Obalon to lay off half its workforce in retail pivot

Obalon Therapeutics (NSDQ:OBLN) said today that it’s planning to lay off 50% of its employees, including all of its direct sales force, in a pivot toward retail.

The Carlsbad, Calif.-based company, which makes a gas-filled balloon designed to treat obesity, said it hopes to cut its expenses by 35% during the second quarter after one-time charges of $1 million. The move also involves elimination of 49 direct field sales and headquarters employees, Obalon said. The company employed 100 full-time workers as of Dec. 31, 2019, according to a regulatory filing.

“As a result, the company expects to transition to a new selling model intended to efficiently use the existing resources to develop the market and drive revenue,” Obalon said. The company won 510(k) clearance from the FDA last December for a new system for placing the weight loss balloon.

“After two months of selling Navigation with a highly targeted approach, we are pleased that Navigation appears to be increasing access to potential new customers who are interested in incorporating the Obalon Balloon System into their practices,” CEO Kelly Huang said in prepared remarks. “We saw less immediate rejections now that the cost and logistics with incorporating X-ray into their practices are removed, and we sold more starter kits in the first quarter of 2019 than the fourth quarter of 2018. However, we are still finding the purchase decision is complex for some accounts and takes time. Based on our first two months of commercial experience with Navigation, we believe a new approach may be required to develop the market for the Obalon balloon system.”

Huang said that bariatric practices that “commit to making Obalon a priority” and a retail-focused chain treated roughly 80 patients during the first quarter.

“As a result, our new selling model will focus on more centralized customer support and marketing programs intended to drive higher levels of engagement and may include pilot programs that can be more efficiently scaled if successful, including: the establishment of our own Obalon Balloon Retail Center; a new program rewarding top-performing accounts for increasing focus on and investment in Obalon; and initiatives for use by other medical weight loss specialties,” he said.

Obalon said it expects to end Q1 with about $24.7 million in cash and equivalents and $20 million in debt.

OBLN shares plunged -21.1% to $1.16 apiece today in mid-morning trading.