All right. Hi, everyone. I'm Steve Lichtman, medical devices analyst at Oppenheimer. Welcome to the 2024 Oppenheimer Mid-Tech and Services Conference. Up next, very happy to have with us RxSight. RxSight is an ophthalmology medical device company that has commercialized the first adjustable intraocular lens that is customizable after cataract surgery. With us today are President and CEO, Ron Kurtz, and CFO, Shelley Thunen. We are going to do a fireside chat format, so if you do have a question, please key it in, and I will get it over to management. With that, Ron and Shelley, thanks so much for being with us today.
You know, I gave the sort of brief description of your platform, but I thought maybe to level set those investors who don't know the technology, Ron, if you could give an overview of LAL, and its differentiating characteristics in the IOL market. Thanks.
Thank you, Steve. Very happy to be here today. RxSight has the first Light Adjustable Lens or the first adjustable lens in the marketplace. It's important to note that this year marks the 75th anniversary of the intraocular lens, first use of the intraocular lens. So in the previous, you know, almost three-quarters of a century, the intraocular lenses were what we call fixed optics. So the doctor would select a lens for an eye, place that lens in the eye, and afterwards, have relatively limited options of what they could do to try to optimize that for the patient. Because the Light Adjustable Lens is adjustable, it means that we can attain much higher refractive outcomes, better vision without glasses.
We maintain very high quality of vision, and we allow the patient to customize their vision, typically in both eyes, and we'll talk a little bit more of that, about that. So there's very distinct patient benefits, and just as importantly, there's distinct benefits to the practices, where with the advent of premium IOLs about 20 years ago, doctors are able to charge above and beyond what Medicare reimburses them for, and this has led to the premium IOL market being one of the most important facets of ophthalmology. And we are an important part of expanding that market by...
Our data shows that about three-quarters of the patients who get a Light Adjustable Lens would have had either a standard monofocal or a toric monofocal lens, both of which add relatively little to no additional revenue to the practice. So that's really the benefits both to the practice and to the patient for this technology.
Great, and you know, I think in terms of the premium market, maybe also you can help sort of size the opportunity, so where premium lenses are today in terms of what percent of total? And then also for you, for RxSight in particular, can you talk a little bit about your target surgeons that you're going after initially here, ones that do focus on premium lenses in particular?
So if we consider first the US, there are about 4.5 million total cataract procedures performed annually in the US. Around 900,000 or 20% of those are with what are now called premium or advanced technology IOLs. And again, those are procedures that doctors can charge an additional fee outside of the traditional reimbursement to patients. So that 20% has grown since the 2005, 2006 timeframe, when this market first started with the first premium IOLs. And it's continued to grow in the double-digit range, and we and others believe that over time this will represent about 30%-40% of the US market.
That growth is being driven by a number of factors. One, of course, is just the overall growth of the cataract population. It's, you know, our population is aging, and along with that, the visual demands of patients are increasing. You know, being able to function without glasses is at an even higher premium today than it was, and so that's driving, on the patient side, the desire for Premium IOLs. At the same time, as I mentioned, on the provider side, there's a tremendous incentive to move patients from traditional standard IOLs, which reimburse the surgeon at about $500 per procedure, and that includes both pre-op and post-operative care.
That reimbursement figure has dropped about 75%-80% in real terms over the last 20 years. So doctors are under, you know, incredible financial pressure in their largest surgical procedure. The Premium IOLs, which, you know, doctors can charge anywhere from $2,000 up to $5,000 or $6,000 per eye, is, is, you know, allows them really to stay in business, and, and, counteract the reductions in reimbursement that have affected them in cataract surgery and their other major procedures. The, you know, the patient demographic that we're targeting, of course, the older population, is also the one that has the most wealth in the U.S.
Probably about two-thirds of the wealth resides in that population, and that's continued to grow over the last 4 or 5 years. So it's a very attractive market. We are targeting, obviously, doctors who perform cataract surgeries. There are about 10,000 ophthalmologists that primarily do cataract surgery in the U.S., with about 4,000 of those being responsible for the bulk of the premium IOL procedures. So, they're most likely responsible for about 70% of those 900,000 annual procedures currently.
We're obviously focused on that target initially, but over time, we think our technology, because it allows really any doctor to attain the same visual results as those 4,000 to be able to offer the highest level of care in the premium market.
You mentioned the demographics of the patient population you're targeting. Certainly, one of the questions we get as people think about sort of the macroeconomic environment, do we see a slowdown, you know, recession? Does that impact an out-of-pocket procedure such as this? What are you seeing on that front, and, you know, is there anything that you're picking up at all on that front in the field?
Yeah, I'll answer that both historically and then, currently. You know, the 2008 to 2010 recession was a really good example. That affected patient pay procedures, like LASIK profoundly. But LASIK is something that is directed at a much younger population. Premium IOLs, again, that older demographic, continued to grow through that time period. And we see a very similar behavior most recently. You know, although the macroeconomic conditions continue to improve, you know, a year or two ago, when these concerns were higher, we saw LASIK volumes drop, but premium IOLs continued to grow.
Again, you know, at some level of economic adversity, there may be an effect, but this patient population is relatively resistant to those kinds of pressures.
Shifting gears, can you talk a little bit about competition? Anything that you're seeing, you know, in the medium term? You know, certainly, Alcon has talked about, you know, product in development. And then what are sort of the competitive moats that you have today, and then are looking to continue to establish longer term?
Well, I'll start, Steve, by just saying that, you know, we view our competition as being the status quo. So our competition are fixed premium IOLs, and we see that being the case for many years to come. You know, you do get some visibility as to what might be coming down the pike in terms of new technology because IOLs generally have to go through a PMA process with a clinical study, and certainly, we did. And there's, you know, as far as we can see, nothing that is close. That's generally a 3, 5, 7-year process. So I think even competitors who have talked about entering the adjustable market have talked about something towards the end of the decade.
I think that's a ... You know, our primary efforts now are really just expanding the market and growing our market share. You know, in terms of competitive moats, the major factor is the ability to adjust a lens non-invasively after it's been implanted in the eye is a technically difficult thing to do. It took us a long time to do it, and we are now, we've been commercial for about 4 years. We've continued to push this technology with over 30 PMA supplements, meaning that we continue to raise the bar. And of course, you know, we've built a very strong patent portfolio.
But more importantly, we've built just a very high level of expectation in the marketplace so that both you know we correct vision with the same, at the same, level of precision as glasses or contact lenses are made. That's a very high bar. And we continue to move that bar higher, both in the marketplace as well as with the regulatory bodies. And then ultimately, of course, we do have a piece of capital equipment that modifies... allows the doctor to modify the shape and focusing power of the Light Adjustable Lens. And we've expanded that footprint. You know, as of the end of last year, we had 666 LDDs, Light Delivery Devices, in mostly in the U.S., and we'll continue to expand that.
And as we've learned, with other commercial efforts, both our own and others, it's very difficult to displace that once that's in place. Doctors, there's a physical infrastructure, but there's also an intellectual infrastructure. Doctors and technicians know how to use your equipment. They know how to counsel patients with your technology, and that's very difficult to overcome.
You know, you're also adding, you know, to the platform, you said this year, LAL+ anticipated to roll out. Can you talk a little bit more about what that adds to the platform, and why surgeons and patients may be interested in that versus LAL, your original LAL?
Yeah, maybe I'll start by just talking a little bit in more detail about how the Light Adjustable Lens works because the LAL+ is really an extension of that. So the LAL is inserted as a monofocal intraocular lens with a broadened depth of focus. That means that patients have very high quality of vision, but they can also have an expanded range of vision relative to a standard monofocal lens. The doctor can then use the adjustability to expand that range. About 90% of patients have LALs implanted in both eyes. Cataracts develop primarily bilaterally at the same time.
Doctors and patients are able to customize their vision in both eyes to deliver both high quality and a range of vision. The LAL+ differs from the LAL in that it extends the. It broadens the depth of focus a bit more, and so that gives doctors more of a range to start with. Patients typically will have better intermediate and near vision right after surgery, and then they can be customized a little bit more easily. It still meets the strict quality standards of a monofocal IOL, and so we don't see any significant compromise in quality of vision. And so, you know, again, this is just it gives us another part of the platform that doctors can optimize for specific patients.
How much does it help in terms of your discussions with doctors demonstrating the ability to be more of a presbyopia-correcting option, even though I know LAL itself can be, but how does it help you further expand into that portion of the market?
Well, it has, you know, the characteristics of a broadened depth of focus, and it's, it, it gives- it's going to give, patients, more of that effect sooner. So, certainly, if doctors are thinking about, multifocal lenses in a particular patient, they're going to have more reason to think about, an adjustable lens, which, in addition to giving them a broadened depth of focus, also delivers, this very high quality and the ability to customize, vision. One thing that is not, often appreciated is most of the lenses that are, that are, in the extended depth of focus category, those lenses are, are typically combined with some level of, myopia or near-sightedness in one eye. They don't provide a lot of near vision by themselves.
And so, having the ability to customize a lens with a broadened depth of focus after surgery is a very distinct advantage.
Shelley, I wanted to ask a couple questions. You know, you have achieved the revenue growth without having to significantly increase your commercial footprint, at least in terms of the sort of frontline sales reps. I know you've been adding in terms of support. You know, given where you guys are at relative to sort of your balance sheet, do you see a need to, and should we anticipate any sort of increased investment in the commercial footprint?
... I think that that's a good question. We do increase the amount of sales and marketing expense, each year. In 2022, going back then, you know, while we increased gross margin, we increased, OpEx at a faster rate, and that was because post-IPO, we built our sales force. We took our, LDD sales force, which primarily is responsible for, selling the LDD, which is a piece of capital equipment, from about 6 people to 20, very quickly, and then we also added a LAL sales force. That sales force we took to 20 very quickly, and during 2023, and again in 2024, we'll continue to add to that sales force, but certainly not at the pace we did in 2022.
We always add clinical applications persons, and they are out in the field, about 150 total people, in our commercial organization, field-facing. That continues to grow. Where we add the most people is in our clinical team, and they are responsible for training doctors, training in the OR, and also continuing to educate the staff. They'll come back in if there's turnover, things like that as well. The LAL salespeople, you know, manage the accounts and watch volumes and continue to come in, even post the initial sales piece. So, you know, we're continuing to get leverage, but we'll continue to grow OpEx, and most of that is in sales and marketing.
And then on gross margin, obviously a lot of improvements here over the last couple of years. Where do you see that going long term, and what are the key drivers to get you there?
The, you know, the second half of 2023, our gross margin was 62%, up significantly from 42% at the end of 2022. We have guided to 65%-67% as well. Most of that margin improvement comes from the LAL. It's much higher margin than the piece of capital equipment. We try and keep the capital equipment from, you know, in the range of 20%-30% gross margin. We're at the top end of that right now. We took a slight price increase at the end of 2023, and we also brought down the cost to manufacture at the same time. The LAL is really primarily overhead. You know, clean rooms, chemistry, all of that, you know, a very modest amount of material and a modest amount of labor.
So that continues to get more profitable with volume as well. And when we talk about overall margin, you know, about 60% of our revenue at the second half of 2023 came from the LAL, and that really drives the margin 'cause it's a much higher margin than the piece of capital equipment. And the price to manufacture, of course, continues to go up. You know, the price... I'm sorry, the cost, you know, continues to decrease with higher volumes, and so that's really what drives it overall. We'd never hold back sales of LDDs in order to manage margin, but this is very typical of a razor-razor blade model overall.
Great. I guess, Ron, you know, one opportunity I think is for the market that's been perhaps underappreciated is sort of the post-refractive patient population. Yeah, can you, you know, talk a little bit about, you know, why that, you know, is an opportunity and, you know, it's, I guess, it's tough to pinpoint, but, you know, when do you think this could be an increasing tailwind for the premium market?
Yeah, it's a good question, and, you know, both Shelley and I, our first company together was in the LASIK market, back in the late 1990s, so we know that market well. It was... You know, in the U.S., there were 1 million-2 million procedures being done annually. And that patient population, which was in their, typically in their 40s, and that, that was... You know, people think about LASIK as being younger people, but the average age, especially at that time, was over 40. Those patients, of course, are now aging into cataract surgery. It's, it's more than 20 years later.
They also get cataract at an earlier age, not 100% clear why, and they're very sensitive to that loss of vision because, again, they're used to having great vision without glasses from their post-LASIK days. They're also very amenable to paying out of pocket for a procedure that relieves them of the need to wear glasses. So, that patient population, although it's probably around, you know, 5% or so of the overall cataract population currently, it makes up a disproportionate share of those patients who are considering Premium IOLs.
From a clinical standpoint, they represent a challenge, and have for some time, for ophthalmologists because when LASIK is performed, it reshapes the cornea in a way that it makes it difficult to predict what intraocular lens power that patient will need after cataract surgery using traditional IOL formula that are used for fixed optic IOLs. That means that, you know, not only are these patients having high expectations, but they're also more difficult to meet those expectations. So that's been a natural population that doctors have considered the Light Adjustable Lens, you know, for just the very reason that it provides an accurate level of accuracy that's not dependent on preoperative prediction. Something that we've done over the last several years is collect a data registry. It's been published.
It's been presented many times at the meetings. It'll be presented again at the American Society of Cataract and Refractive Surgery meeting in April. But we have, you know, nearly 1,000 subjects in that registry, and about a quarter of them are post-refractive patients. So it's a minority, but it's a significant minority, and when we look at the results of those patients, they're indistinguishable from the overall population. So again, you know, the LAL certainly is, you know, a great choice for all patients, but many doctors feel particularly for this patient population, which is an important one in their practices.
Wanted to ask a little bit about the workflow for the surgeons. You know, obviously, LAL requires a more chair time post-op than, you know, typically than other premium IOLs. But can you talk about sort of the work that I believe you guys have been putting in to sort of simplify the workflow for the surgeon's office on the LAL adjustments? And also, I think in terms of an offset, there's potential for surgeons to do, you know, through the two eyes in a little closer period of time than they would normally. So maybe that's a bit of an offset, if you could talk to that as well.
Yeah, so it's you know, as you know, every time there's a new clinical entity or procedure, it you know, doctors have to make adjustments to what they do. It's a normal part of their practices. We certainly saw that in other technologies that we've introduced into the marketplace. And you know, if you look at standard cataract surgery or premium cataract surgery, one of the aspects that you alluded to is because doctors have limited ability to attain you know, the best refractive outcomes, one of the techniques that they've used is to separate the surgeries between the two eyes.
So, as I said earlier, most patients present with cataracts in both eyes, but typically, surgeons will separate their surgery by about a month or two so that they can see how the patient did with their selection of that first intraocular lens, both the type and the power of that lens, and then they can use that information to adjust what they're gonna do in the second eye. Well, with the light adjustable lens, there's no, no advantage to waiting. And in fact, as we'll talk about, there's an advantage to moving, to doing both eyes relatively soon.
Not necessarily the same day, but although some doctors do that, but typically within about a week or so, they'll do both eyes, and then the patient will come back at about three or four weeks after their second eye to begin the light treatments. So that means that, you know, you've taken a procedure that, you know, has been done sequentially, and now you're gonna do both eyes in parallel, reducing, you know, the number of post-operative visits essentially by a factor of two. So that's something that doctors learned very, very early on with our technology. The other is, you know, thing to recall is that the surgeon really is responsible solely only for the surgery, and that surgical procedure is indistinguishable from any other cataract procedure.
So, what's new is this post-operative adjustment, and that really requires a skill set that is not restricted to surgeons. It can be done by a combination of technicians and optometrists who are already in the office of these practices. They are the ones who are doing the refractions on which the light adjustments are based, and the optometrists can also do the light treatment. So, as practices have learned this, that's allowed them to take advantage of that division of labor as well, and let, you know, the surgeons do those things that they are primarily responsible for, and let the rest of their staff... leverage the rest of the staff for the light adjustments.
And then, you know, there are a whole host of practical considerations, how you schedule patients, how you dilate the patient's eyes, how you, you know, move patients efficiently within the clinic. These are all practical things that both our team and, you know, the practices that first adopted the technology have learned. And now we're able to, through our clinical trainers, and our LAL account managers, we're able to transfer that information to, new practices so that they're able to get up and running, very quickly.
Great. Well, we're out of time, but I want to thank Ron and Shelley for being with us today. Thanks everybody for dialing in, and I hope you have a great rest of the day and week. Thanks so much.
Thank you.