid an uncertain patent process and litigation risks - The company's ability to commercialize its products depends on its ability to obtain and maintain patent protection, which is uncertain[409] - The company may face intellectual property litigation, which is expensive and time-consuming, and could require obtaining licenses on unfavorable terms[424][431] - If the company is unable to protect the confidentiality of its trade secrets, its business and competitive position may be harmed[445] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities and confirms no material change in the intended use of its IPO proceeds - There were no unregistered sales of equity securities in the reporting period[511] - There has been no material change in the planned use of proceeds from the company's IPO[513] Item 5. Other Information An executive officer adopted a Rule 10b5-1 trading plan during the quarter for the potential sale of company stock - On May 28, 2025, Jay Caplan, President and Chief Product Officer, adopted a Rule 10b5-1 trading arrangement for the sale of up to 169,173 shares of common stock[520]