Hi, everyone. Thanks for joining. I'm Lily Lozada. I'm on the MedTech research team here at JP Morgan. I'm happy to have the RxSight management team with us here today. I'll pass it over to CEO Ron Kurtz for a presentation, and then we'll do some Q&A.
Thank you, Lily, and good afternoon, everyone. In my presentation today, I plan to discuss how RxSight is leading the cataract and lens replacement surgery into a new era. That is the era of adjustability. Before I do, of course, here's our forward-looking statements. I'll begin with an overview of the cataract and lens replacement procedure, which involves removal of the natural lens and replacement of its focusing power with a plastic intraocular lens, or IOL. The main goal of cataract surgery is to provide a clear optical pathway for vision by removing the cloudy cataract. A second potential benefit that has become increasingly important over the past 20 years is reducing a patient's dependence on glasses after surgery. Cataract and lens replacements is one of the most common surgical procedures globally and is a key focus for patients, doctors, and the ophthalmic industry.
About half of the population will have developed some level of cataracts by the age of 60, usually in both eyes. Cataract and lens replacement surgery is extremely important in maintaining a person's quality of vision and quality of life for the next 20 or 30 years. For ophthalmologists and optometrists, it is by far the most common surgical procedure that they perform or are involved with, and increasingly, it is also a key to their financial success, particularly with respect to so-called refractive or premium IOLs, that doctors can charge patients for directly above and beyond what insurance or Medicare reimburses. For the same reason, cataract surgery is also a key focus area for the ophthalmic industry, not only for the direct high-margin revenue associated with IOLs, but also because it drives the use of other equipment, devices, and pharmaceuticals.
We believe that innovation in IOL technology has been responsible for creating and expanding the cataract and lens replacement surgery market over the past 60 years, and that ophthalmologists have rapidly adopted these innovations to provide better medicine for their patients and to drive better business opportunities in their practices. This graph shows the worldwide growth in both the number of implanted IOLs and in manufacturer IOL revenue, beginning in 1960 and projected out to 2040. In both cases, expressed it as the percent of 1980 levels. In the early 1960s, the first commercial IOLs, which freed patients from thick postoperative glasses, led to the rapid growth in procedures to over seven million and more than $600 million in revenue by 1980.
With the next major advance of foldable IOLs in the early 1980s, small incision cataract surgery was enabled, resulting in both faster and better visual outcomes. Annual IOL volumes grew again to about 12.5 million procedures and more than $1.2 billion in IOL revenue by the year 2000. In the early 2000s, the introduction of refractive IOLs launched what is now known as premium cataract surgery, allowing doctors to charge patients directly above and beyond reimbursements for the correction of astigmatism and/or presbyopia at the time of cataract surgery, and leading to a divergence between the number of IOLs and total IOL revenue, as IOL ASPs outpaced the demographically driven growth in procedure volumes. Currently, premium IOLs make up about 10% of all IOLs implanted globally, but are responsible for more than half of IOL revenue.
Over the next 20 years, we see the advantages of adjustable IOL technology over competitive fixed-optic IOLs, expanding both the pool of premium patients and doctors, further accelerating this divergence. We estimate using premium, using current premium IOL ASPs, total manufacturer IOL revenue will grow nearly twofold to more than $7 billion by 2030, while procedure numbers grow at historical rates to about 40 million. The advantages of adjustability can be understood by considering the common limitations shared by all fixed-optic, non-adjustable, competitive IOLs, namely, that multiple high-stakes decisions must be made by the doctor before surgery. This includes predicting which IOL type a patient will want after surgery and calculating the exact sphere and astigmatism correction they will need.
Both of these processes are imperfect at best, but fixed-optic IOLs give doctors limited options after surgery to address suboptimal outcomes, such as residual refractive error and other visual complaints, forcing them to rely on corneal refractive procedures like LASIK and other secondary surgical interventions. Only RxSight's IOLs are adjustable after surgery, allowing patients to drive optimization of their own vision postoperatively. This streamlines the preoperative process once the LAL is chosen by the patient and an approximate spherical power is selected by the doctor. Following surgery, the patient returns to the office and undergoes a standard refraction, a simple test that has been used for over a century to prescribe glasses....
However, instead of prescribing glasses, the doctor enters the data from the refraction into the office-based Light Delivery Device, or LDD, that RxSight also makes and sells, and which will adjust the LAL implanted in the eye to the desired refraction. In most patients, adjustments are performed in both eyes at the same visit, so that patients can trial their binocular vision at home, returning to the clinic for either additional light treatments to optimize their vision further, or to make the prescription permanent with a final so-called lock-in treatment. RxSight adjustability drives better medicine for patients. This includes highly accurate results since the refraction is measured postoperatively rather than predicted preoperatively. Excellent quality of vision with no loss of contrast or increased visual symptoms compared to a standard monofocal IOL, and the opportunity for patient-driven customization in both eyes to optimize vision over a range of distances.
Based on our phase III and phase IV studies, approximately twice the number of eyes will achieve 20/20 vision or better without glasses using the LAL, and about 90% of patients will see 20/20 or better at distance and be able to read small fonts without glasses using both eyes. RxSight adjustability also drives better business for doctors and practices. Since they don't necessarily have to be able to offer LASIK to patients postoperatively to treat residual refractive errors, more doctors and practices can participate in the premium IOL segment beyond the 15% of cataract surgeons that also perform LASIK and who currently dominate the premium market. The LAL also allows more patients to choose a premium IOL, since it does not reduce quality of vision for those who might not be good candidates for multifocal premium IOLs.
In our most recent customer survey, over 40% of LAL patients would have received a non-premium IOL, closely correlating with the percentage of patients with preexisting conditions that undergo cataract surgery. We believe the ability of the LAL to expand the pool of both premium doctors and patients, will be an important factor in growing IOL revenue from its current $4 billion level to the projected level of more than $7 billion in 2030. We also believe that the adoption of RxSight technology that we have seen over the past four years provides a strong signal as to the future of the IOL market. As depicted in these graphics and reported earlier this week, the installed base of LDDs has increased steadily to well over 600, with annual procedures growing to nearly 55,000 in 2023.
Our strategies for continued growth are based on our team's decades of experience in ophthalmic surgery. This includes a strong initial focus on the U.S. market, which represents approximately 20% of global premium procedures. Historically, U.S. doctors have led the dissemination of new ophthalmic technology, and currently, they have the highest penetration of premium IOLs at about 20% of the total U.S. IOL market. This large, concentrated domestic market allows RxSight to leverage a key feedback loop between the company and its domestic customers, to refine its processes and products and drive further adoption. This includes a focus on clinical education, market messaging, rapid ongoing technology development, and operational scaling.
To address its large global opportunity, RxSight plans to use the staged international expansion strategy that our team has successfully employed with previous technologies, leveraging the refinement of the product offering from the U.S. in the approximately 20 countries that make up more than 80% of global IOL procedures. In summary, RxSight is leading cataract and lens replacement surgery into its next era, the era of adjustability. Giving patients the ability to customize their own vision and increasing premium IOL penetration by building a new clinical infrastructure, driving continued technology innovation, and developing the global opportunity. Thank you very much.
All right. All right, maybe we can start with fourth quarter. You guys pre-announced good results with sales of $28.6 million, about $3 million ahead of the Street. So can you start just by walking us through what really drove the strength in the quarter, and the trends that you saw in terms of LDD placements and LAL utilization?
Okay, I'll go ahead and start. In the fourth quarter, we sold 77 LDDs, and how many LALs? Just over 18,000 LALs. Sorry about that. I've said that number about 800 times today. We had strength both in LDD as well as LAL sales. I think it was across the board. Typically, Q4 is our strongest quarter of the year. It's the seasonally strongest quarter, and I think that just increasing awareness of the product continued to drive our ability to sell more of both. The other thing that we did during the quarter, which helped our top line as well as our margin, is we introduced a reconfigured LAL. It has the same ability and the same functionality as our previous LDD.
That, at the time, we took about a 10% price increase as well, so that helped our top line on the LDD sales as well. Ron, what would you add?
I would just say that, you know, I think the trend that we saw in Q4 is a continuation of what we've seen really over the last several years. As the field becomes more aware of the benefits of adjustability, that that continues to build on itself.
Great. So you also guided to sales of $128 million-$135 million for 2024. Can you walk us through what assumptions are underpinning that guidance for next year at the high and the low end?
Okay. Yeah, of course, you know, we expect to have growth in both LDD as well as LAL sales. And something that is historically happened in razor-razor blade models, or in this case, a capital sale along with an implantable product, is that the number of LALs will increase as a percent of revenue, and they have steadily over the years that we've been commercial, which is almost four as well. And so we do see that mix being more heavily toward the LAL, and that's really driven by installed base as well as further penetration in each of our accounts. I think in terms of the LDD sales, we have a long runway in the U.S., and we also have a distributor in Canada. That is, you know, a minor portion of our overall business, but our first foray into the international markets.
I think that the difference between the, you know, low end and the high end of, of guidance is really based upon the mix that we have, and as well as LDD pricing. While we took a 10% increase, typically, you see a little bit of drip down in terms of price. And when we introduced the product at the end of the third quarter, we said we thought that that would continue into the beginning of 2024, and certainly, we saw that in the fourth quarter.
So, obviously, there's no quarterly guidance out there, but anything you can share in terms of cadence and dynamics we should be keeping in mind as we, you know, model out the year?
Yeah. Thank you for asking that. I did say earlier, typically, Q4 is our strongest quarter, both for capital equipment sales as well as for LAL sales. And what you typically see is the first and the third quarters are the weakest. Third quarter is really driven by vacations, both for doctors as well as patients. And first quarter is really driven by the fact that people are just focusing on their current year, their current capital budget, and getting started again with their practices after the holidays. And what we have seen in our numbers is some investors have said to me, "Well, you don't have seasonality," but we do. It's just that the sequential growth is, is lower, you know, between 6% and 11% historically, from the strongest quarters to the weaker quarters.
So in fact, in the stronger quarters, the growth has been in the mid-20% range. And so we do expect that to continue. I think that you'll see more pronounced in it because it's the law of larger numbers as well. And, that's been very typical. Ron and I have been in the capital equipment with either a disposable product or an implantable for over 20 years, and we've seen that pretty continuously.
Maybe, digging into the LDD a little bit, what's your outlook on the health of the capital equipment environment, and what are you assuming in terms of that, for guidance this year?
Well, you know, maybe I'll start there. Overall, I think it's important to know that, you know, as Shelley mentioned, the pricing, you know, we're not talking about a $500,000 piece of equipment here. And we're also selling this directly to practices rather than to hospitals. So the same dynamic that you might see in other fields is really not going on here. The price of an LDD is somewhat more than a diagnostic piece of equipment that a practice would be acquiring, which is not gonna deliver, you know, additional revenue. It's just gonna be a replacement product. And so, you know, the sales messaging for that is really based on an ROI that is quite quick.
You know, using our average numbers, the practice is going to pay for the LDD, you know, in roughly six months. You know, we haven't seen any sort of significant step-down in interest. It's really driven by the interest in offering the technology, which does require that a practice have access to a Light Delivery Device.
Mm-hmm. And I would add, you know, over the last year and a half, we've gotten a lot of questions about the impact of rising interest rates on the ability of practices to purchase the LDD, and in fact, most of our customers pay cash. We do refer them to three leasing companies that have nice programs if they want to lease, but again, it's mostly cash pay for the LDD. We also get a lot of questions. Do we see that our customers are getting pushback from their patients about the price, given the threat of a recession? And I think that, you know, I'll ask Ron to talk about this, but our demographics are-...
the most wealthy in the U.S., and what they're getting for spending somewhere between $4,000 and $6,000 an eye is superior vision for the rest of their life. That can be 20 or 30 years. But in terms of the numbers, do you want to talk about that a little bit, Ron?
Sure. You know, in terms of procedures, as Shelley mentioned, the premium IOL field is generally, you know, the most resistant to economic downturns. As Shelley mentioned, we've worked together in the LASIK field many years ago, and that is the exact opposite. That is, you know, you can almost plot the economic cycle with LASIK volumes. But this is a different demographic. We're talking about patients 60 or over.
They have most of the wealth in our country, and they're, as Shelley mentioned, they're looking at how to, you know, optimize their lives over the next 20 or 30 years, when they have a once-in-a-lifetime decision to make, which is what lens do they want to choose for cataract surgery?
Great. Maybe taking a step back and looking at the, the broader market opportunity here, how many centers are you in with the LDD today versus, you know, the potential over time? And then similarly, with the LAL, what do you think your share is today, and where do you think that can go?
You know, as we reported, we have, you know, over 650 LDDs. You know, it doesn't exactly equate to the number of practices that we're in. There are some practices that have multiple LDDs, but typically, those are practices that have multiple offices. That's probably a better way to think, you know, if a doctor or practice has multiple offices, it means that they're trying to tap into a different demographic or different patient populations. Those can be served by... Those are ones that probably don't mix very much. That's why they have the multiple offices. Those would be the ones that would have more than one LDD.
But it's really, you know, like a single practice. And those, so, you know, right now, we're, you know, if we look at the number of cataract surgeons that are out there, there are 10,000 cataract surgeons. You know, the best estimates probably are there are about 4,000 that do the bulk, maybe 60%-70% of the premium IOL procedures, so those obviously are the areas of focus. But, and many of those doctors also perform LASIK, because with previous or competitive premium IOLs, that's been a big advantage, because they can offer LASIK to their patients who are unhappy after premium IOL surgery.
That's obviously not really a consideration with the LAL, and so, we think that the opportunity is larger. Now, of course, we want to focus on those practices that are also doing a lot of cataract surgery and premium IOL surgery, but it's not 100% correlation. There are practices that just haven't done a lot of premium IOLs, but do quite a lot of cataract surgery. So that number is probably larger than that 4,000.
So I think it's also worth mentioning is where our doctors report that they get their premium IOL, LAL patients from, and I think that's important as well. Do you want to talk about that, Ron?
Sure. It's another. I mentioned it, that the, you know, it's where we feel we're expanding the premium IOL market. And, you know, in our customer surveys, about 40%-45% of patients over the last several years have been reported to come from the monofocal IOL, the non-premium IOL. So those are-- that's new, high-margin revenue that's coming into the practice, and that's what really drives the fast ROI for the LDD. The, about a third of the patients are patients who would have otherwise received an astigmatism-correcting or toric IOL. That is a group that's probably. And typically, those procedures are about half of the cost of a, or half the price of a top-of-the-line premium IOL procedure.
And those patients are getting a better astigmatism correction. We correct astigmatism about twofold better, and we also allow doctors to customize their vision for a range of vision. And then about a little bit more than a quarter of patients are coming from the presbyopic IOL part of the market. And those might be patients that the doctor, you know, might have force-fit a multifocal IOL. The biggest factor in success of multifocal IOL is getting the right patients who aren't going to be bothered by, you know, high rates of glare and halo. And you know, being able to offer them a solution with high quality of vision, but still an excellent range of vision, is a big benefit.
As you look out to 2024 and further out, what are you focusing on, and where do you think the biggest opportunity for growth is here? Is it placing more LDDs, driving greater LAL utilization, training more physicians, some combination of those factors?
... Yeah, it's the latter. It's the, you know, our strategy for 2024 is very similar to our strategy in 2023. We want to continue to expand the number of doctors who can offer the Light Adjustable Lens. That means selling more LDDs. And that's a, you know, primary way that we do it. But we also want to drive higher adoption within the practices that we're already in. And that was a major reason why we added, you know, about a year and a half ago the position of LAL account manager, which is a position that's more consistent with an IOL representative role, as with other companies. But it's more clinically focused.
The role of that person is really to quarterback the onboarding of the practice with our clinical trainers so that we get everybody in the practice educated and on the right foot. It's always better to start well than to try to recover from a tough start. And then being able to come back to the practice and monitor that practice to look for opportunities to grow the use of the LAL within the practice. They've already invested in the technology. Their staff is already trained. It may be that one doctor was primarily the reason for adopting the technology, but there are usually more doctors in the practice who are doing cataract surgery. Sometimes they're not the...
They don't do a high volume of premium cataract surgery, and having that infrastructure there allows them to move into cataract surgery and get essentially the same results as their, you know, top-performing colleague.
We've heard one of your large competitors talk about softness in the premium IOL market. You had a good fourth quarter, so I'm assuming that doesn't necessarily apply to you. But can you talk through what you're seeing and how you're thinking about the health of the IOL market in 2024?
Yeah, I think it's going to continue to be healthy. It's, you know, there are long-term trends that are just supporting the market. You know, one of them is just aging demographics. We continue to see the cataract age group growing by, you know, roughly 3%-5% per year. That's driving just cataract surgery generally. And then there's a, you know, the baseline desire of patients to be able to function visually for as long as possible and as easily as possible. You know, we're all on our phones, our computers. Well, people need to have good vision to be able to do that, and this is a way that they can do that.
And then, the other factor is on the physician or practice side. So, you know, reimbursements for cataract and every other reimbursed procedure in ophthalmology have been cut extensively over the last 25-30 years. You know, in real terms, cataracts have been cut 90% since I got into ophthalmology. The average reimbursement for cataract surgery is $500-$600, depending on the region of the country. That includes all the pre-op, post-op, and operative work. There's no way to make that up in volume. You have to have a higher margin revenue stream. And, for some time, LASIK provided that, and that was a reason, one of the reasons that LASIK grew.
But, you know, that's, that, that's for demographic reasons and other reasons, that's kind of, flattened out. And so, the premium IOL market has been really, a godsend to ophthalmology in, in that it's the... As far as I know, it's one of the few or only, opportunities for a doctor to charge an additional fee for a reimbursed service. And that's based on the, statutory, requirement that Medicare cannot pay for glasses or refractive services. So that's a, you know, very stable underpinning, and it's what led to the, premium IOL market. And so doctors, you know, are highly motivated to, and practices are highly motivated to, have patients adopt, premium technology. The best way to do that is to give patients the best clinical results, which is what we offer.
Maybe jumping back to utilization, it seems like LDD utilization has continued to move in the right direction. So can you speak to some of the trends you're seeing there, and how utilization and LAL share varies at some of your newer accounts versus the more mature ones?
Yeah, we can do that. You know, one of the numbers that's readily available to all investors is the number of LALs for LDD, and that's just calculated by the number of LDDs at the beginning of each quarter and the LALs implanted in that quarter. And in the fourth quarter, it was about 10.2 LALs per LDD. In the third quarter, a little bit lower seasonality, and in the second quarter, in the nine range. And we've seen that number tick up pretty steadily over the last several years. But it's not the way we run the business at all. We run the business from the bottom up. We have LDD salespeople, LAL salespeople. Our biggest force in the field is our clinical personnel, they can sell as well, and our technical people.
And what they do is they're responsible for driving LAL volume in the account, starting with training. And that means, you know, how do you market the product? How is your patient flow going to work? How are you going to train on the LDD? Our clinical people go into the ASC and train on the use of our injectors. All of them are slightly different as well. They're responsible for looking at all their accounts. Everybody has an assigned group in their region, and they look at the volumes, and they, you know, inquire with them, "Is there something we can do to, you know, to help you?" They'll have turnover in techs, turnover in optometrists, and we'll go back in and train as well. But that number overall is a good way to measure the success.
It could go down in a seasonal quarter, as well. We saw that in the third quarter. But the encouraging piece that we look at from a more macro viewpoint is the cohort of LDD sales. So we look at the customers that were installed in 2020, 2021, 2022, and 2023. And very consistently over this year, all of them have ended up in the same place, the number of LALs per LDD. And what that tells us is two things. One is everybody, you know, as a group, continues to grow, and we're getting more deeply penetrated in accounts. The second thing that it tells us is that we and our practices are getting better at adoption, because the slope of the line for those 2022 and 2023 customers that we have enough data to measure is much higher.
It's steeper, and that means that they're getting to the same place in a shorter period of time. And it makes sense to us. One, you know, the first customers, 2020, 2021, they were impacted by COVID. But also concurrently, during that period of time, in early 2022, we started hiring the LAL account managers, and we had our full cohort of LDD sales managers in place at that point in time. We've learned from our customers. We train our trainers on how to help them get started and how to stay productive. And so that's been a big boost for us in terms of, you know, driving productivity in our customers' accounts.
Maybe shifting to competition. You've done a great job penetrating this market, so what's your plan to continue to capture share from some of these larger, more entrenched companies? And is there anything that you're seeing on the product development side from some of the big eye care companies that you think is interesting and could be competitive with the LAL?
So, maybe I'll start by, you know, just reiterating that 40% of our patients are coming from the monofocal market. So we really view the market holistically. We're, we're in the IOL business, and we want to, we want to convert as many patients, whether they're monofocal patients, standard or premium patients, it doesn't really matter. We just want to provide the best vision for patients. And I, you know, I think it's, you know, we've obviously been at a low number. You know, we're, we're roughly, I think, you know, in the high single digits in terms of IOL penetration of the premium market. So we have a lot of room to go.
You know, we're the only adjustable IOL. I think, you know, there are a lot of other IOL offerings. You know, I think they're gonna compete to some extent with themselves, and we'll continue to grow the adjustable side of the business. I think the companies that have talked about you know, various potential competitive technologies have acknowledged that it's a long way in the future. As far as I know, there's no clinical trials that have been started.
You know, it took us a number of years, once we started clinical trials, and we've raised the bar with the regulators, because we've continued to push this technology and educated them on what are important factors in adjustable IOL. So I, you know, I think that, you know, by the time competing technology were to get to market, if that happens, you know, we'll be—we'll have not only a, an installed base and an infrastructure that's already established, but we'll have moved the bar for the technology even further.
Okay. So maybe shifting to the international side. I think you recently launched in Canada. So how has that launch been progressing, and what sort of timeline should we be keeping in mind, for future international expansion? And are there any regions or markets that look attractive to take that next step?
... Yeah, I mean, as I mentioned, I think that, you know, ophthalmology and cataract surgery, and more specifically, is a global market. I can walk into an ophthalmic practice or operating room in almost any country, you know, in the developed world, and it's virtually the same or even better than what we see in the U.S.. So there are absolutely attractive markets. When we're evaluating those markets, we look obviously for the size of the market, also for the ASP of the IOL in the market, and then the regulatory.
And it's the balance of those, you know, sometimes you have to kind of be flexible in your approach to a market, depending on how those things march out. But this is absolutely a global product, and, you know, I think the example of Canada is a good one. It's a similar market to the U.S. It's got a somewhat different health system, but we've had a very nice reception in Canada. It's, you know, roughly the size of California, more concentrated market, and we have a high-quality distributor that we've worked with in the past, and we've been very happy with it.
Great. Maybe just one last question in the last few minutes here. Shifting to the P&L, can you talk through how you're thinking about expense growth and gross margin expansion in 2024? And if there's some timeframe we should be keeping in mind, or maybe a revenue level, for reaching profitability, and just generally, how you're thinking about balancing revenue growth and driving leverage.
Yeah, we talked about our revenue guidance previously, $128 million-$135 million. We also guided gross margin of 65%-67% for the year. Third quarter gross margin was 62%, and so there are a couple of things that continue to drive gross margin. The most important is mix. So what you saw in 2023, through the numbers we've reported, about 60% of revenue came from the LAL, and that is our most profitable product, as compared to the capital equipment. And so we would expect, like most models, that that number will continue to become a larger and larger portion of our total revenue, and that is what drives margin.
We're also getting margin benefit from the whole year of getting the price increase on the LDD, and even if it drifts down, that's significant for us, as well as the fact that the LDD we'll have for the entire year, and it's less expensive to manufacture. So we're getting nice leverage out of gross margin in 2024, as we guided. We guided OpEx with our ability to also get leverage as well. We look at OpEx pretty typically as about a third R&D. As Ron's talked about, we always have R&D projects to continue to move the product forward. The balance is SG&A, and most of that is people in sales and marketing. So we're continuing to focus on leverage while also growing the business. Top line is our most important thing that we're doing right now.
We have not yet given guidance on when or the amount of revenue we would have to get to cash flow breakeven. But what we have said, after we raised a bit over $100 million in the last year, is that we have adequate capital to get to profitability with a very healthy balance sheet.
Great. I think we're out of time. So thanks, Ron and Shelley, for joining, and thanks, everyone, for listening in.
Thank you.