Weighty Ambitions

Welcome to The Rundown! Each week we'll identify and break down for you SPACs that are capturing market share and making an impact.

Happy Sunday Friends! 

Post-pandemic, obesity rates have surged, with a significant portion of the population acknowledging weight gain and expressing concerns about it. Concurrently, the approval of numerous weight loss drugs indicates a proactive response to this health challenge. However, issues like drug shortages, elevated costs, and potential side effects remain barriers. Allurion Technologies offers a promising alternative with its swallowable gastric balloons. The innovation is clear, but the pivotal question is: Can Allurion effectively scale its offering and secure a strong foothold in this evolving market?


Deflating Obesity 

Obesity, a pressing global health concern, has only been exacerbated by the pandemic. A telling 43% of adults have self-reported weight gain during this period, and a significant 70% are alarmed by this trend. The sheer scale of the issue is evident: over 2 billion adults worldwide have a Body Mass Index (BMI) exceeding 25. This statistic underscores the vast potential of both existing and emerging market opportunities. In the U.S. alone, a staggering 70% of the population is either overweight or obese, placing them at heightened risk for ailments like Type 2 diabetes and heart disease.

Financially, the current market valuation stands at an impressive $75 billion, with projections suggesting it could surpass $100 billion by 2030. A pivotal development in this sector has been the approval of weight loss drugs, particularly the GLP-1s category. Popular injectables such as Wegovy, Ozempic, and Mounjaro, produced by pharmaceutical giants Novo Nordisk and Eli Lilly, have garnered attention due to their commendable weight loss results, ranging between 14%-24%.

However, the soaring demand for these drugs has outpaced supply, leading to market shortages. Moreover, the financial accessibility of these treatments is a concern. With monthly costs exceeding $1,000 and a lack of insurance coverage, a substantial portion of the population finds these solutions out of reach. While the efficacy of these drugs is promising, there are reservations. The long-term effects and their impact on specific demographics remain under-researched.

Regulatory bodies, such as the U.K.'s Medicines and Healthcare Products Regulatory Agency and the European Medicines Agency, have initiated reviews due to reported side effects, including suicidal tendencies. Additionally, experts have raised flags about the drug's suitability for older adults, given potential muscle mass loss and the lack of substantial clinical trials involving this age group. In this landscape, the need for alternative, accessible, and well-researched solutions is evident.


Want to Find the Best De-SPACs? Try Benzinga

(Offer Expires 09-27-2023)

I use tons of trading software to help me better understand the market and make smarter trading decisions. One thing I love about Benzinga Pro is its versatility. It wasn't built for just one type of trader but for a wide range of experienced like myself. I can create custom watchlists, and then quickly monitor the performance of my investments.

Some great news – Benzinga is giving all subspac readers a free two week trial!

Try Benzinga


A New Approach to Weight Loss 

Allurion Technologies, headquartered in Massachusetts, is stepping into the weight loss arena with a unique proposition: swallowable gastric balloons. This innovative solution aims to address the trifecta of challenges in the weight loss market: cost, availability, and side effect concerns. Here's how it works: Patients undergo a brief 15-minute procedure where they swallow a capsule containing the uninflated balloon. Once ingested, the capsule is connected to a catheter, which is then filled with water, inflating the balloon within the stomach. This inflated balloon acts as an appetite suppressant for approximately four months.

While post-procedure nausea is a common side effect, it typically lasts only a few days. After its four-month tenure, the balloon naturally deflates and exits the body through the digestive system. But Allurion's approach isn't just about the balloon. The company integrates technology into its treatment plan, offering patients virtual care tools like a companion app, a connected scale, and a health tracker. The overarching aim is to instill long-term behavioral changes in patients, although some do opt for a second balloon. The potential of Allurion's solution is underscored by its performance in , where its balloons have been legal for over seven years. In 2022 alone, the company reported revenues exceeding $60 million.

Furthermore, a collaboration agreement with Medtronic allows the latter to distribute Allurion's gastric balloon and its AI-driven Iris healthcare management program across Central and Eastern Europe, the Middle East, and Africa. With over 100,000 patients already benefiting from its gastric balloon—reporting weight losses of 10%-15% within four months—and supplementary behavioral health services, Allurion is making notable strides. Geographically, Allurion's presence spans 50+ countries, covering 40% of the potential market. The company has ambitious expansion plans, aiming to launch in 15 additional countries, which would encompass over 60% of the addressable market.

However, challenges loom. Allurion is yet to secure FDA approval, and its prospectus indicates that the majority of its U.S. sales would likely be out-of-pocket, aligning with the prevailing framework for anti-obesity treatments. While some treatments are reimbursed for conditions like diabetes, Allurion's solution might not enjoy widespread insurance coverage. Competition is another hurdle. Apollo Endosurgery, acquired by Boston Scientific for $615 million, offers an FDA-approved gastric balloon. The distinguishing factor? Apollo's procedure necessitates patient sedation, whereas Allurion's does not.


Financials and Valuation 

Allurion Technologies has showcased robust revenue growth since 2016, leaping from a modest $1 million to an impressive $64 million in 2022. The company's projections are even more bullish, forecasting revenues of $100 million in 2023 and a further ascent to $140 million by 2024. 

This growth trajectory is anchored in a multi-pronged strategy: scaling services with existing providers, tapping into new providers in established markets like Australia, Canada, Mexico, and India, and venturing into fresh territories such as Brazil, South Korea, and Taiwan, where regulatory nods are awaited. Financially, Allurion's gross margins are on an upward trend, expected to rise from 76% in 2021 to 82% by 2024. This translates to a projected gross income of $115 million in 2024, positioning the company to hit operational breakeven by that year. However, a loss of $29 million is still anticipated for 2023.

To bolster its financial position, Allurion secured $100 million in net proceeds from its SPAC transactions, inclusive of a PIPE. An additional $100 million equity facility with Chardan Capital Markets is on standby, providing a liquidity safety net if required.

Valuation-wise, Allurion debuted with a $500 million tag during its transaction announcement. However, a slide in stock price to $5.95 has recalibrated its market cap to approximately $267 million. This pegs the company's forward price/sales ratio at a seemingly reasonable 2.7x, especially when juxtaposed against the surging demand for weight loss solutions and the expansive addressable market.


Bottom Line 

Allurion stands out in the saturated weight loss sector, offering a solution that's not only cost-effective but also widely accessible and devoid of known side effects. While hurdles like FDA approval and insurance coverage persist, the company remains optimistic about navigating these challenges. With a history of robust revenue growth and a trajectory pointing towards profitability within a year and a half, Allurion's current valuation appears reasonable. Given the escalating demand for weight loss solutions, Allurion presents itself as a potentially promising investment in this burgeoning market.


Source: Weighty Ambitions