Better Therapeutics, Inc. (NASDAQ:BTTX) Q1 2023 Earnings Call Transcript May 14, 2023

Operator: Good morning and thank you for standing by, and welcome to the Better Therapeutics’ First Quarter 2023 Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there’ll be a question-and-answer session. [Operator Instructions]. Please be advised today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Heinen, Chief Financial Officer. Please go ahead.

Mark Heinen: Thank you, operator. Good morning, everyone, and welcome to the Better Therapeutics conference call. Our press release was issued this morning and can be found in the Investors section of our corporate website, bettertx.com. Joining me on the call today is Frank Karbe, our President and Chief Executive Officer; Dr. Mark Berman, our Chief Medical Officer; and Diane Gomez-Thinnes, our Chief Commercial Officer. During today’s call, we will provide a business update and a financial overview of the first quarter of 2023. A Q&A session will follow our prepared remarks. Before we begin, I’d like to remind everyone that any statements we make or information presented on this call that are not historical facts are forward-looking statements that are based on our current beliefs, plans, and expectations that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Actual events and results may differ materially from those expressed or implied by any forward-looking statement. With that, I’ll pass the call over Frank Karbe. Frank?

Frank Karbe: Thank you, Mark, and good morning, everyone. Thanks for joining us on the call today. We successfully navigated several challenges in Q1. And with that, we believe laid the foundation for our long-term success. We also advanced our interactions with the FDA and are now within the final 90 days of our review. And with that in mind, we have continued to advance our preparations for the anticipated commercial launch of BT-001 in type 2 diabetes, including discussions with potential launch partners. Before I recap our accomplishments in the first quarter, I want to acknowledge the news of Pear Therapeutics’ filing for bankruptcy. This is obviously a devastating outcome for Pear and setback for prescription digital therapeutics or PDTs. As one of the true pioneers in the industry, Pear paved the way for the investment and innovation, their contributions to creating PDTs as a new category.

However, the difficulties likely raised doubts around the commercial viability of PDTs. And it is therefore more important than ever to perhaps highlight that the dynamics across the different PDT players are, in many cases, quite different. And I’ll take this opportunity to underscore key points of differentiation for Better Therapeutics, which we believe will drive our ability to gain traction with payers, providers, and patients over the long term. The first and perhaps the most important point of differentiation is our therapeutic area of focus. Our current development candidates are intended to treat cardio-metabolic diseases, including type 2 diabetes, hypertension, hyperlipidemia, nonalcoholic fatty liver disease or NAFLD, nonalcoholic steatohepatitis or NASH, and chronic kidney disease.

We deliberately chose cardiometabolic diseases as our initial target because they, A, share the same lifestyle behaviors as a common root cause, B, ranked among the most prevalent and costly chronic diseases that are largely reversible and preventable, presenting opportunities for transformative impact, and C, represent areas of significant unmet clinical need because currently available drugs are often expensive and predominantly treats symptoms, typically resulting in disease progression and more costly healthcare interventions over time. Second is the treatment landscape. Our focus on cardiometabolic diseases, and in particular, diabetes, offers access to very large patient populations with high cost-of-care burdens, driving an urgency to act on the side of health systems and payers.

In talking with payers for more than a year now and also validated by numerous third-party research studies, diabetes is a top priority as disease prevalence continues to grow and costs are escalating. Meanwhile, we’re not seeing significant improvements in patient outcomes. Furthermore, current diabetes treatment guidelines already calls for behavior change as the foundation of treatment. We’ve been stating in recent updates that digital health interventions may be useful as an adjunct to standard of care to improve diabetes management. We believe this will help with provider adoption as we don’t need to change ideas about treatments or the way that it is delivered. Moreover, most drugs are indicated to be used in conjunction with behavior change, and we believe this allows for a more natural and seamless introduction and further adoption of PDT in the diabetes indication.

Third is the significance of the clinical endpoint used in our pivotal trial. Not only is the reduction of hemoglobin A1C a universally accepted clinical endpoint for type 2 diabetes by providers and payers alike, it is also widely accepted as a proxy for future events in diabetic patients. As you know, the same endpoint is also used in drug trials. At our exploratory endpoints’ collected data across a broad range of additional health outcome measures, providing further clinical evidence for the health impact of our PDT. The initial health economic data shows promising potential cost offsets derived from the utilization of our therapy. And finally, our PDT platform, as currently developed, is designed to have broad utility and enable rapid expansion across multiple-related disease states.

This potential for rapid expansion stems from the fact that the underlying root cost behaviors are largely the same for most cardiometabolic conditions. And hence, the behavioral health interventions delivered by our platform to treat these conditions are also largely the same. This is fundamentally different from a traditional pharmaceutical drug approach where the products to treat different diseases are usually distinct with unique mechanisms of action. I will now recap our accomplishments in the first quarter of this year. We took a number of actions in Q1 to enhance our financial position and ensure the long-term success of the company. This included, among others, a reduction in force, coupled with other cost-saving measures as well as a $6.5 million private placement in April.

Combined, these measures were targeted to extend our cash runway towards the end of September, allowing us to potentially reach several important milestones that we expect will further substantially enhance our financial position. These include potential FDA authorization for BT-001, as well as the potential BD partnership and/or a royalty monetization transaction. Throughout the first quarter of this year, we had multiple rounds of interactions with the FDA regarding our de novo submission. We highlighted on our last earnings call the request for additional information received as a typical part of the de novo process and guided that we expected to respond to the FDA by mid-April. We’re happy to report that we submitted our response on April 17 and the agency confirmed the review is progressing.

We believe we are on track to receive the FDA’s decision by the middle of this year. We also made substantial progress in our preparations for the potential commercialization of BT-001. Specifically, in the last quarter, we filled key leadership positions, including the hiring of a Head of Marketing and Head of Medical Affairs, both bringing considerable cardiometabolic expertise to the team. Signed a contract for hub and distribution services and building on the growing body of evidence, we had our abstract from the Cardiometabolic Health Congress published in postgraduate medicine, highlighting our primary endpoint results. And during the Academy of Managed Care Pharmacy or AMCP meeting at the end of March, we had good interactions with payers and have commenced formal pre-authorization information exchange meetings.

Despite the reduction in force and resulting slowdown of enrollment in our real-world evidence study, we’re pleased to report we have enrolled almost 75% of the target participants and expect to complete enrollment by the end of Q3 this year. We then expect to share the first data set in Q4 of this year. And lastly, we expect the submission to the FDA for a breakthrough device designation for the treatment of liver disease to be completed in Q3 of this year. Related, we recently submitted an abstract describing our LivVita study results for presentation at the European Association for the Study of the Liver or EASL’s Annual Congress. EASL is a leading professional society and their clinical practice guidelines informed the standard of care for NAFLD and NASH around the world.

Our abstract was accepted for poster presentation at the event in June in Vienna and Dr. Alkhouri, the PI for the study, will be presenting the poster. Over the past few months, we made in part difficult but necessary changes to our business. As a result, I believe we are extremely capital efficient while maintaining the ability to advance with laser focus the potential commercialization of BT-001, which we anticipate commencing within a few months of receiving a decision from the FDA. Diane will now share more detail on our progress. Diane?

Diane Gomez: Thanks, Frank. I am thrilled to add to our growing commercial organization with two key leaders in marketing and medical affairs who together bring a combined 40-plus years of cardiometabolic disease and interest and experience. Our market access work continues and we’re pleased to have consolidated our payer messaging, payer research, and health economic modeling, and value-based agreement work streams to complete our pre-authorization information exchange or PIE value story that we have now begun to use in our first payer meeting as Frank mentioned. From panel discussions and conversations with payers at the recent AMCP meeting, I would like to share the following key takeaways. One, payers are beginning to differentiate PDTs from other digital therapeutics.

In other words, those that are FDA authorized versus those that are not. Two, payers see the potential for Medicare coverage through the Access to Prescription Digital Therapeutics Act of 2023 bill as a signal to get ready to cover PDT. And finally, payers are beginning to define pathways and processes for reviewing prescription digital therapeutics. And since the AMCP, we have had several meetings confirmed with payers on our targeted list and are encouraged by the early discussions as we progress towards potential FDA authorization. Veterans Affairs or the VA are an important part of our targeted launch strategy. As a matter of fact, one VA site is currently enrolling patients into our real-world evidence program. We’ve recently completed a research study to understand more about the patient population and the engagement model.

The VA is organized into 18 veterans integrated services networks or VISNs. And insights from interviews suggest we take a dual-strategy approach, navigating with champions at the national level while also driving local VISN-level advocacy. Key summary points from the study are as follows: the concept of a cognitive behavioral therapy or CBT-based treatment path for diabetes was well received. Pharmacy decision makers responded positively to BT-001’s strong safety profile when considering adverse events of a behavioral digital therapy in comparison to those associated with pharmacotherapy. They also perceived no negative impact on the pharmacy budget. Pharmacy leaders agreed BT-001 could be used at any stage of diabetes progression throughout a patient’s journey, but felt it would be used as early as possible.

They agreed that BT-001 would fit in the current VA clinical practice guideline as an individualized diabetes self-management education treatment tailored to a patient’s preferences, learning needs, and abilities. And finally, a decrease in HbA1C and outpatient visits were cited most in terms of measures for a successful diabetes treatment. We look forward to taking these valuable insights as we move into meetings with key supporters at the national level while developing our VISN-level coverage approach. As we refine our plans for market entry, the first phase in our launch will be focused on continuing efforts to expand coverage amongst payers. Covered lives will be a key metric and determinant of success for us. We anticipate follow-up meetings with payers upon FDA authorization, and we will prioritize the hiring of our field payer team in this effort.

We know it is critical to also have provider demand and clinical champions in the marketplace. Health system characterization continues as we further refine our list of 50 health systems matched from patient claims analyses we conducted in the fourth quarter of last year. Our goal is to identify those health systems that are innovative and more likely to adopt BT-001. Indicators include the ability to influence provider network, engaging in value-based contracts, and focusing on population health studies or initiatives in diabetes or other large population diseases. As we create awareness and to accelerate our target payers’ willingness to review for coverage via PIE meetings, we will prioritize health systems mapped to these payers. Our plan is to initiate the build-out of field teams in specific geographies where we see positive momentum with payers and providers for a focused regional market entry.

And this represents a thoughtful approach to our ramp-up responsibly and efficiently managing our resources. With regards to provider engagement, in the first quarter, we also on-boarded key opinion leader advisers who are serving to guide our marketing efforts. Early insights gathered will inform our broader research. I’m delighted to hear from practicing clinical experts who have not had prior exposure to or experienced with BT-001 about their enthusiasm for this novel therapeutic and the clinical data that supports it. Advisers value a clinical endpoint that matches what they expect in drug trials, the reduction in HbA1C. They’re encouraged by the health economic data where BT-001 may offset costs of expensive pharmacotherapy. They recognized the exciting innovation here as a shift to behavioral therapy, which may increase the chance for patient change beyond what monitoring alone can do to increase awareness of blood glucose impact from food choice.

And like medication, it’s critical to have BT-001 prescribable in their e-prescribing workflows. Finally, we’re pleased to report that we have engaged our distribution partner, Phil, leveraging its PhilRx Patient Access platform to improve access to prescriptions, simplify the patient experience with their prescription, and manage both pharmacy and medical benefits processes. Phil’s technology solution offers the capabilities companies like ours in the PDT space need, and it has already been implemented with a number of prescription digital therapeutics commercially available today. Mark Heinen, our Chief Financial Officer, will now review our first quarter 2023 financial results. Mark?

Mark Heinen: Thank you, Diane. I’ll begin by discussing our operating expenses for the first quarter of 2023. Our research and development expenses were $3.4 million for the quarter ended March 31, 2023, compared to $3.7 million for the same period in 2022. The decrease was primarily due to an increase in capitalized software development costs, offset by a decrease in clinical study costs. Sales and marketing expenses for the quarter ended March 31, 2023, were $2.1 million compared to $2 million for the same period last year. The increase was primarily related to higher personnel-related costs associated with our commercial readiness activities, partially offset by lower real-world evidence-related expenses. General and administrative expenses for the quarter ended March 31, 2023, were $3.4 million compared to $3.6 million for the same period in 2022.

The decrease was primarily related to lower business insurance costs, offset somewhat by an increase in personnel-related costs. Interest expense for the quarter ended March 31, 2023, was $400,000 compared to $300,000 for the same period last year. The increase was primarily the result of an additional $5 million borrowed under the company’s secured term loan agreement with Hercules Capital in the second quarter of 2022. Net loss for the quarter ended March 31, 2023, was $9.4 million compared to $9.7 million for the same period last year. On a per-share basis, net loss was $0.39 compared to $0.41 last year. The decline in loss per share is related to an increase in weighted average shares outstanding and a decline in net loss. Moving to our balance sheet, cash and cash equivalents were $6.1 million on March 31, 2023, compared to $15.7 million on December 31, 2022.

In April 2023, we completed a private placement for gross proceeds of $6.5 million. On a pro forma basis, taking into account the private placement, cash and cash equivalents was $12.6 million at the end of the first quarter. Our cash burn in the first quarter included a number of one-time expenses totaling approximately $1.6 million, including fees related to our recent financing, a principal payment under our Hercules debt facility and others. However, as a result of the restructuring and other cost savings initiatives, our cash burn has now been meaningfully reduced. These initiatives include amending the term loan agreement with Hercules, which among other things, provides for July and principal payments for up to six months. The cost savings initiatives and delay in principal payments and proceeds from the private placement are expected to extend our cash runway towards the end of Q3, allowing us to potentially meet several key milestones, including FDA authorization, a business development transaction, and/or a royalty monetization transaction.

With that, I’ll turn the call back over to Frank for some closing comments. Frank?

Frank Karbe: Thank you, Mark. Before we wrap up, I would like to come back to our financing strategy. As I shared previously, we are pursuing a three-tiered strategy, which consists of capital markets-based financings, business development, and structured non-share dilutive financings, such as a royalty monetization transaction. While we have executed on one element of the strategy with our private placement, we recognize our cash resources need to be further enhanced. As Mark mentioned, with the actions taken to extend our cash runway, we believe we have sufficient time to meet one or several of the milestones critical to our success. Each of these milestones are either catalysts for further financing opportunities or directly result in meaningful cash injections or both.

And it is worth noting that when we completed our recent private placement, we could have done a larger deal, but deliberately decided to do a smaller deal on better terms because we felt it was the right thing to do for the company and for shareholders. We also believe it better sets us up for long-term success, and it reflects our confidence in other elements of our financing strategy coming to fruition. Since the private placement, we have made significant progress in our various business development discussions and are optimistic about our ability to continue to deliver on several elements of our financing strategy. Until we know where we come out on these elements, we’re operating on a highly cost efficient basis. In closing, the industry is at an inflection point.

Whether it is the advancement of the Access to Prescription Digital Therapeutics or the continuously increasing interest of payers in PDTs, the industry is evolving in ways that are beneficial to us. We believe we are in a very good position to succeed. Largely, because of our focus on cardiometabolic diseases with type 2 diabetes as our lead indication, we expect the dynamic of our launch to be different from what has been observed in prior PDT launches. And we look forward to bringing our groundbreaking therapeutic to the providers and patients who urgently need them. And finally, I want to again thank the entire Better Therapeutics team for the unwavering passion and commitment to patients that they demonstrate every day. And with that, we’re now ready to take your question.

Thank you.

Q&A Session

Operator: [Operator Instructions]. Our first question comes from the line of Thomas Flaten at Lake Street Capital Markets. Thomas, your line is open.

Operator: Our next question comes from Charles Rhyee of TD Cowen. Charles, your line is open.

Operator: Our next question comes from the line of Keay Nakae at Chardan. Keay, your line is open.

Operator: Our next question comes from the line of Rahul Rakhit, LifeSci Capital. Rahul, your line is now open.

Operator: Thank you very much. At this time, I would like to turn the call back to Frank Karbe for closing remarks.

Frank Karbe: Well, thank you very much for your interest this morning and joining us for this call. We feel very, very good with where we are. I hope we were able to convey that, and we look forward to keeping you updated on the progress. And in the meantime, if you have questions, please feel free to contact us. Thank you. Bye-bye.

Operator: Thank you for your participation in today’s conference. This does conclude the program, and you may now disconnect. Thank you.