Published: Tuesday, November 9, 2021

Capstar Special Acquisition Corp: Ready To Address An Unmet Need

Gregory Aurand, Senior Research Analyst, Healthcare Services & Medical Devices, Noble Capital Markets, Inc.

Refer to end of report for Analyst Certification & Disclosures

The Acquisition. Gelesis, Inc. will be brought public when they merge with publicly traded Capstar Special Acquisition Corp. (CPSR). The deal is expected to close late November or early December with a nearly $1 billion enterprise value transaction.

An approved FDA product targeting a large population. The overweight and obese are at epidemic levels in the U.S. and are a growing crisis globally. Plenity is a novel FDA approved weight management aid that has an addressable market of 150 million in the U.S. alone.

Manufacturing coming on-line for full launch. Gelesis conducted a highly successful beta launch this past year. With lines of manufacturing coming on-line in late 2021 and 2022, the company is prepared to meet initial and future demand with scalable capacity. Given expected demand, the company looks to be EBITDA positive in 2023.

Opportunities globally. The initial focus will be the U.S. market but Plenity also has CE Mark enabling it to be marketed in Europe and other markets. In addition, the company has a strategic partnership to commercialize Plenity in China with potential milestones and royalties. Outside U.S. revenues are expected to contribute 30% of 2023 revenues.

Valuation looks very attractive. At current levels, shares trade about 2.2x Enterprise Value to 2023 guided Revenues, a substantial discount to the Health & Wellness Consumer and DTC peers. If the shares were to trade in-line with the median of its peers, the target value would be $15 per share. As the company is approaching the weight management market in a non-traditional way, a case could be made for an expanded group of comparables that would suggest an even higher current valuation.

Investment Summary

The combination between Gelesis, Inc. and CPSR Gelesis Merger Sub, Inc., a wholly-owned subsidiary of Capstar Special Acquisition Corp. (NYSE:CPSR), a special purpose acquisition company, expected late November or early December, offers tremendous synergies.  Capstar has relationships with influencers to engage consumers and has brand building experience. Gelesis, Inc., a biotherapeutics company, has already obtained FDA clearance for its market-disruptive Plenity weight management product and will subsequently have greater resources and capabilities to fully launch and market Plenity, as well as fund pipeline developments in gastrointestinal (GI) chronic diseases and additional weight loss markets. 

Full launch coming. Plenity has been in beta test launch since last year but will be able to launch when the first full line of new manufacturing capacity comes on-line late 2021.  Capacity expansion is expected in the second and fourth quarters of 2022. 

The planned deal.  Anticipated to consummate late November or early December 2021, Gelesis, Inc. will become a publicly-traded company when the definitive business combination with CPSR Gelesis Merger Sub, Inc. closes.  Capstar Special Acquisition Corp. controls $276 million in trust and will also provide $90 million in PIPE funding from institutional investors. The new combination, with Gelesis as the surviving company, is expected to trade under the ticker “GLS”. CPSR will rename as Gelesis Holdings, Inc. The implied valuation upon closing, based on 131.8 million shares outstanding at $10, is $1,318 million, with an enterprise value of $964 million.

Stock valuation looks very attractive. At current levels, the combined company trades at 2.2x Enterprise Value to guided 2023 Revenues, a considerable discount to Health & Wellness Consumer and DTC comparables as described in the Stock Overview and Valuation section later in this report. Assuming that CPSR shares traded in line with this peer group, the shares would be valued at $15, based upon median (excluding one outlier) EV to 2023 Revenue multiples.  Based on the company’s establishment of consumer-direct marketing, an argument could be made to include a larger group of Disruptive Healthcare and Consumer Subscription comparables. Including this larger group, CPSR could see a higher current valuation.

Investment Highlights

• Large addressable U.S. market opportunity.  Approximately 150M in the U.S. fall within the addressable market for Plenity. FDA approved for those with Body Mass Index (BMI) scaling from 25 to 40, Plenity has the broadest label of any weight management approach. The Plenity target population is those with BMI ranging from 25-35, considered overweight or slightly obese.
• FDA cleared product for weight loss with ready to scale manufacturing. FDA clearance for Plenity, a proprietary biomimetic technology prescription product, has already been obtained and, as proof of concept, the company conducted a very successful beta launch.  An initial manufacturing line at 50% capacity is coming online in the fourth quarter, with additional capacity lines expected in Q2 2022 and Q4 2022.  Each full line can produce upward of 160,000 units (a 28-day supply) monthly.
• Direct-to-patient. Although doctor-prescribed, the company expects to give consumers the option to access the product via a telehealth avenue or with in-person healthcare providers.  Importantly, the company expects to drive awareness and engagement through influence marketing partnerships, as well as patient access telehealth and lifestyle support platforms like Ro and Noom. A contract sales force will also market to practitioners.
• Low-cost and quick fulfillment.  Prescribed Plenity is delivered to the member patient in about two days at a consumer/patient cost of $98/month, or about $1.75 meal, a substantially less expensive out-of-pocket alternative to other weight loss programs.
• Pipeline opportunities.  The company has large adjacent market opportunities beyond adult weight loss.  Weight management in adolescents, weight management for people with diabetes or pre-diabetes, Functional Constipation, and Non-alcoholic fatty liver disease (NAFLD) are all in early studies or trials.
• Solid patent protection. The company has a large patent estate covering composition, method of production and method of use, through at least 2035.

Investment Risks

• Product real world experience may be different.  Plenity may not be accepted by consumers or may be ineffective. Trial results showed effectiveness, but patients were part of a controlled study that include exercise and a nutritional plan.  Real world experiences may be different.
• Plenity is an FDA cleared product.  If there are greater side effects than seen in trials, the result might be possible lost revenue or recalled product.
• Company is in the early days of expanding manufacturing. The company might experience manufacturing delays or hiccups, is not able to scale up manufacturing, or is not able to manufacture at expected cost levels.
• Marketing and pipeline costs. Marketing the product through different avenues may increase costs or reduce profitability. Developing the pipeline will require greater resources and new funding sources may be needed.
• Potential competition. Plenity is a novel product with strong patents. However, there is a risk that larger and better funded competitors might enter the weight management market.

Industry Overview

The U.S. weight loss and diet control market is vast and, prior to the Covid-19 pandemic, was estimated at a record $78 billion. Ranging from diet soft drinks and diet foods including frozen entrees, diet books, diet pills, fitness apps and online or home exercise programs, meal replacements and diet plans, commercial diet center chains, and health clubs to medical programs like bariatric surgery and therapeutics, the weight loss and diet market is expected to increase due to an increasing overweight and obese population. In 2016, more than 1.9 billion adults were overweight or obese, with more than a third considered obese. The global and U.S. markets are expected to expand as the number of overweight or obese adults increases (Figures #1 and #2).  

Figure #1 Globally 39% of Adults are Overweight or Obese

Figure #2 Adults Overweight or Obese in the U.S.

Overweight persons, as indicated in Figure #3 below, fall into a BMI range of 25 to 30. Above a 30 BMI, a person is considered obese.  The World Health Organization defines BMI as: “a simple index of weight-for-height that is commonly used to classify underweight, overweight and obesity in adults. It is defined as the weight in kilograms divided by the square of the height in meters (kg/m ²). For example, an adult who weighs 70kg and whose height is 1.75m will have a BMI of 22.9.”

Figure #3 Weight Classification

Source: Hannah Ritchie and Max Roser (2017) – “Obesity”. Published online at OurWorldInData.org. Retrieved from: ‘https://ourworldindata.org/obesity’ [Online Resource]

Over 37% of the U.S. population is considered obese with a BMI index above 30 (Figure #4).  This group, composed of obese and extremely obese, will likely have more co-morbidities like high blood pressure or diabetes, and might seek, in addition to dietary and behavior modification, more expensive and stringent weight loss programs including oral and injectable therapies as well as surgery. However, the downside for more stringent weight loss programs are potential adverse side effects from therapeutics, especially for those with other existing health conditions; hence only about 2% of the population use therapeutics.  Bariatric surgery also can present complications and risk.  Therapeutics and bariatric surgery are also a more expensive option and not viable for those merely overweight and needing to lose fewer pounds. As illustrated in Figure #5, Plenity addresses the needs of the overweight and mildly obese with a weight management aid that is not a drug, has side effects comparable to placebo, is not habit forming and has no duration limitations.

Figure #4 Estimated (Age-Adjusted) Percentage of US Adults with Overweight and Obesity by Sex

Source: 2013–2014 NHANES Data, NIH National Institute of Diabetes and Digestive and Kidney Diseases

Figure #5 Large unmet need

Source:  Company presentation

While the need for weight loss increases due to aging demographics, along with increasing co-morbidities like diabetes, the market is also changing as younger Millennials are expected to surpass the Baby Boomer generation over time. Millennials are much more social media and influencer conscious than the prior generation and perceive brick-and-mortar weight loss centers and gyms as expensive or too structured, and find meal replacements like nutrition bars, low calorie frozen meals, apps, other virtual options and home setups more viable and less expensive. Utilization of online technology like telehealth, apps and streaming services are expected to increase dramatically over time.

The coronavirus pandemic has caused consumers to accelerate their movement away from more traditional brick-and-mortar gyms and weight loss centers. Within the various weight loss management segments in 2020, health clubs and weight loss programs were negatively affected the most as consumers were unable or unwilling to access health centers, clinics and physician offices.  Prescription weight loss medications declined also due to limited access to doctors, clinics and hospitals during the pandemic.

As the following Figure #6 indicates, the pandemic has put a spotlight on weight loss as well as continued access to care.  Americans gained weight during the pandemic and over 50% want to reduce weight. Importantly, partly due to the pandemic as well as changing tastes and greater market acceptance of virtual and digital technologies, over 80% are likely to use telehealth to manage needs after the pandemic ends.

Figure #6 Pandemic Spotlight

Source: Company presentation

It is estimated that 80% of dieters are do-it-yourselfers, going it alone without behavior changes. Regardless, most diets fail, upwards of 95%. Diets typically fail because it’s usually based on deprivation and unnatural eating habits, making normal life difficult long-term.  On average, weight loss diets last four weeks for women and six weeks for men. Unfortunately, dieters subsequently go back to normal eating habits and new weight gain is the result. A more holistic wellness approach, incorporating psychological improvements as well as exercise increase the chances of long-term success. With this knowledge, the approach being taken to commercialize Plenity incorporates a holistic perspective, engaging patients as members to promote long-term satisfaction and results.

Gelesis Company Overview

Gelesis, a biotherapeutics compay was founded in 2006 by Yishai Zohar with PureTech Health (Nasdaq: PRTC; currently 19.2% Gelesis ownership), developing the macromolecular hydrogel and polymer research of co-inventor Alessandro Sannino, the Gelesis Lead Scientist. Gelesis’ focus is to transform weight management using its proprietary technology. Gelesis’ first commercial product, Plenity, is FDA cleared and CE Marked as an aid in weight management in adults with excess weight or obesity, BMI of 25 to 40 when used in conjunction with diet and exercise. Plenity has the broadest BMI range of any prescription weight-management aid to date. Utilizing its platform technology, the company also has potential therapies in development for Type 2 Diabetes, Non-alcoholic Fatty Liver Disease and Non-alcoholic Steatohepatitis (NAFLD/ NASH), and Functional Constipation (Figure #7).  In addition, the company also has a pre-clinical study (GS400) for IBD.

Figure #7 Gelesis pipeline

Source: Company presentation

Plenity works by making you feel more satisfied

The company believes one of the root causes of being overweight or obese is the modern Western diet with larger portions and increased calories.  Plenity is designed to help people manage their weight by feeling satisfied with smaller food portions. It is FDA-cleared for use in adults with a Body Mass Index (BMI) of 25-40 kg/m²  when used as part of a diet and exercise program. The product is a proprietary hydrogel that “mimics” the effect of eating raw vegetables (Figure #8).  It is taken orally as 3 capsules with 16 oz. of water twice a day, 20 minutes before lunch and dinner.  Within minutes of ingestion, the small gel pieces in the capsules expand, increasing volume. The gel pieces absorb water, filling the stomach to ~1/4 of the stomach’s volume. The particles create additional satiety mechanisms between meals and eventually degrade in the large intestine, allowing the water to be re-absorbed as the pieces are eliminated. 

Figure #8 How Plenity Works

Source: Company presentation

Plenity is shown to be efficacious

The GLOW (Gelesis Loss of Weight) study was a 24-week, randomized, double-blind, multi-center trial with 436 overweight or obese patients, with or without type 2 diabetes, in conjunction with prescribed reduced calories and exercise.  The trial co-primary endpoints were: 1) 35% or more of individuals taking Plenity achieved 5% or more weight loss, and 2) placebo-adjusted weight loss assessed as a super-majority margin of 3%, as well as superiority over placebo.  The trial exceeded the first endpoint with 59% of patients losing 5% or greater weight (Figure #9).  While not achieving the second endpoint of super-majority, the trial did achieve superiority over placebo (-6.4% vs. -4.4%, P=0.0007).   Importantly, 26% of adults were considered super-responders to Plenity, losing an average of 14% of their weight (30 lbs.).  In a post-hoc analysis, early weight loss predicted longer term benefit, with a weight loss of 3% or greater as early as after 8 weeks predicting meaningful weight loss at 6 months.

Figure #9 Plenity doubled the chance of 5% or greater weight loss

Source: Company presentation

Side effects are similar to placebo

In the GLOW study, overall adverse events in the Plenity arm was no different than the placebo group (71% in both), and most events were assessed as mild or moderate in both groups. There were no serious adverse events in the Plenity group, but there was one in the placebo group (Figure #10). An important consideration is there are no known interaction issues, nor is Plenity therapy limited to duration.  Consumer/patients can go on for a relatively short period of time or go off therapy temporarily as needed. Plenity is not a drug and is not habit forming.

Figure #10 Strong Safety Profile Similar to Placebo

Source: Company presentation

Full launch coming Q4 2021

Plenity, in its beta test (limited by supply) last year, grew consumer/patient membership to over 48,000, adding approximately 12,000 in only 6 weeks (Figure #11). A key component of the full-scale launch will be the focus on consumer ease, convenience and wellness support, particularly in the current Covid-19 environment.  Plenity’s unique efficacy, safety and tolerability profile allow Gelesis to bring it to market in a very different way. Telehealth, as well other access options like traditional health care interaction, not only focus on the convenience of being prescribed and receiving Plenity (Figure #12) but also keeping the member patient engaged longer-term.

Figure #11 Strong Beta Test Launch

Source: Company presentation

Figure #12 Access is Consumer Focused

Source: Company presentation

 The company developed partnerships (Figure #13) in mail order pharmacy and telehealth to make member patient access easy and, given the high failure rate in regular diets, help achieve improved weight management outcomes.  Ro is a well-recognized patient-centric national telehealth service offering end-to-end health care. The pharmacy GoGoMeds (Specialty Medical Drugstore, LLC) is an accredited and licensed pharmacy in all 50 states and the District of Columbia and currently has an exclusive arrangement to fulfill mail order prescriptions. To expand awareness and create a more holistic wellness approach and to keep members engaged and moving toward their goals, the company has partnerships to offer Plenity through lifestyle support programs like Noom and behavioral weight management programs like WW.  Not only will the member patient have easier access options to Plenity, but they will also be better supported to achieve their weight and wellness goals. 

Figure #13 Partnerships for patient access, awareness and wellness

Source: Company presentation

Commercializing and Marketing Plenity

Since the beta launch, Gelesis has utilized telehealth and social media marketing avenues to drive awareness but was limited by lack of manufacturing capacity from making a strong marketing push to the health care practitioner. With manufacturing capacity expansion, in addition to telehealth and social media, Gelesis has begun working with a contract sales force engaging large practice primary care, targeting 25-35,000 physicians in the U.S. These physicians will be able to directly treat the patient by writing a mail-order prescription or refer the patient to another specialist or telehealth service. 

Prescribed Plenity is delivered to the member patient in about two days at a cost of $98/month, or about $1.75 meal, a substantially less expensive out-of-pocket alternative to other weight loss programs. Not only is pricing transparent and relatively inexpensive for the member patient, practitioners will also find it easy to prescribe as health plan reimbursement is not needed. While potentially health plans may add Plenity to their wellness programs, Gelesis is focused on the cash-pay opportunity.

While the U.S. is the near-term focus, Plenity has CE Mark for commercialization in Europe and other global markets. Importantly, the company strategically partnered with China Medical Systems to commercialize Plenity in China. The partnership will contribute milestones as well as royalties in that market. Expectation is for global revenues to contribute 30% of mix in 2023.

Pipeline

The company believes the method of action underlying the Gelesis technology could be advantageous treating chronic metabolic and inflammation diseases by restoring healthy gut barrier and increase good bacteria.  High-fat diets, especially, may compromise the intestinal barrier. In pre-clinical studies, Gelesis hydrogel showed promise, appearing to restore gut function and the company continues to pursue this method of action.

The company has large adjacent market opportunities beyond adult weight loss (Figure #14). Weight management in adolescents, weight management for people with diabetes or pre-diabetes, Functional Constipation, and Non-alcoholic fatty liver disease (NAFLD) are all in early studies or trials. For weight loss in adolescents, the company is seeking Plenity label expansion and is seeking FDA input and review. The Phase II weight management study for diabetes and pre-diabetes expects data results late 2021. The pilot clinical study in Functional Constipation (formerly known as Chronic Idiopathic Constipation), initiated in 2020, expects top-line results to be available by Q2 2023. Phase II top-line results for NAFLD are expected Q4 2023.

Figure #14 Large addressable U.S. market opportunity pipeline

Source: Company presentation

 Financial Overview

The company has projected to reach EBITDA profitability in 2023 (Figure #15), based on a gross selling price of $98 per monthly (28 day) unit and a net selling price (after partner and other discounts) of $76 monthly, and reaching $442 million in 2023 revenues.  As the company builds and utilizes production capacity, efficiencies should drive gross margin to above 70% from the low 60’s anticipated in 2022. Of the expected revenue generation, 70% are expected U.S. revenues, with 30% international (Figure #16).  Based on an assumption of 6 months patient Rx subscription, each member patient would generate $456 during that time.  Excluding royalties and other sources of revenue from Noom and WW products offered by Gelesis, to reach the U.S. 2023 revenue target, the company would need to engage ~682,000 member patients or ~4.1 million units. To reach the international revenue projection, the company would need to reach ~300,000 patients or ~1.72 million units. The needed member patient numbers would be lower with additional sources of revenue. Of importance, the 2023 total patient engagement is below 0.5% of the eligible market.

Figure #15 EBITDA profitability expected 2023

Source: Company presentation

Figure #16 Projected 2023 revenue based on reaching <0.5% of eligible market

Source: Company presentation

Based on current and projected manufacturing capacity, Gelesis projects each manufacturing line capable of producing 160,000 monthly units.  A 50% capacity line is operational, and a full line at 100% capacity should be online by end of year 2021, with an additional line expected in the second quarter 2022. Based on this coming capacity and adjusting for downtime to convert the 50% line to 100%, the company will be able, by beginning of Q3 2022, to produce more than 400,000 units monthly, or a 4.8 million unit annual run rate at the end of 2022. The company also expects a third new line in Q4 2022, further expanding capability in 2023 to 6.7 million annual units (Figure #17).

Figure #17 Production is expected to meet demand

Source: Company presentation

Anticipating continued demand, Gelesis expects further line additions with an 18-24 month lead time for each line to become operational. For instance, a new line investment initiated in Q3 2022 would be projected to be operational by Q3 2024 or earlier. The company has sufficient expansion capabilities to construct 10 lines, which is 4x greater potential production than expected by the beginning of Q3 2022.

Management Overview

R. Steven Hicks:  A storied executive in media and broadcasting, in 2000 Mr. Hicks founded Capstar Partners, a private investment company with a private and public focus in the Consumer, Healthcare, Media and Hospitality sectors. In 1996, prior to Capstar Partners, where he currently serves as Executive Chairman, he founded Capstar Broadcasting Corporation. After taking Capstar Broadcasting public in 1998, the company was merged with Chancellor Media Corporation, forming AMFM, the nation’s largest operator of radio stations in the United States. He also co-founded SFX Broadcasting in 1993, establishing this company as one of the largest radio broadcasting operations in the United States before leaving in 1996 to build Capstar Broadcasting. Capstar Special Acquisition Corp. was incorporated in 2020, where Mr. Hicks currently serves as Chairman, Chief Executive Officer and Chief Financial Officer. Mr. Hicks received his Bachelor of Arts from the University of Texas at Austin and has served on the Board of the University of Texas Investment Management Company since 2009.

Rodrigo de la Torre: With more than 15 years of experience in multinational organization strategy, finance and business development, Mr. de la Torre currently serves as Lead Director at Capstar Special Acquisition Corp.  Since April 2019, he has been Head of Finance and Strategy at Taco Bell Global, and before that he was Global Director of Finance and Head of M&A at Pizza Hut International, all part of Yum! Brands.  Prior to Yum! Brands, Mr. de la Torre advised on high-profile consumer sector transactions while at Credit Suisse’s Consumer & Retail Investment Banking Group and M&A Strategy at Fonterra Co-operative. He received his Bachelor of Commerce with Honors in Economics and Finance from Victoria University of Wellington in New Zealand and received his Master of Business Administration from the Tuck School of Business at Dartmouth in 2010.

Kathryn Cavanaugh: Ms. Cavanaugh is a Director at Capstar Special Acquisition Corp. and has been, since 2019, Managing Partner at Capstar Ventures GP, LLC, a venture capital firm investing in consumer innovative companies. She has extensive experience in investing in early-stage consumer and retail sector companies, obtained during her tenure as Partner at Grace Beauty Capital. Prior to Grace Beauty Capital, she evaluated equity investments in the MedTech healthcare space at De Novo Ventures. As Senior Process Engineer at Merck & Co., she developed large scale manufacturing.  Ms. Cavanaugh obtained Bachelor of Science degrees in Chemical Engineering and Biochemistry from the University of Notre Dame, and a Master of Business Administration from Harvard Business School.

Clayton Christopher: Currently serving as Special Advisor at Capstar Special Acquisition Corp., Mr. Christopher is the co-founder and advisor to CAVU Venture Partners, an investment firm focused on best-in-class consumer brands. He has extensive consumer experience as 2010 co-founder and CEO at Deep Eddy Vodka, founder of Sweet Leaf Tea in 1998 until acquired by Nestle in 2011 and co-founder of Waterloo Sparkling Water in 2017.

Benjamin Hanson: With extensive healthcare strategic experience, Mr. Hanson serves as Board Advisor to Capstar Special Acquisition Corp.  He co-founded EQ Capital Strategies and is Managing Member, providing advisory services in healthcare, environmental and business service markets. Previous to this, he was Chief Administrative and Strategy Officer for Senior Care Centers, LLC,  and led the corporate development efforts at Harden Healthcare prior to its acquisition by Senior Care Centers, LLC.  Mr. Hanson graduated from the University of Texas at Austin with a double major in Plan II Honors and Government and has his law degree from the Dedman School of Law at Southern Methodist University.

Yishai Zohar: The Founder, Chief Executive Officer, and a member of the Board at Gelesis, Inc., Mr. Zohar has over 25 years’ experience developing healthcare innovation. The co-inventor and developer of PLENITY at Gelesis, Inc., prior to this he was Co-Founder of PureTech Health, leading the obesity/GI therapeutics effort.  Mr. Zohar has a Business Administration degree from the College of Management Academic Studies in Tel Aviv and was a Captain and air force pilot in the Israeli Defense Forces.

Alessandro Sannino: The co-inventor and Lead Project Scientist of the technology behind PLENITY at Gelesis, Inc., Dr. Sannino’s research has focused on macromolecular hydrogels and polymer microstructures.  He is adjunct faculty at MIT and is responsible for the Life Sciences Division of the Puglia District of Technology. An advisor to the NIH and the Italian Ministry of Health. He has published over 100 papers and received his PhD at University of Naples and University of Washington.

David Pass: Dr. Pass is Chief Operating and Commercial Officer at Gelesis, Inc. He has over 20 years experience in therapeutics, focusing on metabolics and diabetes.  Previously, he served as Vice President of Marketing at Boehringer Ingelheim for Diabetes and has extensive experience with Johnson & Johnson and Bristol-Myers Squibb.  Dr. Pass received his B.S. Pharmacy and Doctor of Pharmacy degrees from the Philadelphia College of Pharmacy and Science.

Harry L. Leider: Currently the Chief Medical Officer at Gelesis, Inc., Dr. Leider has over 25 years’ experience in healthcare.  Before joining Gelesis, Inc., Dr. Leider served as Chief Medical Officer and Group Vice President at Walgreens.  Prior to this, he was Chief Medical Officer and Senior Vice President of Ameritox, a specialty lab. He is a past-President and Board Chairman for the American Association of Physician Leadership. He has also been a faculty member of the Harvard Medical School and the Johns Hopkins Carey School of Business. He received his B.A. from Pennsylvania State University, and MD from the University of Pennsylvania, and his MBA from the Foster School of Business at the University of Washington.

Elaine Chiquette: Dr. Chiquette currently serves as Chief Scientific Officer at Gelesis, Inc.  She developed her extensive regulatory strategy experience while at Hoffman La Roche, Amylin Pharmaceuticals, Aegerion, and GI Dynamics. She completed her pharmacy degree at Laval University in Quebec and obtained a Pharm.D at University of Texas Health Science Center at San Antonio.  Her focus and interest has been on cardiometabolic disease therapeutics.

Elliot Maltz: As the Chief Financial Officer at Gelesis, Inc., Mr. Maltz has over 15 years’ experience in corporate finance and accounting with public and private companies, specializing in healthcare and manufacturing. Prior to Gelesis, Mr. Maltz held leadership positions at Deloitte & Touche LLP and Publicis Sapient Corp.  He received his education from Elon University.

Stock Overview and Valuation

As indicated in Figure #18, the common equity PIPE transaction will translate into a 7% ownership of the new company. The PIPE investors include PIMCO, Pritzker Vlock Family Office, Chinese Medical Systems and co-founder PureTech Health. The $276 million held-in-trust provided from Capstar translates into a 20% ownership and Capstar Founders will own 4% of the company.  Gelesis shareholders will end up with approximately 69% of the new company. The newly formed company, as indicated previously, is expected to be listed on the NYSE and trade under the ticker “GLS”.  There will be an estimated 131.8 million shares outstanding following the combination with CPSR. As part of the transaction, there will be 5 million share earn-out increments issued to existing Gelesis shareholders if the stock price reaches $12.50, $15.00, and $17.50 per share over a five-year period following the combination.  

Figure #18 Pro Forma Ownership

Source: Company presentation

Figure #19 provides an extensive list of health and wellness peer comparables.  The valuations provided for CPSR/Gelesis are based on the guided revenues and cash provided.  At current levels, shares trade about 2.2x Enterprise Value to 2023 guided Revenues, a substantial 40% discount to the median Health & Wellness Consumer and DTC peers (excluding INMD outlier). If the shares were to trade in-line with the median of its peers, the target value would be $15 per share.  At the mean, the target value would be $19 per share. As Gelesis is marketing to the weight management market in a very different and disruptive approach, a case could be made for using the expanded group of Disruptive Healthcare and Consumer Subscription comparables that would suggest an even higher current valuation.

Figure #19 Valuation Comparables

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appearance and/or research report.

Ownership and Material Conflicts of Interest
Neither I nor anybody in my household has a financial interest in the securities of the subject company or any other company mentioned in this report.

NOTE: On August 20, 2018, Noble Capital Markets, Inc. changed the terminology of its ratings (as shown above) from “Buy” to “Outperform”, from “Hold” to “Market Perform” and from “Sell” to “Underperform.” The percentage relationships, as compared to current price (definitions), have remained the same.

Additional information is available upon request. Any recipient of this report that wishes further information regarding the subject company or the disclosure information mentioned herein, should contact Noble Capital Markets, Inc. by mail or phone.

Noble Capital Markets, Inc.
150 East Palmetto Park Rd., Suite 110
Boca Raton, FL 33432
561-994-1191

Noble Capital Markets, Inc. is a FINRA (Financial Industry Regulatory Authority) registered broker/dealer.
Noble Capital Markets, Inc. is an MSRB (Municipal Securities Rulemaking Board) registered broker/dealer.
Member – SIPC (Securities Investor Protection Corporation)

Report ID: 24170