Sight Sciences, Inc. (SGHT) Earnings Call Transcript & Summary

Good morning. Thank you for joining us on the second day of the Morgan Stanley Healthcare Conference. I'm Cecilia Furlong, a medical device analyst here at Morgan Stanley. It is my pleasure to have Sight Sciences with us, Paul Badawi, Founder, CEO; as well as Jesse Selnick, CFO. Before we get started, just disclosures, please see morganstanley.com/disclosures. With that, thank you both for being here.

And I'd love to get started with the press release we saw earlier, SAHARA completing enrollment and you're looking at potentially seeing data mid-'23. So just kind of would love to get kind of your take on it. I want to jump more into the broader clinical story behind Sight Sciences. But how does this move your product forward? And what is kind of the reimbursement that all of the dynamics that you're looking to do with this clinical?

Sure. Well, first of all, thanks, Cecilia, for having us here. I'm happy to be here. In terms of SAHARA, some of you may have seen the announcement this morning, I think it's a pivotal trial in one of the biggest problems in eye care. This is our second product, TearCare, for evaporative dry eye due to meibomian gland disease. This is a condition that affects many people from teens all the way to elderly, significant prevalence in females. And today, they really -- lacks any meaningful reimbursement as opposed to the other type of dry eye. There's 2 types. One is aqueous-deficient dry eye when the lacrimal gland isn't producing enough tiers. They're approved prescription Rx for that condition. The leading dry eye product is Restasis from Allergan, which peaked at like $1.5 billion in sales. So reimbursement on the aqueous-deficient side, yet there's no reimbursement on the more prevalent type -- for the more prevalent type of dry eye, evaporative dry eye. And so we've set out our TearCare device and procedure is very effective in treating all of the signs and all the symptoms of dry eye. We've demonstrated that time and time again in a number of clinical trials, RCTs, single-center studies and over thousands and thousands of cases commercially. We set out to pioneer market access and patient access in this category, and I think it's really important that patients have access to a treatment for this highly prevalent condition. This study, SAHARA, that we announced completion of enrollment. It's a 310 patient study, randomized 1:1 TearCare device versus Restasis drug. We talked to a number of payers before designing the protocol. It's basically a payer designed clinical protocol. And what they told us that they needed to see to cover and pay for TearCare procedures is, one, show superiority to Rx; and two, show durability of treatment effect of TearCare. And so we have a lot of confidence. We've done -- how many cases now with TearCare Commercially?

20,000.

Over 20,000 cases. So we've seen how the device and procedure performs. So we have a lot of confidence in the outcome. Completed enrollment, the superiority endpoint readout is 6 months. So with a completion date in September, we're looking at Q2 -- late Q2 readout. Some are at the latest. Assuming we see superiority, we will be having very healthy discussions with payers at that point.

And as you think about just the payer discussions and when this could ultimately translate into reimbursement more broadly, what does that time line look like? Is this something we could think about for '24 as you think about...

I think so. Yes, I think so. So there's 2 things, the payers can see superiority to Rx and then durability of treatment effect to the trial. Actually, it's the largest dry eye RCT with the longest follow-up time of any dry eye RCT. And so we're running the study out to 2 years, which is an eternity in dry eye. Most of our eye studies are 1-month or 3-month endpoints. We're running it out to 2 years to show after -- at the 6-month end point, we're going to cross over all the RESTASIS patients to TearCare, and then we're going to follow all TearCare patients, all 310 TearCare patients out to 2 years to show durability of treatment effect, how often a patient needs a retreatment with TearCare. And what we've seen commercially is typically 2 treatments in the first year and a single treatment every year thereafter. But before we get to that 2-year endpoint, I think with the 6-month endpoint, Cecilia, to your point, I think -- I'd be surprised if we can't pull in some payer wins in advance of the 2-year endpoint, assuming we show superiority at 6 months. So yes, '24 would be the earliest for some payer wins on the medical side. And then for broad, deep Cat I coverage, we're looking at 2025.

Shifting back to kind of near term, thinking about the back half of this year and thinking about your guidance and what's going on in the market today. From your standpoint, it -- and correct me if I'm wrong, but it feels like some of the staffing shortages that we hear about has been less of an impact, but you have seen trialing that has been kind of a dynamic to the first half of this year. As you think about the back half and the guidance that you provided on the 2Q call, those 2 factors, coupled with SION, which you are just initially rolling out, how do we think about those dynamics playing out? And what have you seen from a competitive trialing standpoint over the past few months?

I think it's -- we understand it now, right? It's steady state. We think that with each passing day and week, there's just more clarity about what products are out there, right? More folks were through the trialing. And payers and societies are also sort of absorbing, and it's catching up to what's going on. So noisy in the beginning of the year as sort of the end user market got to understand it. But right now, we kind of see what we want to see, which is like a normalized operating environment for us to continue to execute.

And how do you think about to SION contributions? And really, as you think about just the portfolio approach to a certain degree of OMNI, how should we think about just the bifurcation there? Any cannibalization? And how do you -- for your sales force kind of balance that...

Yes. We've -- when we went public last summer, we articulated a view on the market, which we maintain that view today, which is there's -- we see it in like kind of 6 categories in the surgical glaucoma category. There's combination cataract. They own the top. And then below that, they're stand-alone glaucoma surgery. And within each of those, combo cataract, you have mild, moderate, severe. Within stand-alone, you have mild, moderate, severe. SION is a product with a very strong product market fit in that mild combo cataract segment. And OMNI, which is a far more comprehensive procedure, has a stronger product market fit as the disease is more -- has progressed further. So moderate to advanced combo cataract or every stage of stand-alone, mild, moderate or severe. So 1 of the 6 buckets, we see SION having a very strong product market fit. That's an established segment of the market today where goniotomy has a role -- sense have a role, right? And we think SION is going to be one of the best in category players in that segment. OMNI is the market expansion play. So expanding the combo cataract in moderate and advanced and expanding all of the stand-alone.

Can you talk through to just the differentiating aspects of SION versus other goniotomy products? And then just the relative TAM that you're going after as you think about just OMNI's potential longer term on a relative basis.

Yes. So bladeless. In short, SION is the world's first bladeless goniotomy device. What does that mean? Why does that matter? Well, removing, excising trabecular meshwork with a bladeless device has its advantages, right? It's -- you can get into the angle in a calmer or quieter way. We're starting anecdotal right now, but we're seeing less bleeding, so -- and consistent removal of mesh work due to the design of the device. It doesn't cut tissue. It grabs it, it grabs it. As the surgeon sweeps the angle, the device grabs the tissue and removes it. So single sweep and out. So it's efficient, it's bladeless, it's not cutting and we're seeing less hyphema. So very differentiated. The early feedback over the last few weeks, we've rolled it out to, I don't know, several dozen surgeons. It has been very positive, like black and white game changer in the goniotomy space. So we're happy about it. I think this is now our third. We've proven it 3 times now with TearCare, OMNI and SION that we can deliver best-in-category medical devices.

As you think about to just relative revenue contributions for OMNI, can you just frame that and also the impact of having a broader product portfolio to go into accounts as you think about either benefiting OMNI, but then also being able to capture a greater percentage of each?

So very early days, right, but kind of launched third week of August, like soft launch. And of the customers that have placed like an order, half were not OMNI customers. So they are mild combo cataract goniotomy, like the profile of the surgeon or the profile of the patient, right, that goes in there. They're kind of goniotomy houses for lack of a better term, right, like in terms of like what their use profile is. So that opened -- like half of it has opened up a market we haven't touched. Within the other half, half of them order to OMNI, like you opened the door for OMNI, right? The ability to go in there with something that's sort of on -- in their treatment paradigm, opened the door for OMNI already, right, in terms of trialing and getting that product in there. And so we think it's highly complementary, right, like that mild combination cataract cases previously done with the goniotomy. We don't think OMNI necessarily was in like a serious consideration that to be like the workhorse product there. We're watching it really closely, like our comp plans reward. OMNI is always going to be the dominant gene. It has the ability to open up sort of the growth -- the powerful growth market, right? And the comp plan is highly aligned. It's a set of targets, right, initially that there's very little risk because they're not OMNI users.

And in terms of TAM, I think the combo cataract, right, the 3 buckets of combo cataract, that's roughly $1 billion market. The stand-alone, all 3 buckets is $4 billion to $5 billion. So in terms of today's like revenue, mild combo cataract -- so let's say, mild is 40%, moderate is 40%, advance is 20% in terms of patients, right, in both. So OMNI would have 60% to the combo cataract and 100% in the stand-alone. SION would be 40% of combo cataract, that mild combo cataract segment, which is 40% of $1 billion, so $400 million. It turns out that the majority of the MIGS market today is in that mild to moderate combo cataract. So in today's market, it's a high percentage, but the expansion play here, which is the exciting part, which is what OMNI is capable of delivering and is delivering as we speak in both combo cataract and stand-alone, that's by far the majority of the TAM in terms of market expansion.

Turning to just your commercial efforts. Can you speak to, one, training physicians? How that's trended in terms of either headwinds from trialing or else, everything associated with COVID? And then two, just the GCC initiative and what you've seen in terms of that translating into volumes. If there are metrics at this point, what you've seen in those accounts on a relative basis?

On the impact of competitive products on our growth funnel, zero, right? Like our trained -- our number of trained physicians and our number of added accounts and our number of ordering accounts, those metrics are as strong as ever, strong as they were in 2021 where they were competitive, noise impact. The results, right, is just in utilization, like find it -- because it will find a profile potentially. There's something viewed as potentially fitting into a niche like in terms of like the patient-parent, like the patient spectrum, right? It might impede our ability to sort of expand utilization, but it hasn't impeded like our trainings and new facility adds at all, which is really encouraging and frankly, substantiate what we believed all along, right, like in terms of sort of the stickiness of the appeal. When you look at the claims data as well, canaloplasty is really the only growth -- except for goniotomy very recently, right, because its reimbursement profile is sort of, I call it, stale versus the other procedures, right, in MIGS? Canaloplasty is the only growing procedure, right? And so that's us. Simply, there's like -- that's highly correlated to OMNI, if you look at the claims data, which is super encouraging. And as we fill the growth funnel, we're just excited about what that means going forward.

And in terms of just GCC still and taking that approach, what have you seen to date? And if you do have metrics, just to kind of frame the benefit of that.

So for everyone's awareness, GCC is glaucoma clinical consultants. They're -- we have about 20 of them. It's a new team we put together. The big market expansion play here is the $4 billion to $5 billion stand-alone glaucoma surgery market. We need to drive changes in referral patterns. And to do that, it requires education from -- education of the referring providers to office-based ophthalmologists or office-based optometrists who are seeing lots of glaucoma patients and prescribing meds. The thesis here is don't wait, don't let the patient -- don't prescribe that second med or that third med as the disease is inevitably progressing, are the patients not complying with those meds and pressures rising. There's a safe, effective FDA-approved surgical intervention available today with OMNI. So the GCCs are out educating the referral community, educating those optometrists who prescribed glaucoma meds on stand-alone OMNI surgery as the option. They were -- we brought them on this year in the first quarter, trained by the second quarter. They have dedicated accounts that they're working on. And the early results are very encouraging. We're seeing revenue uplift in those accounts. I think in terms of -- there's a couple of ways we're trying to get our hands around KPIs to report on. There's uplift in GCC targeted accounts. There's claims data, as Jesse mentioned, the stand-alone reporting of OMNI's code, which is 66174, that's growing. There's a clear trend there, the other stand-alone glaucoma surgeries. There was invasive surgery, trabeculectomies, valves, filters, those are all declining. So we're the growth engine in stand-alone. So in terms of reporting, Cecilia, I don't know, soon, I think we'd be able to start reporting on some KPIs on the exciting stand-alone growth.

Okay. I also wanted to ask your clinical strategy. You talked about a few changes on the 2Q call. TRIDENT in Europe, you're looking to terminate at some point. But then PRECISION, the RCT in the U.S. focusing on canaloplasty. Can you just talk through what you've seen in the landscape reimbursement as a big driver? But what else you've seen that drove these decisions? And then from a timing standpoint on the canaloplasty along side, when does that benefit you? When can you see the clinical results and then just look at expanding into that segment?

Yes. Okay. So starting with the European trial, TRIDENT. That was a large international multicenter trial, 5 countries, 25 sites, 3 arms. It was very ambitious. The reality is it wasn't enrolling well, and we're used to enrolling studies well as we announced SAHARA today, the completion of that enrollment. It was a stand-alone trial with a comparator arm of stents stand-alone. The reality stents aren't used heavily in Europe stand-alone. So after many quarters, we had very few patients. So it was just to one. We all need to continue. Going forward, we'll structure smaller country-specific studies. For those countries that we want to get into, we're in the U.K. and Germany today. We will be expanding over time into select attractive markets. We can do smaller studies enrolled quickly with a handful of investigators within those countries. It's just it's a smarter path forward, and I think gets us to the finish line in each country faster. So that was TRIDENT, and it's canceled. PRECISION in the U.S. was also a 3-arm study. At the time years ago when we were starting to design the protocol, it made sense, randomized. It sits 2 OMNI arms, canaloplasty followed by trabeculotomy in one arm, canaloplasty alone in another arm and then trabecular bypass stenting in the third arm. The reality is canaloplasty is becoming the foundational procedure in MIGS. It's very fast growing. I don't think anyone really needs to see canaloplasty head-to-head with micro bypass stenting. It may have made sense a few years ago when bypass stenting was growing quickly. It's not -- it doesn't have the same profile today. Canaloplasty does. So we want to really just focus on that. The most important arm of that trial, which is canaloplasty alone. Our indication for use today with OMNI is canaloplasty followed by trabeculotomy. It's a very strong indication. It's for all patients with primary open-angle glaucoma regardless of severity of disease, regardless of lens status. Doctors do, however, sometimes want to use OMNI just for the canaloplasty functionality. They can do that today. We want to put robust clinical data around canaloplasty alone. We want to have it on label so that we can also promote to it. So Cecilia, these -- we'll be enrolling it, but it's not going to -- we won't have data for that study. I mean, it will have its effect if we get approval. That's probably a 2024, 2025 time frame. But again, we're the pioneers, the leaders in canaloplasty, so -- and no one has put together prospective multicenter data on the long-term pressure-lowering effects of canaloplasty by itself. So we obviously want to be the company that's first to do that.

And another update on your 2Q call, you talked about streamlining some expenses scenarios. Jesse, can you walk through, one, kind of the focus areas, two, and we can really start to see that show up in the P&L? Is this more SG&A? How are you thinking about R&D, the balance there? And then your outlook now on the past profitability, how that shifted, if at all?

Sure. So what we -- we provided a little more color on -- and with more to come, right, on our view on free cash flow and our view on liquidity trough. And we took some specific steps that are continuing, not on the personnel side, but we took some specific steps that we talked about in the Q2 call. Specifically, we are driving the business to be free cash flow positive in 2025. Our view is that, that liquidity trough for us is going to still be greater than $100 million cash balance. One of the first steps we did, it was kind of reported in a note in our Q is we did some headcount rationalization before the call in the late July time frame. Focus didn't touch field, didn't touch R&D. We're not -- we didn't consolidate any R&D projects. Paul's examples on the clinical side are a good example. We did some project rationalization, right, on the clinical side that we're really meaty projects that resulted in some opportunities for that team, right, ultimately. And other couple of areas like not direct fields, not even sort of direct field support, but like, I'd say, long-term commercial growth type resources that we probably scaled up a little too quickly, all things considered. And except in the moment, we're kind of thrilled. And then we're working on our sort of planning -- forward planning for next year and beyond in specific. So we didn't provide specifics on near-term OpEx, but it's going to be SG&A centric, right? And we'll provide even more detail on the upcoming call. But the theme is focus, project rationalization and core resources only. But we kept pipeline wholly, and we kept direct field execution wholly.

You also talked about just a longer term or maybe through the mid-term, I think, is how you phrased it, but outlook for a 30% growth profile for the business. You've also talked about some pipeline products that haven't come out yet, both dry eye space as well as glaucoma. But how should we think about one hearing more about those products? And then just the cadence, the confidence in that 30% for the mid-term, however you describe kind of medium term.

I'll do pipeline, and then you're on. On the pipeline front, what we're what we can talk about specifically today, obviously, we just -- we're launching SION as our third product. We have a launch of a next generation of OMNI. OMNI, it's already a great device that doctors love, but I think we've made it better. We're going to roll that out in a very soft launch in Q4 with a full launch in Q1, January of next year. So look for that, the next generation of OMNI. TearCare, a next generation of TearCare. Again, TearCare is a great device. I think we've made it better again. So look for that probably middle of next year. We're trying -- we're going to submit for 510(k) clearance, hopefully, later this year. And assuming everything goes on schedule, we could have it done and ready to discuss and show by ASCRS. That's a best case scenario. It might get pushed back, but that's what we're targeting. Beyond that, we expect to develop a broad portfolio of products beyond the 3 that we have today. We have a track record of success in developing disruptive products, and we want to have a portfolio both within glaucoma and dry eye. That will include sustained release pharmaceuticals as an example in glaucoma. It will include an Rx for MGD or evaporative dry eye, just like we have TearCare as a procedure for MGD or evaporative dry eye that we hope will soon be covered by payers. We'd like to also bring an Rx to that category as well. So we'll -- I'd say, Cecilia, give us a few months to put more plans around that so we can talk about it more comprehensively.

The 30% facility is a representation of our view on what the growth should be in -- to, call it, the current market, current competitive market dynamics, current reimbursement market dynamics not assuming any, like, call it, breakthrough on TearCare, like in terms of patient access or reimbursement. And I'd say a measured approach, like in terms of stand-alone contribution that doesn't sort of believe our conviction. But in the here and now, like what we can see and measure like kind of reflects our perspective on all of that. And so we just -- that's what we see when we look at our sort of core KPI growth drivers like across both sides in the hearing.

And lastly, I know we're almost out of time, but you just touched on reimbursement. Quick, I wanted to get your thoughts, both on potential for device intensive longer term. And then we saw a bit of a cut to the professional fee again this year. Is there a path to reversing that? I know there was some language in the proposal, but just your thoughts.

Possibility on both fronts, possibility of device intensive, possibility of the pro fee adjustments being delayed or staggered, and I'll talk about both. But we're not counting on either. We don't need to. We're happy with reimbursement as it is, and it's delivering the kind of growth we like to see as is. So those would be just further upside. If we can get to the job did that we do, OMNI does -- it does meet the requirements of device intensive. There's details why the information is not getting conveyed to CMS, the pricing information, to trigger a device intensive, which would give us a higher facility fee, which would allow us to price higher and share some of that upside with our customer, our facility customers. We didn't get in into the proposed rule over the summer. Is there a chance that it gets into the final rule? Cecilia, there is, I'd say it's slim, but we're obviously working on it. We do expect it to happen in due course, and we'll just leave it there in the years ahead. On the pro fee, our pro fee was adjusted 2 years ago from 950, which was the highest by far in the mix category down to 750. This year, there's 2 steps -- 2-step reduction, and down to 600 next year, which would be the final reduction. If that goes through at 600 on January 1, 2023, it's still very attractive, sufficiently attractive for the OMNI procedure. It doesn't change relativity in terms of income to the surgeon based on any of the competing procedures. So relatively speaking, it's quiet. It's probably just more of a nuisance. Like you just cut my reimbursement on this again, just like you have for cataract every year. But I don't think it changes much in terms of utilization, product selection, procedure selection. And obviously, we'll work to get it staggered to -- if that reduction is going to go through that it's staggered over several years. That's what we're working on right now.

I think we are out of time, but I wanted to thank you both. It was great, just the discussion, and thank you for being here.

Always. Thank you, Cecilia.

Thank you.

Thanks for your interest. All right.