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Obalon Therapeutics Announces Third Quarter Financial Results

SAN DIEGO, Nov. 11, 2016 (GLOBE NEWSWIRE) -- Obalon Therapeutics Inc. (NASDAQ:OBLN), a vertically integrated medical technology company with the first and only FDA-approved swallowable, gas-filled intragastric balloon system for the treatment of obesity, today announced its financial results for the third quarter ended September 30, 2016. The Company reported total revenues of $0.8 million for the third quarter, compared to $1.1 million for the third quarter of 2015. Net loss was reported at $5.3 million compared to a net loss of $3.6 million in the third quarter of 2015 and net loss per share for the quarter was $5.46 as compared to net loss per share of $6.21 in the third quarter.

Cost of goods sold was $0.6 million during the three months ended September 30, 2016, consistent with $0.6 million for the prior year period. Gross profit for the third quarter was $0.1 million, resulting in a gross margin of 17%, compared to $0.4 million and 41% for the third quarter of 2015.

Research and Development expense for the third quarter totaled $2.2 million, down from $3.2 million in the third quarter of 2015, and Selling, General and Administrative, or SG&A expense increased to $2.4 million for the third quarter, compared to $0.6 million in the third quarter 2015.

Operating loss for the third quarter was $4.5 million, compared to an operating loss of $3.4 million for the third quarter of 2015.

Net loss for the quarter was $5.3 million, or $5.46 per share as compared to a net loss of $3.6 million or $6.21 per share for third quarter of 2015.

As of September 30, 2016, Obalon had $14.2 million in cash, cash equivalents and short-term investments and $9.9 million in long-term debt.

On October 12, 2016, Obalon closed the initial public offering in which 5.0 million shares were issued at a price of $15.00 per share for gross proceeds of $75.0 million and net proceeds of approximately $67.4 million.

Year-to-Date Results

For the nine months ended September 30, 2016, net revenues decreased to $2.6 million from $3.1 million in the same period in the prior year.

Operating loss was $12.0 million as compared to an operating loss of $10.3 million in the prior year.

Net loss for the nine months increased to $13.0 million, or $18.36 per share, compared to a net loss of $10.7 million, or $18.71 per share, in the prior year.

Call Information

A conference call to discuss third quarter 2016 results is scheduled for tomorrow, November 11, 2016, at 8:00 AM Eastern Time (5:00 AM Pacific Time). Interested parties may access the conference call by dialing (844) 889-7791 (U.S) or (661) 378-9934 (international) using passcode 7817124.  Media and individuals will be in a listen-only mode. Participants are asked to dial in a few minutes prior to the call to register for the event.  The conference call will also be webcast live at:  http://edge.media-server.com/m/p/r6on7ba8.

A replay of the call will be available through November 18, 11:00 AM EST by calling (855) 859-2056 (U.S.) or (404) 537-3406 (international), using passcode 7817124.  An archive of the webcast will be available for twelve months following the event on Obalon Therapeutics website located at http://investor.obalon.com in the “News & Events” section. 

About Obalon Therapeutics, Inc.
Obalon Therapeutics, Inc. (NASDAQ:OBLN), is a San Diego-based company focused on developing and commercializing novel technologies for weight loss. The Obalon management team has over 150 combined years of experience in developing and commercializing novel medical technologies with a track record of financial and clinical excellence. For more information, please visit www.obalon.com.

Forward Looking Statements
This press release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding the benefits of the company’s product. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, the company cannot guarantee future events, results, actions, levels of activity, performance or achievements. Forward-looking statements are subject to risks and uncertainties that may cause the company's actual activities or results to differ significantly from those expressed in any forward-looking statement, including risks and uncertainties related to the company’s ability to achieve or sustain profitability; the company’s ability to predict its future prospects and forecast its financial performance and growth; the rate at which physicians and patients adopt and use the company’s balloon system; the effect of adverse events or other negative developments involving other companies’ intragastric balloons or other obesity treatments; the company’s ability to educate physicians on safe and proper use of the Obalon balloon system; the rate at which patients may experience serious adverse device events as the result of the misuse or malfunction of, or design flaws in, the company’s products; the company’s ability to obtain FDA approval or other regulatory approvals for its future products and product improvements; the company’s ability to adequately protect its proprietary technology and maintain its issued patents and other risks and uncertainties described under the heading "Risk Factors" in documents the company files from time to time with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this press release, and the company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date hereof.

             
OBALON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par value data)
 
    September 30,
2016
    December 31,
2015
 
    (Unaudited)        
Assets                
Current assets:                
Cash and cash equivalents $ 2,324   $ 3,356          
Short-term investments   11,829     9,175          
Accounts receivable, related party   515     636          
Inventory   438     363          
Other current assets   2,857     273          
Total current assets   17,963     13,803          
Property and equipment, net   535     418          
Total assets $ 18,498   $ 14,221          
                 
Liabilities, Convertible Preferred Stock and Stockholders’ Deficit                
             
Current liabilities:                
Accounts payable and accrued expenses $ 1,068   $ 549          
Accrued compensation   684     1,250          
Accrued clinical expenses   139     913          
Other current liabilities   2,434     493          
Customer deposit from related party       1,283          
Current portion of long-term loan       747          
Warrant liability   882     332          
Total current liabilities   5,207     5,567          
Long-term loan, excluding current portion   9,886     9,094          
Total liabilities   15,093     14,661          
                 
Commitments and contingencies (See Note 10)                
                 
Convertible preferred stock                
Series A convertible preferred stock, $0.001 par value; 2,333,332 shares authorized; 804,595 shares issued and outstanding as of September 30, 2016 and December 31, 2015; liquidation preference of $7,000 as of September 30, 2016 and December 31, 2015   6,773     6,773          
Series B convertible preferred stock, $0.001 par value; 4,333,332 shares authorized; 1,494,248 shares issued and outstanding as of September 30, 2016 and December 31, 2015; liquidation preference of $6,500 as of September 30, 2016 and December 31, 2015   6,454     6,454          
Series C convertible preferred stock, $0.001 par value; 7,809,006 and 7,809,939 shares authorized as of September 30, 2016 and December 31, 2015, respectively; 2,668,533 shares issued and outstanding as of September 30, 2016 and December 31, 2015; liquidation preference of $16,523 as of September 30, 2016 and December 31, 2015   16,393     16,393          
Series C-1 convertible preferred stock, $0.001 par value; 1,418,042 and 2,783,334 and shares authorized as of September 30, 2016 and December 31, 2015, respectively; 480,286 shares issued and outstanding as of September 30, 2016 and December 31, 2015; liquidation preference of $5,000 as of September 30, 2016 and December 31, 2015   4,984     4,984          
Series D convertible preferred stock, $0.001 par value; 8,076,436 and 11,546,013 shares authorized as of September 30, 2016 and December 31, 2015, respectively; 2,732,552 shares issued and outstanding as of September 30, 2016 and December 31, 2015; liquidation preference of $20,590 and $41,180 as of September 30, 2016 and December 31, 2015, respectively   20,095     20,095          
Series E convertible preferred stock, $0.001 par value; 10,490,611 and 0 shares authorized as of September 30, 2016 and December 31, 2015, respectively; 1,916,425 and 0 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively; liquidation preference of $15,893 and $0 as of September 30, 2016 and December 31, 2015, respectively   15,799          
                 
    70,498     54,699          


     
  September 30,
2016

  December 31,
2015

               
Stockholders’ deficit:              
Common stock, $0.001 par value; 45,000,000 and 35,000,000 shares authorized as of September 30, 2016 and December 31, 2015, respectively; 1,383,624 and 575,126 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively   1       1  
Additional paid-in capital   2,015       1,002  
Other comprehensive income   5        
Accumulated deficit   (69,114 )     (56,142 )
Total stockholders’ deficit   (67,093 )     (55,139 )
Total liabilities and stockholders’ deficit $ 18,498     $ 14,221  
               


 
OBALON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except shares and per share data)
(Unaudited)
 
  Three Months Ended September 30,
  Nine Months Ended September 30,  
    2016     2015       2016     2015  
Revenue:   
Revenue $   $     $   $     224   
Revenue, related party     773       1,093         2,621       2,832  
Total revenue     773       1,093         2,621       3,056  
Cost of revenue     644       644         1,938       1,849  
Gross profit     129       449         683       1,207  
Operating expenses:                          
Research and development     2,169       3,201         7,267       9,169  
Selling, general and administrative     2,412       618         5,387       2,297  
Total operating expenses     4,581       3,819         12,654       11,466  
Loss from operations     (4,452 )     (3,370 )       (11,971 )     (10,259 )
Interest expense, net     (135 )     (142 )       (425 )     (405 )
Loss from change in fair value of warrant liability       (669 )     (42 )         (550 )     (31 )
Other expense, net     (4 )     (8 )       (26 )     (24  )
Net loss     (5,260 )     (3,562 )       (12,972 )     (10,719 )
Other comprehensive income (loss)     1       (2 )       5       8  
Net loss and comprehensive loss $   (5,259 ) $   (3,564 )   $   (12,967 ) $   (10,711 )
Net loss per share, basic and diluted $   (5.46 ) $   (6.21 )   $   (18.36 ) $   (18.71 )
Weighted-average common shares outstanding,
basic and diluted
    963,724       574,044         706,688       572,818  
           


 
OBALON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
  Nine Months
Ended September 30,
 
    2016     2015  
 
Operating activities:
Net loss $   (12,972 ) $   (10,719 )
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization     142       124  
Stock-based compensation     200       153  
Loss on disposal of fixed assets     13       2  
Change in fair value of warrant liability     550        31  
Amortization of investment premium, net     96       215  
Amortization of debt discount     60       57  
Change in operating assets and liabilities:    
Accounts receivable, net         97  
Accounts receivable from related party     121       (542 )
Inventory     (75 )       103  
Other current assets     (2,597 )      (39 )
Accounts payable and accrued expenses     519       268  
Accrued compensation     (566 )     (33 )
Accrued clinical expenses     (774 )     1,623  
Other current liabilities     1,690       202  
Customer deposit from related party         1,283  
Net cash used in operating activities     (13,593 )     (7,175 )
Investing activities:    
Purchases of short-term investments     (18,897 )     (14,238 )
Maturities of short-term investments     16,150       11,200  
Purchase of property and equipment     (259 )     (83 )
Net cash used in investing activities     (3,006 )     (3,121 )
Financing activities:    
Issuance of preferred stock for cash, net of offering costs     14,517      
Proceeds from long-term loan, net of issuance costs         5,000  
Fees paid in connection with loan amendment     (15 )    
Sale of common stock     1,065       61  
Net cash provided by financing activities     15,567       5,061  
Effect of exchange rate changed on cash and cash equivalents         3  
Net decrease in cash and cash equivalents     (1,032 )       (5,232 )
Cash and cash equivalents at beginning of period     3,356       6,902  
Cash and cash equivalents at end of period $   2,324   $   1,670  
Supplemental cash flow information:    
Interest paid $   405   $   371  
Non-cash investing and financing activities:            
Conversion of customer deposit from related party to preferred stock $   1,283    $  
             
For Obalon Therapeutics Inc.

Investor Contact:
William Plovanic
Chief Financial Officer
Obalon Therapeutics, Inc.
Office: +1 760 607 5103
wplovanic@obalon.com

Media:
Megan Driscoll
EvolveMKD
Office Phone: +1 646 517 1565
mdriscoll@evolvemkd.com

Obalon Therapeutics, Inc.

IMPORTANT SAFETY INFORMATION
The Obalon Balloon System is intended for adults with a body mass index (BMI) of 30 to 40 kg/m2 willing to follow a diet and exercise program. All Obalon balloons must be removed in 6 months. Patients with prior weight loss surgeries are not eligible. The most common side effects reported were mild abdominal pain and nausea which typically resolved within two weeks. You must take daily acid-blocking medicine prescribed by your doctor. For full Important Safety Information click on Safety Information and Patient Labeling