PRESS RELEASE

Obalon Announces Third Quarter 2018 Financial Results

SAN DIEGO, Nov. 02, 2018 (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 unaudited financial results as of and for the third quarter ended September 30, 2018.

Third Quarter 2018 highlights:

  • Total revenue of $3.0 million increased 9% vs Q2-18
  • US revenue of $1.8 million increased 17% vs Q2-18
  • US Reorders were $1.4 million, or 79% of US sales, an increase of 45% vs Q2-18
  • Gross margin of 53% increased from 37% in Q2-18
  • Operating loss of $6.6 million improved 31% vs $9.6 million in Q2-18
  • Net cash use of $5.5 million decreased 33% vs. use of $8.3 million in Q2-18
  • Completed Private Placement raising gross proceeds of $10.0 million
  • Received FDA PMA-S approval for the Obalon Touch Inflation System
  • As part of a planned succession, on January 2, 2019 the Company will transition Kelly Huang, Ph.D. to the role of Chief Executive Officer and Andy Rasdal to the role of Chairman of the Board

The Company reported revenue of $3.0 million for the third quarter of 2018, compared to $2.7 million for the second quarter of 2018 and $2.8 million for the third quarter of 2017. Net loss was reported at $6.7 million for the third quarter of 2018, compared to $9.8 million for the second quarter of 2018 and $9.2 million for the third quarter of 2017. Net loss per share for the third quarter of 2018 was $0.35 as compared to $0.57 for the second quarter of 2018 and $0.55 for the third quarter of 2017.

Cost of revenue was $1.4 million for the third quarter of 2018, down from $1.7 million for the second quarter of 2018, and up from $1.3 million for third quarter of 2017. Gross profit for the third quarter of 2018 was $1.6 million, resulting in a gross margin of 53%, compared to a gross profit of $1.0 million and gross margin of 37% for the second quarter of 2018 and a gross profit of $1.5 million and gross margin of 53% for the third quarter of 2017.

Research and Development expense for the third quarter of 2018 totaled $2.4 million, down from $3.4 million for the second quarter of 2018 and $2.8 million for the third quarter of 2017.  Selling, General and Administrative expense decreased to $5.8 million for the third quarter of 2018 as compared to $7.3 million for the second quarter of 2018 and $7.8 million for the third quarter of 2017.

Operating loss for the third quarter of 2018 was $6.6 million, down from $9.6 million for the second quarter of 2018 and $9.1 million for the third quarter of 2017.

As of September 30, 2018, cash, cash equivalents and short-term investments were $29.7 million.

Call Information
A conference call to discuss third quarter 2018 financial results is scheduled for today, November 2, 2018, at 8:30 AM Eastern Time (5:30 AM Pacific Time). Interested parties may access the conference call by dialing (844) 889-7791 (U.S.) or (661) 378-9934 (international) using passcode 6045357.  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: https://edge.media-server.com/m6/p/7sfacf89.

An archive of the webcast will be available for twelve months following the event on the Obalon Therapeutics, Inc. 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 http://www.obalon.com/.

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 4220 
mdriscoll@evolvemkd.com

OBALON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except shares and per share data)

  Three Months Ended September 30,   Nine Months Ended September 30,
  2018   2017   2018   2017
  (Unaudited)
Revenue $ 2,987     $ 2,787     $ 7,065     $ 6,222  
Cost of revenue 1,418     1,314     3,919     3,127  
Gross profit 1,569     1,473     3,146     3,095  
Operating expenses:              
Research and development 2,368     2,798     8,359     7,958  
Selling, general and administrative 5,836     7,813     23,092     19,606  
Total operating expenses 8,204     10,611     31,451     27,564  
Loss from operations (6,635 )   (9,138 )   (28,305 )   (24,469 )
Interest expense, net (70 )   (21 )   (164 )   (110 )
Other expense (40 )   (11 )   (155 )   (66 )
Net loss (6,745 )   (9,170 )   (28,624 )   (24,645 )
Other comprehensive (loss) income (3 )   15     3     (3 )
Total comprehensive loss $ (6,748 )   $ (9,155 )   $ (28,621 )   $ (24,648 )
Net loss per share, basic and diluted $ (0.35 )   $ (0.55 )   $ (1.60 )   $ (1.48 )
Weighted-average common shares outstanding, basic and diluted 19,457,971     16,747,791     17,837,297     16,649,447  
                       

OBALON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par value data)

  September 30, 2018   December 31, 2017
Assets (Unaudited)
Current assets:      
Cash and cash equivalents $ 21,552     $ 21,108  
Short-term investments 8,116     23,292  
Accounts receivable, net of allowance of $538 and $239, respectively 2,775     4,223  
Inventory 1,955     1,418  
Other current assets 909     1,714  
Total current assets 35,307     51,755  
Property and equipment, net 1,572     1,346  
Total assets $ 36,879     $ 53,101  
Liabilities and Stockholders’ Equity      
Current liabilities:      
Accounts payable $ 1,458     $ 1,276  
Accrued compensation 2,671     4,494  
Deferred revenue 301     510  
Other current liabilities 2,328     1,773  
Current portion of long-term loan 523     1,958  
Total current liabilities 7,281     10,011  
Deferred rent 46     13  
Long-term loan, excluding current portion 9,399     7,964  
Total long-term liabilities 9,445     7,977  
Total liabilities 16,726     17,988  
Commitments and contingencies      
Stockholders’ equity:      
Common stock, $0.001 par value; 100,000,000 and 300,000,000 shares authorized as of September 30, 2018 and December 31, 2017, respectively; 23,280,310 and 17,500,604 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively 23     18  
Additional paid-in capital 160,130     146,474  
Accumulated other comprehensive loss (2 )   (5 )
Accumulated deficit (139,998 )   (111,374 )
Total stockholders’ equity 20,153     35,113  
Total liabilities and stockholders’ equity $ 36,879     $ 53,101  
               

OBALON THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

  Nine Months Ended September 30,
  2018   2017
  (Unaudited)
Operating activities:      
Net loss $ (28,624 )   $ (24,645 )
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation 428     221  
Stock-based compensation 3,610     2,102  
Fair value of stock issued for legal settlement     1,398  
Loss on disposal of fixed assets 107      
(Accretion) amortization of investment (discount) premium, net (20 )   24  
Amortization of debt discount 29     31  
Change in operating assets and liabilities:      
Accounts receivable, net 1,448     (2,515 )
Accounts receivable from related party     515  
Inventory (537 )   (84 )
Other current assets 805     240  
Accounts payable 135     534  
Accrued compensation (1,823 )   174  
Deferred revenue (209 )   72  
Other current and long term liabilities 634     506  
Net cash used in operating activities (24,017 )   (21,427 )
Investing activities:      
Purchases of short-term investments (9,103 )   (80,317 )
Maturities of short-term investments 24,302     41,500  
Purchase of property and equipment (867 )   (904 )
Net cash provided by (used in) investing activities 14,332     (39,721 )
Financing activities:      
Fees paid in connection with loan amendment (30 )    
Proceeds from issuance of common stock, net of issuance costs 9,973      
Proceeds from stock issued under employee stock purchase plan 148     210  
Proceeds from sale of common stock upon exercise of stock options 38     46  
Net cash provided by financing activities 10,129     256  
Net increase (decrease) in cash and cash equivalents 444     (60,892 )
Cash and cash equivalents at beginning of period 21,108     72,975  
Cash and cash equivalents at end of period $ 21,552     $ 12,083  
Supplemental cash flow information:      
Interest paid $ 473     $ 416  
Unpaid issuance costs $ 160     $  
Property and equipment in accounts payable $ 106     $ 126  
               

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Source: 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 onSafety Information and Patient Labeling