All right, they're keeping us on the clock here, keeping us honest. So let me introduce this next session. I'm Matt Taylor, the U.S. Medical Supplies and Devices Analyst here at Jefferies, and I am pleased to be joined by management from Allurion. This is Shantanu Gaur. Is that, did I say that correctly?
Gaur, yes.
Okay, Gaur. Sorry about that. He's the CEO and founder of the company, and we're going to do a fireside chat here. I'll join you there in the lounge in a second. But maybe just to kick things off, there's probably some folks in here who aren't as familiar with the story. Talk a little bit about your evolution, and then now that you've been a public company for a few quarters here, maybe talk about some of the initial results, and trends that are feeding into your growth algorithm.
Fantastic, and thanks for having us here, Matt. As Matt mentioned, I'm the founder and CEO of Allurion. I started the company actually back when I was a medical student, learning about obesity and metabolic disease, and got very interested in all things related to weight. Back then, there were several devices and surgical approaches on the market for weight loss and obesity management, but they all had several different shortcomings. They were delivered without any sort of behavior change or any sort of remote monitoring. They were typically laden with procedures, either something surgical or endoscopic, requiring anesthesia, and that just, you know, fundamentally made it a much riskier intervention for patients and also a much more expensive one.
So we founded Allurion to develop weight loss experiences and weight loss devices that could be delivered in a procedureless manner, and also tied to some sort of behavior change program that provides not just weight loss, but long-term weight maintenance. What we went on to develop and invent was the Allurion Balloon. It's a device covered by over 50 patents now. It's basically a balloon that you can swallow in a 15-minute office visit, start to finish. It fills up inside your stomach, remains there for four months, and prevents you from overeating and takes up space. And after four months, what's really special about the balloon is that it empties on its own and passes out of the body.
And so, that device is actually paired with our behavior change program, something that we developed in-house, proprietary behavior change program, covering all aspects of a healthy lifestyle: nutrition, diet, exercise, sleep, stress management, and we deliver that program through our digital platform. So unlike all of the devices that have really come before us, this is a device delivered as part of a program that wraps around the patient, and what that enables us to do is deliver best-in-class results. Our patients will lose over 15% of their total body weight in just four months, but more importantly, they'll actually maintain 96% of that weight loss one year later. We launched the product in Europe in 2016, have treated over 150,000 patients so far and are consistently seeing, you know, truly best-in-class results for the technology.
Great. Maybe a couple of questions we could ask you there, but I'll, I'll start with the device and talk about the results a little bit. You mentioned kinda the 15% weight loss and it being sustained. I guess one question I, I'm sure a lot of people would have after GLP-1 mania last year is: how does that, how does that play into the treatment algorithm here? And I know you're doing some work to look at how they can complement each other, but maybe talk about whether you think GLP-1s are a headwind or a tailwind and how they'll work into your, your business as well.
Yeah, it's a great question, and one that people are very, interested in, in learning more about. I'd say for sure, in the second half of last year, GLP-1s were a headwind. I mean, they were, everywhere on the public consciousness, within patients, providers, and I really do see now them turning into a tailwind for the business and the company in the long term. And I'll tell you why. You know, we're seeing now, more and more evidence that patients just aren't remaining on these GLP-1s for very long. There's new data out from, Blue Cross Blue Shield, where they published their GLP-1 experience with their patients, and, 30% of those patients don't even stay on their GLP-1s for a month. 58% stop their GLP-1s before they get any therapeutic benefit.
We're starting to see that in our own business. 25% of our patients now have previously tried a prescription weight loss drug, and that has happened very quickly over the past year. So when I think about how our results stack up against GLP-1s, we deliver a similar amount of weight loss much faster. Our weight loss happens over four months versus 68 weeks for the GLP-1s. We also have better long-term weight maintenance. Our balloon leaves the body after four months, but that doesn't mean the patient, unlike with GLP-1s, will regain all of their weight. So we actually believe that because they've brought so much awareness to the space, because the churn rate is so high on GLP-1s, that these GLP-1s are actually creating more patients and will continue to create more patients for us in the long haul.
Super. It's also worth mentioning, you're running a study in the U.S., right? Which could be the biggest market, pun intended. And maybe just remind us the clinical program there, how it's progressing, and when we should expect a readout.
We started the AUDACITY study, which is our FDA pivotal trial for the Allurion Balloon, last year, and we completed enrollment in the fall of 2023, and we were very pleased with the speed of that enrollment. Even in the world of GLP-1s, our trial actually enrolled 2 months ahead of schedule, and we were very pleased with the uptake that we saw at all of our U.S. clinical trial sites. It's an open-label, randomized controlled study, where patients are either randomized to get our balloon or enroll in what's called a moderate-intensity lifestyle program, which is effectively a once-a-month visit with a dietitian. Patients are actually eligible for up to 2 balloon cycles.
One thing I didn't mention earlier is that with one balloon cycle, you lose 15% of your total body weight in our OUS experience, and with a second balloon cycle, our patients, on average, are losing more than 20% of their total body weight. So in this FDA study, patients are eligible for up to two balloon cycles over the course of one year. So with the last patient enrolled fall of last year, with one year endpoints, we'll, you know, be reading out the data by the end of this year, most likely, and then packaging that data up and submitting it to FDA as part of our PMA submission.
Super. Maybe we could talk a little bit about just the current commercial trends. The last couple quarters on an underlying basis, the procedures have been growing double digits. There's been a little bit of noise around the stocking. So could you unpack that, and maybe talk about some of the leading indicators you're looking at to show the health of the business and the growth?
Absolutely. You know, the past couple quarters, we've definitely noted that inventory levels have been higher than they have been historically. Part of that was due to some of these headwinds that we encountered in the second half of 2023, whether they were GLP-1s leading to longer time spent in our marketing funnel for a lot of our patients, or whether it was macroeconomic headwinds that we were facing in territories like Latin America. We saw certainly a rising level of inventory, which impacted distributor reordering in Q4, and also reordering from some of our larger accounts. That being said, we were very pleased with the increase in procedural volume that we observed in 2023. Procedural volumes grew by 30% year-over-year, and sequentially from Q4 to Q1, procedural volumes grew by 22%.
And now we're starting to see inventory levels normalize in some of these markets. So, you know, we track procedural volume very closely. We have the added benefit of having a digital platform, where every time a balloon is placed, or not every time, but most of the time when a balloon is placed, a patient downloads the app, sets up their profile, and we're able to track when an actual placement happens in the field. And using that data as a leading indicator, we're actually able to track how our inventory levels are in various markets. So what we expect is, by the end of this quarter, Q2, for inventory levels to normalize, and really in the second half of the year, for revenue and procedural volume to move much more closely in lockstep with one another.
Great. One of the things I wanted to focus on that's been a recent development that is a significant positive is the change in reimbursement in the U.K.
Mm-hmm
... which is a material market for you. So maybe you could summarize what that change is, what it means, how it could potentially translate to other markets in the future?
Yeah, we're mostly a cash pay business. Patients are paying out of pocket for the program and the technology. As Matt mentioned, we recently unlocked some reimbursement in the U.K. through the NHS. This was a long process. It takes a lot of data and evidence to convince the U.K. authorities to reimburse something, and we have now an indication for our product for pre-surgical weight loss, which you may think is a small indication, but it's actually quite, quite vast.
There's 600,000 bariatric surgeries done every year around the world, and almost every single one of those patients needs to lose weight prior to their surgery in order to improve outcomes, and that's just bariatric surgery, let alone orthopedic surgeries and other surgeries where weight loss is a true benefit, for the patient before they go through a surgical intervention. One of the actual benefits of the GLP-1s, with regards to reimbursement for Allurion, is that a lot of payers and a lot of governments are, quite frankly, frightened, with how much the bill is going to be if they were to cover GLP-1s like Ozempic and Wegovy for the patients in their countries with obesity.
And because of that, they are really looking for alternatives that have similar efficacy but are a fraction of the cost, and that's where we come in. You know, with our program the way it is, it's a one-time transaction, but potentially has very nice long-term benefits for the patient, much more affordable than lifelong use of GLP-1s. And so we are starting now with a few trusts in the NHS, actually, recommending the Allurion Balloon and getting it fully paid for, for this pre-surgical weight loss indication. And in the future, I think one of the catalysts for our business may very well be expansion of our indications, going into things like diabetes, hypertension control, sleep apnea, because now we do have, pretty convincing data that our program benefits all of those comorbidities.
Then also, replicating some of the success we've had in the U.K. in other territories, inside of Europe and outside of Europe as well.
Maybe it's worth expanding on this topic a little bit in terms of the procedural economics. So I'd love for you to talk more about how this maps to other substitutes or competing therapies. How does it look for the patient, the cost to them, the payer, and then also the provider? I guess this is an attractive margin for them as well. If you could talk a little bit about those, I think it's an important part of the business model.
Obesity economics have really been front and center, especially with the rise of GLP-1s. One of the things that we have learned is that it's extremely difficult for GLP-1s, in particular, to be pill milled. You know, it's. There's no provider economics really that would incentivize the provider to go down a GLP-1 versus another path. Without a behavior change program and long-term follow-up, the economics for the payer become very problematic, because if you were to pay for a GLP-1, you would need to pay for that GLP-1 for life. So the economics that Allurion offers is quite different. For the patient, we are a fraction of the cost of bariatric surgery.
Because there are no procedures involved, no endoscopy, no anesthesia, and no surgery, we're able to bring this to market for patients at a sub-$5,000 price point, which for the middle-class consumer, is well within the range of putting it on a credit card, which is sort of the magic threshold in cash pay med tech. Moreover, because the procedure can be done so quickly, literally in a 15-minute office visit on a patient's lunch break, the provider's time invested is quite minimal, and yet their margin is quite substantial. Some of our doctors are making anywhere from $1,000-$2,000 per balloon placed, and that's a significant amount of economics for something that really can be delivered in a 15-minute office visit.
And so going back to where we started and why we started Allurion, we developed Allurion's balloon to be procedureless because it brings down the cost for the patient while maintaining very attractive margins for us, and the physician.
Maybe that's just another important point to touch on. Maybe there have been balloon solutions in the past that have been very different. Some of them have had challenges, and you've had kind of elegant ways to solve for some of those shortcomings. One of them you touched on was the procedure difference. So maybe you could describe the difference between your solution and what's existed in the past there, and also some of the adverse events the other balloons have run into that you really haven't seen.
Previous intragastric balloons and other, gastric devices have all been delivered, using something called endoscopy, where you go to the hospital, a scope is put down into your stomach, the device is delivered, and typically that's done under anesthesia or sedation. And then you'd have to come back several months later to have the device removed, again, by endoscopy, typically, under anesthesia. We developed Allurion to be delivered in a capsule, so the patient literally swallows it. They're awake and alert throughout their whole 15-minute office visit, and 4 months later, our balloon naturally empties and passes. We have over 50 patents on this release valve technology that enables that. And by taking the procedures out of the equation, what we've done from a risk standpoint is dramatically lower the risk that the patient would incur.
Previous balloons and devices would suffer from endoscopic complications, esophageal perforations, lacerations, tears at the gastroesophageal junction, aspiration pneumonia when you're taking a device out and someone inadvertently inhales a particle that was inside the stomach. There's all sorts of adverse events that we simply do not see because there are no procedures involved in the Allurion Balloon, and that's one class. Second class of adverse events that these previous devices saw were intragastric events, ulcerations, erosions inside the stomach. We've designed the Allurion Balloon from a very thin film polyurethane that's designed to be gentle and smooth on the stomach lining.
So the experience for the patient and our risk profile is just fundamentally different compared to any of the other endoscopic devices that have come before us, and certainly, you know, it's an obvious statement, but I'll make it, fundamentally different from any sort of surgical intervention as well.
Maybe we could talk about our friend Iris and how she's doing. Iris is the name of the virtual coach, which includes AI capabilities, and not only have you been using it, like you said, with the lifestyle program that comes alongside the intervention, but also exploring new ways to maybe monetize that or partner with other stakeholders with a solution like that. So maybe you could double-click on what that coach is, what it is capable of, and some of the things you're noodling on that could potentially unlock value from that.
I believe, Coach Iris and all of the features of our AI platform are true game changers for Allurion and game changers for the weight loss space in general. What Coach Iris is, is a 24/7 AI-powered weight loss coach that we have trained internally. And to give you a little bit of background on how we built it, we took the large language model that underlies ChatGPT, it's called GPT, and we took that large language model, and we trained it on our behavior change program. So we've developed our own proprietary behavior change program with over 100 modules of content, and we essentially read GPT in on all of that know-how and educated the large language model on our behavior change program.
What Coach Iris does is leverage our fine-tuned large language model to answer 24 hours a day, 7 days a week, any type of question the patient has, whether it's about their Allurion Balloon journey, whether it's about their diet plan. You can create exercise plans with Coach Iris. She can also help you with stress management, mental health, sleep hygiene, the whole nine yards. And what we have found is that clinics that and patients who are using Coach Iris have higher levels of engagement. There's higher stickiness on the platform, more weight loss, better patient satisfaction, higher NPS. So essentially, what we're doing is we've created a fully verticalized conversational agent that specializes in weight loss.
And over time, as we rolled that out for our Allurion Balloon patients, our providers started to ask us whether we could use Coach Iris or whether they could use Coach Iris, rather, to manage their GLP-1 patients and manage their bariatric surgery patients, because it's very clear what is happening right now with GLP-1s. Patients are overrunning doctor's offices. There's no way, there's not enough human beings in the world to provide proper counseling and coaching to all of the patients who are on GLP-1s. And so we've now, we just recently announced that Coach Iris is trained on GLP-1 management and GLP-1 follow-up. We also have trained Coach Iris on bariatric surgery follow-up. So now what we have done is actually launched Coach Iris and our digital platform directly to providers for them to manage any type of patient going through any sort of weight loss therapy.
And, you know, I think the most interesting part of that story is that, you know, we're still a few years out from our Allurion Balloon being approved in the U.S., but now we've launched our digital platform in the U.S., and we've started working with actual U.S. providers who are offering GLP-1s and bariatric surgery, and even some of those old endoscopic balloons in their practice, but they're using our software to manage all of those patients. We think it's gonna be a game changer for the weight loss space. I actually believe that GLP-1s and bariatric surgery may not succeed in the long run without something like Coach Iris with every single patient.
Gotcha. Maybe we could transition and talk a little bit about the numbers. We'd love for you to just re-review guidance this year, the results you saw in Q1, and what gives you the confidence in making guidance for the remainder of the year?
We're very pleased with the performance that we had in the first quarter. As I mentioned, procedural volume grew sequentially 22%, and that really is our, our North Star, especially for the first half of the year, as inventory levels normalize in the field. And we're guiding towards $60-$65 million of top-line revenue. We're guiding towards approximately 20% growth in procedural volume, and a reduction in our cash burn, down to approximately $30 million from $64 million last year. So we made good progress on all fronts, of our guidance in the first quarter. We're seeing encouraging trends in the second quarter with regards to procedural volume and inventory destocking.
As I mentioned earlier, I believe that at the end of this quarter, we'll have much more normalized levels of inventory in the field, and in the second half of the year, we expect to see a much closer match between revenue and procedural volume between then and the end of the year.
Gotcha. And I guess, as you think about the swing factors for this year to move you up in the guidance, higher or lower in the guidance, what do you think about as being the main swing factors there? Are they, are they macro factors? Is it execution, new windfalls like you saw in the U.K.? What-- If things could go really well, what are the few things that could happen? And, and conversely, if they went south, what are the biggest risks?
There's always, I guess, the risk that, you know, GLP-1s, you know, bare their ugly head again, but I really think that's behind us. I believe that the hype around GLP-1s has settled down to reality, and people now understand that they are not gonna be the cure-all and end-all of obesity. We are monitoring procedural volume very closely, especially in the first half of this year. In the first half, you know, our success is really gonna be based on procedural volume growing and inventory destocking. In the second half of the year, I actually expect to see some tailwinds from the GLP-1s. I expect to see more and more patients coming towards Allurion after having tried and failed a prescription weight loss drug.
I also think in the second half of the year, we're gonna see some tailwinds from increasing productivity at existing accounts. As I mentioned earlier, we did rightsize the business in the fourth quarter, and we reallocated a lot of our marketing dollars away from low ROI channels to much higher ROI channels. We're seeing some tailwinds from those moves as well that may actually drive higher than expected productivity in existing accounts. We've also made a concerted effort now that our device has a lot more credibility, especially in Europe, after having commercialized there for six years, we're making more concerted effort in new account openings and expanding a little bit more aggressively in what we call the non-core segment.
These are non-bariatric accounts that are fantastic at marketing, have long waiting lists for patients who wanna lose weight, and don't have a product to push through that channel yet.
I guess as you've become more focused on managing the cash burn, maybe talk about ways that you've been able to reduce cost and do that without spoiling the momentum of the business.
Yeah, you know, looking at cash burn last year, $64 million, going down to $30 million this year, we had to make some significant changes at Allurion, but I've been very pleased with how we have rightsized the business. We were very strategic in the areas where we did decrease investment, and we were able to reallocate a lot of that investment to parts of the business that have a higher ROI and more and more increased efficiencies, specifically on the marketing side. And we were able to do all of this while sparing the digital part of our business because I really do believe that in the future, that could be a major catalyst for Allurion, especially as we expand the digital platform in the U.S.
And so far, we're bearing the fruits of that. In the first quarter, our cash burn reduced by over 60% compared to Q4. OpEx dropped by over 40% compared to Q4, yet we saw a 22% sequential increase in procedural volume. So by recalibrating the business and reallocating some of that expense and investment, I think we're unlocking a lot of efficiencies at the business now.
We're about out of time, but I just wanna thank you for-