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

Great. Let's get started. I'm Kallum Titchmarsh, Med Device Analyst here at Morgan Stanley. Really pleased today to be joined by the Sight Sciences' team. We've got Paul Badawi, CEO, Co-Founder; Ali Bauerlein, CFO.

Let's start on Q2 results. Revenue came in, I think, just a touch ahead of where we thought it would come in, but guide was pulled down a bit. Let's just start with the top line growth, right, for the quarter. Can you walk us through the key drivers of that performance? Any trends that set out to you that maybe caught you by surprise? Or are you pretty comfortable?

Yes. Happy to take that. So Q2, we were definitely happy with our performance. We did achieve the goal of getting back to double-digit sequential growth we saw on the surgical glaucoma side of the business. We saw both increasing sequential utilization as well as increasing accounts on service, both of those were up 5%. So we really saw solid performance as we're regaining momentum coming out of the LCD period of uncertainty. And so we were very happy with those results. We did also reach our kind of level of accounts that we had seen at the peak of Q2 last year prior to the LCD impact. So we were happy to also have that recovery of accounts. And we're really focused now on both driving increased utilization of those accounts from there as well as focused on adding new accounts. So the other side of the business, dry eye, also performed to expectations in the quarter. And really, as we're shifting strategy towards market access, performed at the level that we expected. So overall, the quarter was in line from our perspective on the top line. We also performed very well across the P&L, very strong gross margins, 86% gross margin. Continued diligence on operating expenses and cash utilization down almost 30% year-over-year. So we feel like we showed solid execution in the second quarter.

And on those account numbers, can you be a bit more specific what number are we talking about? Can you maybe give us that?

Yes, we have disclosed it. So we ended the quarter with 1,131 active accounts on our surgical glaucoma business, which was down just 3 accounts compared to Q2 of last year and as I said, up 5% sequentially.

And then on the guide narrowing, it seemed to have only been driven by the TearCare, right? Can you talk through the decision around TearCare to hike the price? And then I look at the Street numbers as well, and it seems they're suggesting there's going to be quite a severe drop in Q3, even I think the price hikes going into effect in Q4, right? So maybe just walk through the dynamics there and anything we should be...

Happy to do that. And maybe Paul talk a little bit about the strategy of why we're doing that. But first, on the guidance side, our approach was we did look at what we expected in terms of volume with this price change, with the increase to list price substantially from the current ASPs that we see in that business because we're focused on the long-term market access strategy, and we also have the results of SAHARA as well as the budget impact model that justify this type of pricing. We do expect that to have an impact on both the third quarter and a larger impact on the fourth quarter. And that's because we did also announce this price change to our customers. And we let them know that new price would be effective October 1, but we also let them know that in the interim period, we are limiting their purchases because we don't want accounts to stock up in advance of this price change.

We're fortunate that the SAHARA results and our RCT TearCare versus the market-leading dry eye therapeutic, RESTASIS, that we were able to show the results at 6 months and 12 months. We were able to achieve our success on superiority on our primary sign endpoint over RESTASIS. And that was at 6 months. At 12 months, we showed that a single treatment -- single TearCare treatment after a patient had been on RESTASIS for 6 months straight, twice daily, pulling them off of RESTASIS and giving them a single TearCare treatment, looking how they're doing at 12 months showed further enhancement in both signs and symptoms, all signs and all symptoms from a single TearCare treatment. That kind of compelling clinical data, it's very valuable. And so the pricing adjustment reflects the value of TearCare. When we ran the models, our budget impact analysis, as Ali mentioned, our cost-effectiveness analysis. And by the way, those have been prepared and submitted for publication. Hopefully, those will start publishing over the coming months. When you do those analyses, that's what it tells you is the value of TearCare. So the time was right now to change the price to reflect the true clinical and health economic value, and we're talking to payers and having great conversations.

Fantastic. And just remind us on the price that it's going up to and what it was at.

Our list prices increasing to $1,200. We know that the ASP will be lower than that, but that will depend on the -- what the payers end up paying. Our current ASP for TearCare is in the -- a little less than $300 currently.

Got it. And you're comfortable on the surgical glaucoma side how the Street's shuffled out the Q3 and Q4.

Yes. I think the Street has reflected what we put as a pretty tight guidance range. Our guidance is $81 million to $83 million and I think the Street is right at $82 million. So I'd say, the Street has agreed with our assessment of the opportunity over the next 2 quarters.

And we were speaking just off stage, this time last year, things were very different. Maybe for the new investors looking at the story, took us through what happened last year, why you think it occurred, what you did and where we're at today.

We think -- so LCDs were proposed last year, proposing noncoverage basically for non-implantable MIGS. We believe increased -- any category that's experiencing rapid growth like MIGS, unfortunately, it gets more scrutiny and sometimes Medicare will come and look and say what's driving a lot of this growth and scrub everything in the category and look at all the clinical data, and that was the process that unfolded last year. I think it was a great opportunity to educate the MACs on microinvasive glaucoma surgery generally from the various industry players, the societies, hundreds, if not thousands of surgeons, educating the MACs. Sight Sciences, we were able to educate all of the MACs on OMNI in particular and SION as well. OMNI is a very comprehensive, consistent and reliable glaucoma surgery. By December of last year, we we're able to educate the MACs, had a meeting with all 5 of them following a society meeting with them. And I think it was an effective meeting, and we felt like we had the opportunity to make sure that they understood how clinically valuable our products and procedures are to glaucoma specialists and cataract surgeons taking care of glaucoma patients. So the LCDs at the end of the year were withdrawn. They needed to be revisited, rewritten. And so they've come back this year in a form that I think most of us find acceptable. There is not a non-coverage limitation proposed for non-implantable MIGS. So assuming that these LCDs, which are expected to be finalized by the end of the year, assuming they look like how they were proposed earlier this year, we should have coverage for OMNI and SION.

Got it. And on the initial ASC payment boost, maybe walk us through the procedure economics of 66174 and OMNI today, what that could then change if those proposed rates go through?

Yes. I think the way we've always looked at procedural choice and what we've tried to offer our customers, we want to optimize on safety, efficacy, usability and, of course, economics, both economic to the surgeon and to the facility. And we've done very well with OMNI on many of those, right, safety, efficacy, usability and the [indiscernible] been revised downwards, but it's still fine. The facility fee for OMNI is where we've been at a disadvantage to our primary competitor stents on the one hand and goniotomy procedures on the other hand. So we believe that if device-intensive status, which would improve the facility fee, for the procedures performed with OMNI, if that is finalized. It was proposed to be increased by about $600. If that's finalized, come late October, early November and goes into effect in January, we think that's an important tailwind for us because, again, I think we've excelled on 4 of the 5 criteria that we use to assess ourselves. And what we're offering to our customers and the facility fee has been one of our disadvantages and I think it would help close that gap. So we're excited about it. Hopefully, it gets finalized.

Yes. And obviously, it's still a proposal at this point, but it can be, as Paul said, an accelerant going into 2025. We also think it's important -- this is something that we've been working on for multiple years as a company to drive improved economics for canaloplasty for -- with a device-intensive status. So we're very pleased that the proposal has come finally, and we are very hopeful that it will be finalized in the fourth quarter.

Yes. A lot of work over several years. So sometimes it takes a little bit of time, but be persistent and hopefully, you get to where you want to go.

That's for sure. And then I wanted to push a bit more to the stand-alone opportunity. We've just started to receive a few more questions again for some reason. I was reading back through our initiation report in 2021. A lot of focus then on stand-alone. How do you think that market's developed? And is it where you would have hoped for it to have been at this point back, call it, a few years ago?

Yes. So I think the stand-alone market, this is glaucoma surgery -- microinvasive glaucoma surgery performed by itself, meaning not at the time of cataract surgery. So you could do it before cataract surgery, that's phakic stand-alone or you could perform microinvasive glaucoma surgery after a patient has already had cataract surgery, that's pseudophakic stand-alone, huge market need, huge market opportunity, We have a product that has a very good product market fit in stand-alone. I think since we launched OMNI, we've been penetrating stand-alone, but we're really trying to develop a market from scratch. There's a long way to go. Order of magnitude, the combo cataract market where most of the MIGS revenue is today is about $1 billion. The TAM for stand-alone is $4 billion to $5 billion. So while we have been growing it from -- starting from very small, I would say, no, we would wish that we would be developing it even faster. I think there are things that we can do and are doing to hopefully improve that growth rate I think there's a mind shift change that has to happen. So many of you who follow the ophthalmic space or maybe are familiar with this concept of interventional ophthalmology. So procedural interventions that take care out of the patient's hands and put that care into the hands of eye care providers, in this case, ophthalmic surgeons. We think with that increased mindset shift, that will help drive more aggressive stand-alone utilization. I think as a company, Sight Sciences, we -- our goal to be the leading interventional eye care provider. We have OMNI and MIGS. It's a great stand-alone intervention. We have TearCare as a leading intervention for dry eye, and we have a pipeline of additional interventions that we're working on that we're excited to be hopefully talking about sometime next year.

Perfect. And then sticking with surgical glaucoma, MIGS very competitive space. talk us through what you're seeing in the broader market, new products coming in? Just any feedback you may have heard from your customers or anything that stands out there?

I think we've -- since launching OMNI in 2018, I think MIGS has been a pretty competitive space. There's a need. There's a major need, right? There's -- it's the world's leading cause of irreversible blindness. It's a huge problem. Millions of patients suffer from it. And the standard of care historically was meds, lasers and highly invasive surgery with lots of complication. So like in the cardiovascular space or the orthopedic space, these minimally invasive approaches have become standard of care. Ophthalmology was kind of lagging behind. So we've seen a lot of growth in the MIGS space. And with that growth comes lots of new entrants as you'd see in any sector. So since we launched OMNI, I think it's been a pretty competitive space. I think it remains competitive. I think we have a product that is very competitive, clinical results that are very compelling, and a team that has a demonstrated ability to commercially execute. So we tend to focus on elevating everything that we're doing and maintaining our maximum level of competitiveness in a competitive market.

And this is a growing market, where, obviously, stand-alone is a portion of that growth, but combination cataract procedures are also growing. There continues to be a need for additional treatment. So it's a very healthy market, growing double-digits from a market perspective. So there's room for multiple products, multiple competitors. We think we have a compelling value proposition. But glaucoma is a very difficult disease to treat, and that means that having a variety of solutions for patients is very important for our customers.

And the stars seem to be aligning for 2025, and I've started to receive questions myself on that. Double-digit surgical club, can we [ grow ] it in '25? Any comments.

As you can expect, we're not prepared to give 2025 guidance today. But of course, as we've said previously, we do expect to be a double-digit grower. And so we see this as a very compelling market opportunity. The market is healthy from a growth perspective. We expect over time to get back to taking share after recovery from this LCD period, and we think we're very well-positioned for that. On top of that, and we haven't spent a lot of time on it, we have a very exciting opportunity on the dry eye side of the business. which should be an accelerant along with the potential of device intensive being an accelerant to our growth rate. So we think we're very well-positioned for 2025.

Great. And let's touch on TearCare then. We discussed it at the start, but what are the next steps that you're taking now to secure the reimbursement in place? And give us some time lines maybe for '25 and when we can expect that to come through.

Yes. We're actively engaged with payers as we've stated, the timing is right. We -- with the SAHARA RCT. And just to quickly rewind SAHARA, we've already -- we have 2 RCTs for TearCare. We had -- the first RCT was for regulatory purposes for FDA clearance. SAHARA was specifically designed to help payers make coverage decisions. It also help with clinical marketing, of course. But we spoke to a number of payers before designing the SAHARA protocol. We said what do you need to see? Because this is the state of affairs and dry eye. Most patients are getting prescribed Rx when they have a different underlying disease. They have disease meibomian glands, obstructed glands, they need a procedure like TearCare and they need to have patient access and reimbursed access to it, what data do you need to see to support coverage? And this was their wish lift. Their wish lift was show us ideally superiority to the standard of care, that standard is RESTASIS. And then also show us the durability of treatment effect. So if we decide to cover this, how many treatments are we covering per year? Is it 1 treatment per year, 2 treatments per year. We know from the 60,000-plus cases we've done in cash pay the typical provider with a typical dry eye patient will do somewhere between 1 to 2 treatments per year is what's needed. So now that we have the 6 months SAHARA data published, the 12-month data published, which we know is important data for payers, not surprisingly, we're engaging the payers as we speak, they really like what they see in terms of that RCT clinical data that's rare when they see a treatment seeking coverage with head-to-head data against the therapeutic standard of care. That's very helpful for them, as you can imagine. Beyond that, we also have the budget impact analysis complete and the cost-effectiveness analysis complete. So that package is a very compelling one. We're having good conversations with payers. We're getting claims, clean claims. Our customers are submitting claims, getting those claims paid. Eventually, those paid claims hopefully will turn into coverage policies. In terms of timing, we've said 2025 is when we would expect formal coverage policies. We're talking to a variety of payers, smaller regional commercial payers, national commercial payers, We've had some productive discussions with MACs as well. So 2025 for policy, but hopefully, we're making progress throughout the year in terms of more efficient claims transactions.

How does that revenue ramp look like for TearCare?

That's something that will come based on the coverage wins. We obviously aren't prepared to give a specific ramp for that. But what I do want to highlight is how compelling of an opportunity this is. When we think about the 18 million diagnosed patients with dry eye and up to 86% or so of those patients have MGD, which is the direct area that we treat with TearCare and then about half of them are considered moderate to severe patients. This is a compelling, call it, 6 million, 7 million patients that really need treatment and right now aren't being effectively treated with drops. And this is an opportunity that when we think about that market, it can be a very large opportunity for us over time if we can execute on the market access side. And this is something that's compelling for patients, compelling for payers and compelling to the eye care providers who are all looking for a better solution here. So we really see this as really foundational to the business and the success over time and should be a major contributor to our revenue, both our revenue growth in the 5- to 10-year period that we're looking out but also just to our overall portfolio. This is an incredible opportunity again, reliant on us being able to execute properly on the market access side. And that's what we're really excited about. We think it should be something investors are excited about and a real catalyst for the company.

And what's unique about the model here, so on the surgical glaucoma side, right, a surgery -- it's invasive, even though it's minimally invasive, it's still surgery, so you want to intervene as infrequently as possible, right? Get it done. Hopefully, those results long as -- last as long as possible and they don't need another intervention for 5 years or more. With this chronic disease in-office treatment, when we are ready to talk about those projections, the model is going to be a very interesting one because it's a patient coming back once or twice a year. So the model gets very interesting as you look into the out years with more and more patients getting onto TearCare and becoming embedded in the model over the long term.

And how are you thinking about the dry eye drops aside from RESTASIS? There seem to be competitive ones pushing through the pipeline that maybe more effective or at least claims to be. So curious on your thoughts around developments there.

Yes. I think some of the drops are interesting. It's kind of like the glaucoma side, interventional glaucoma is a good thing. I think it's a good thing for us. I think other competitive products in interventional glaucoma are going to help raise awareness. We feel similar about the drops. There are some drops that have been recently approved and are getting launched that have meibomian gland disease angle to them. We love it, right? This space, I think as Ali had mentioned, if there's so much need so many millions of patients, and it's not properly treated today, we want to draw attention. That's a heavy lift to educate the thousands of ophthalmologists and tens of thousands of optometrists on MGD and intervening. Now what's different about TearCare is none of those drops actually treat the underlying cause of meibomian gland disease. So the glands, the oil-producing glands in the island, you have 20 to 30 per lid, they become obstructed. Oil that's when it's healthy. It's got olive oil like consistency. With disease glands that oil can harden and nothing is expressed from the glands. So your tear isn't getting that nice coat of it's called meibum, liquid oil covering the tier. So we believe in interventional procedures that address the root underlying cause of the leading causes of disease and eye care. TearCare does a really great job of treating that underlying cause, right? And the drops don't do that. So can we all happily exist, of course, and we encourage innovation in the space in general and hope some of those gland MGD-focused drop to continue to market and educate around the condition just as we are getting coverage policy wins next year and hopefully coming into an even warmer market.

Totally. And then just shifting over to the cost base. throughout last year and the uncertainty of the LCDs reduced cash burn considerably. There were some concerns that you weren't going to be investing enough in the business, obviously, but that seems to have ramped up a bit now. So maybe, Ali, just talk to us about that.

Yes, sure. That's always a double-edged sword here. People want to see you reduce cash, but then they worry about your level of investment in the business. And I think we are doing a really great job balancing both of those needs. We did with cash burn in 2022. We used about $75 million of cash. And last year, we used $47 million. And through the first 6 months of this year, we've again substantially reduced that burn down to about $20 million through 6 months. So I think we have been able to look at the infrastructure throughout the organization, make sure that we're addressing the critical areas that we need to invest in the business, whether that's commercial infrastructure and growth and making sure that we're set up for success in both surgical glaucoma and dry eye, but also our pipeline. We are investing in our pipeline. We've continued to see spend both on R&D initiatives as well as clinical trials. SAHARA being the one that was a major investment this last year. So we do think that we are balancing that spend. When we look forward from here, we also think there's a lot of opportunity to continue to get leverage on our cost base and then investing in some key critical areas like the dry eye infrastructure, which should follow those reimbursement wins. So as we get a regional contract win, we will be able to put resources there and then leverage those resources and then get additional wins. So it should be tied to revenue tied to success in the model. We feel like we have a good base of spend, and we're really looking to be efficient there. And I think that, that's prudent for every company in any environment to make sure that you're looking at your resources and spending appropriately and that's what we have been doing the last year, and that's something we plan to continue to do. Of course, we do have access. We managed our debt at the beginning of this year to extend the payment term on that $35 million, and we also have access to another $30 million for flexibility, but our models show that we don't need access to that capital. We can reach cash flow breakeven with the funds that we have with the business plan that we're executing against.

Great. And about a year ago, I think Matt Link was hired in on the commercial side. How is that commercial sales force structure looking now? What's changed? What's improved?

Yes. A lot of [ ECs ], I'd say, made both organizations more effective. So some streamlining brought in some new folks who have recently started who are going to be great. On the TearCare side, in particular, I think, refocused that group for the task at hand, which is assisting in the market access strategy. So we're -- as you saw in our guidance, we're not focused on revenue right now, cash pay revenue. We're focused on the more value-creating activity, which is all of that field activity that can create excellence in the market access execution. So that Matt has done a great job there, and the team has done a great job, the TearCare folks. Some of them have been with us for many years now, and they're really stepping up into this new role is we're pioneering market access in evaporative dry eye on the surgical glaucoma side. I think largely the team in terms of size is similar, right, since Matt has joined, but he has kind of reconfigured the group for maximal effectiveness and further scale up. Unfortunately, when he joined, we didn't get to see the commercial prowess necessarily because we were more busy dealing with LCDs. But now that those are hopefully soon behind us, he's focused on commercial execution, and it's going to be a -- it's going to be really fun to see how we scale it up.

So it's fair to say rep productivity is on the up at least from last year.

Yes. So we're getting back to our peak there. We're almost there, and now it's really about expanding from there our rep utilization. Our rep efficiency has been progressing very nicely. So we're pleased with the performance of the team, but we think that there's still a lot more opportunity for leverage there. So that's something that we'll continue to look to improve as we grow and scale the business. I think Matt is also very focused on how we segment the customers, how do we focus on the patients that need our product the most. That segmentation of the market that really is the most appropriate for OMNI as well as that stand-alone opportunity that we talked about. So those are kind of 2 critical areas that he's focused on driving that should help with that efficiency and effectiveness of the team.

Understood. And then you and R&D, maybe give us a bit of color on the type of areas you're looking to without giving too much away, I will be cautious here. But just maybe get us excited about something.

I think when you think Sight Sciences, think interventional eye care leader. Again, we have very compelling products right now with OMNI and TearCare, interventional technologies that have very differentiated efficacy positions behind that, and those were both developed internally at site. Again, we try to prioritize safety, efficacy, usability and economics to both the eye care provider as well as the facility. So really trying to bring value to all stakeholders through interventional procedures. We have a pipeline, specifically in glaucoma that includes additional interventional MIGS devices and technologies as well as sustained release technology even though that's pharma device, has pharma elements really, it's intervention. It's an interventional way of delivering medication. So what do we do really, really well, what have we done very well with OMNI, with SION, with TearCare, what should you expect to see from that pipeline, we are proven in delivering existing proven mechanisms of action, but doing so better. And when we do that better, we can improve on all of those things: safety, efficacy and usability. When we can improve on safety, efficacy and usability, we can deliver on our mission, which is to elevate the standards of care in eye care through interventional technologies.

And just to add on to that a little bit. We also continue to innovate in our core products as well. OMNI, TearCare, both of those products, while they're great products and great technologies, we are continuing to advance in those areas and looking to incorporate customer and market feedback to improve the overall use and -- yes, use of the technology. And over the last almost 15 years that Sight has been around, the company has invested $100 million in R&D and clinical work. And that's -- it's been a lot of investment to create these products, and we're really excited about the future pipeline that's coming behind that that we think investors will be excited about over time in both surgical glaucoma and dry eye.

And as TearCare becomes a more meaningful part of the revenue base, how does that impact the gross margins? Because you have some of the best gross margins in med tech at the moment. So I would love to hear your thoughts on how that trends out.

Yes. So while, of course, TearCare so far in a cash pay market, those gross margins have been lower than our surgical glaucoma gross margins. However, as we talked about the price increase and the changing in the economics as we shift to market access for TearCare with fair and equitable reimbursement, we believe those gross margins will expand. Now where exactly they will get to, we'll be dependent on exactly what happens with reimbursement over time, but we think that those will also be a compelling gross margin story in addition to a compelling revenue growth story as well.

Great. And on the Hydrus litigation, I think you owe $34 million, roughly. Where we add on that? What's the time line before that's officially confirmed no appeals?

The jury verdict was awarded in April. We are waiting for the judge to rule on that jury verdict and confirm that jury verdict as well as assign any enhancements or ongoing royalties or those types of ruling. So that could happen any time in the next, call it, 6 to 9 months is kind of the potential time frame. Obviously, that's up to the judge's schedule. And at that point, they could -- Allergan could appeal that ruling and that could take 12 to 18 months approximately from there. So that's kind of the outer ends of the timing that we're looking at. Just at a high level, though, we're very pleased with the jury verdict. We thought that we went into it, feeling like we had a strong case and that was confirmed with a unanimous jury verdict. And we think it's important to defend our technology if we feel people are infringing on our patents. We're not afraid to defend our patents and our IP that we've spent many millions of dollars developing and should protect.

Great. Okay. One minute left. Paul, what's something that you wish investors asked you more about?

Diving in deeper on the MGD market in need, the real need for patient access to an interventional procedure because we see something very big that's around the corner. And I think it's worth a lot of diligence right now because the day we get that first coverage policy win, I think anyone digging in will see how attractive the model is. As Ali mentioned, there's millions of patients. We have technology that is very mature. We've iterated on it over years and years, a decade in the making, 2 RCTs, superiority to the standard of care and the strategy that we're executing on to pioneer reimbursement. So first-mover in a huge category with lots of patients with real need. It's a tremendous opportunity. And I think I'd just say, you have a lot more questions on it before it becomes a reality.

Fantastic. Well, I think that takes us to time. Paul, Ali, thank you so much. Thank you for joining.

Thank you.

Thank you.