All righty. Thank you, everybody, for joining. It's Patrick Wood. Obviously, I run the US MedTech team. For disclaimers, there's the Research Morgan Stanley website, which has the disclaimers on them. I'm sure all of you will be visiting there frequently today. It's very exciting. But we're, you know, delighted to have Dr. Ron Kurtz here, as well as Shelley Thunen , as CEO and CFO, respectively, of RxSight, for what should be a fun discussion, fireside chat, going through all things ophthalmology. And so, you know, firstly, thank you so much for joining us. I think maybe if we could start with sort of a more of a big picture view of things. You know, can you give us an update on how you think the overall cataract market is looking in the US?
What are you hearing from customers about patients' propensity to trade up, I guess, to more premium lenses like the LAL, and to pay for the process overall?
Yeah. So, thank you, Patrick, for having us. You know, maybe I'll just start with an overview of cataract surgery. It's the most common surgical procedure overall, obviously the most common in ophthalmology. And about 5 million or so procedures in the US, being driven by aging demographics, which is going on worldwide, so growing kind of in the mid-single digits. And then, approximately, now, you know, 19 years ago, there was the development of what we now call the premium IOL market, which was a way that patients can pay an additional fee at the time of cataract surgery to reduce their dependence on spectacles or glasses after surgery.
And that segment of the market has grown from nothing to, you know, maybe 19%-20% overall of the market, but it represents, you know, the vast majority of the profit for practices. Because the reimbursed cataract surgery, the level of reimbursement has dropped over the last 30 years, but especially in the last 20 years, to, you know, approximately $550 per eye for the surgery, the preoperative and postoperative care associated with that. And that's a level which really doesn't pay for the physician's time or their staff time. So the only way that they...
Or a primary way that they've been able to augment their income is to move patients to the premium IOL space, where they have, again, this potential to reduce their dependence on spectacles. And that has grown, you know, not quickly, but it's grown steadily and continues to grow, in our view. Sometimes you have to be careful about how you define the market, depending on, because there are different segments of the premium market, with. But if you look at it holistically, we feel it's continued to grow and, you know, it's growing because, one, patients increasingly want to be free of glasses, technology has gotten better, we're obviously an example of that, and doctors are, and practices are highly incentivized economically to do so.
And so there's obviously been that penetration rate that's sort of ticked up over time, as you said, but U.S., we're kind of 19%-20%. To grow from here and to keep that penetration going, is that a function of things like the LAL converting more monofocal patients who would've, you know, into the, into the premium category? Because the... You know, not to comment on competitors, but, you know, the other lenses, the traditional trifocals, seem to have stalled out a little bit, whereas you guys have kept growing. Is, is it that added feature set for monofocal conversion that gets you there?
Well, we certainly believe that, and that's been our experience. You know, we do a survey, a customer survey every year. We've done it now for about three years. And in that survey, we ask doctors and optometrists and practice managers where the patients are coming from. And what they've told us consistently, anywhere from about 40%-45% of the patients over the three years that we've done the survey, is that that the LAL patients are coming from monofocal. About that percentage, 40%-45%, are coming from the monofocal. About a third are coming from toric or astigmatism-correcting IOL, and a little bit less than a third are coming from presbyopia-correcting IOLs. So we're drawing, obviously, from all segments of the market, and that's what I would anticipate clinically.
Because if you look at the cataract population, these are patients, again, who are generally, you know, 60 or above, and they have a fairly high percentage of eyes that will have some other ocular condition that makes them maybe not the best candidate for a presbyopia-correcting IOL. Up to 40% to 50% of patients will have some,
Yeah
... concurrent ocular condition that would generally, you know, it may not be a hard stop, but, you know, many or most ophthalmologists would tend to not put in a lens that's going to reduce their contrast vision or their visual quality, which the LAL, of course, does not do.
Makes sense. We obviously had a fun time last quarter, a bit of a rollercoaster, where the market got completely panicked that LDD placements would be below consensus and low, and then-
Yeah
... came in spectacularly above it. I get that there's a, you know, sometimes people can myopically overfocus on LDD placements, but how are you feeling about those? How do we think about those going forward and the implication for the business overall?
Yeah, I mean, Shelley jump in here, but you know, as of last quarter, I think we had 810, you know, so over 800 LDDs, primarily in the U.S. And but if you look at the, you know, where that is in the overall scheme of things, there are, you know, about 10,000 ophthalmologists who are doing cataract surgery. They're working out of multiple offices generally. So the number of, you know, actual geographic locations where they're seeing cataract patients, we don't really know what that number is. But our view is that, you know, wherever cataract patients are being seen, they should have access to the Light Adjustable Lens and therefore have an LDD.
So, you know, any way you measure it, whether, you know, that eight hundred and ten versus, you know, ten thousand surgeons, however many offices, you know, we've trained about fourteen hundred surgeons. We're early innings, and, you know, it's often difficult to predict exactly the rate of that adoption, but it's, you know, we would generally assume that it's gonna continue to rise.
And then, we've always talked about this being an awkward metric as well, but utilization as defined by LAL per LDD, which is especially on a given quarter, an awkward metric for many reasons. But that's obviously been picking up quite nicely. Maybe any color you've got on what you're seeing at the individual, like, doc and account level, like, the newer people who've come on board and the utilization of the LAL relative to, you know, some of the first-generation docs who are adopting it. Like, and how within the practice, like, I know that, you know, we remember the panel at ASCRS, and you have some docs, it's a very high proportion of their premium lenses. But what are you seeing kind of overall from a utilization standpoint?
Yeah. Maybe I'll let Shelley comment on it from a quantitative, and I can come back-
Yeah
... with some qualitative comments.
Yeah, I think that probably my answer is gonna be macro, you know, overall. But, we do look at our customers by cohorts of year of install of the LDD. And what's important to us and how we run the business is, if you're doing 10 today, we'd like you to do 12 tomorrow, right? And our goal is to get to 50% of the overall premium IOL market, right? But what we have seen in our cohorts is all the cohorts continue to grow, and they generally, you know, except for the newer installs, end up about the same number of LALs per LDD. And that's important, and that is really part of what our core business is, people in the field, increasing utilization.
But what we do see is, we don't really have enough data on 2024 yet, but if we go back to our 2023 customers, they get to the same level the previous customers were faster, right? Of course, they're not at necessarily the same, from a cohort viewpoint. Cohorts are pretty small, right? You know, from a statistical viewpoint. But that's what we want to see, and that's what we have seen. And it's very consistent with our goals to get to 50% first in our practices, and then of the overall premium IOL market. That takes time, but that's how you build it. And so we've been really pleased with that number. And as you said, it can vary quarter by quarter, right? Just depending on seasonality, how big your installed base was the previous quarter, et cetera.
But we've seen an overall upward trend, consistently over the last, you know, two and a half, three years.
The LAL+, as a new sort of item in the toolkit, I get that you guys are agnostic, given the pricing is identical to the LAL, and it's about a use case for patients. But how did that land in terms of with the customers, where you expected it to? Is it being used more or less than you expected, or about the same? Like, how did that land versus what your original expectations for the lens were?
I'd say we're very pleased with the reception that the LAL+... You know, we, as you know, in addition to asking, you know, business questions to our customers, we ask clinical and technical questions, and that was one of the most requested items from the technology was, we'd like to get a little bit more depth of focus, a little bit more near and intermediate. And you know, that's what the LAL+ does. It slightly extends the depth of focus, and doctors are reporting that... You know, we have a large Phase 4 study.
One of our doctors just reported their results, where it's delivering about a line to a line and a half additional near vision. Now, the LAL also delivers excellent vision at a range of distances, but with both eyes. But certainly, that's been seen as a benefit. Not all patients are going. You know, there's always trade-offs when you're dealing with optics. You don't get something for free, and so there's still some patients who are going to be LAL preferred, and it's gonna be up to the individual doctor, to the individual patient. And honestly, we don't, as you said, we don't. We're completely agnostic. We charge the same. We can make the lenses, they cost us the same to make.
We monitor how they're used, and it makes no difference. Just as the same as it doesn't make the difference of what power lens they put into the eye. You know, we're agnostic to that as well.
Makes sense. Obviously, you both went through the cap raise that you guys came to the market with, that went well. I mean, what, in your eyes, prompted the timing of that, and how are you thinking about using that money going forward? Particularly because I would argue, you're kind of at or approaching breakeven and probably a bit faster than some of us had expected. Like, what do you think you want to use that money for primarily?
Mm-hmm. Yeah, that's a good question. We raised, you know, net of fees and expenses, about $107 million. In the second quarter, we ended cash and cash equivalents at $233 million for the quarter. And if we look back in terms of timing of that, you know, the market was in pretty good shape then. It's been a bit more volatile since. And of course, you can't predict the future. We didn't know what was gonna happen, but it was stability in the market. Our stock price was increasing during that period of time, and pretty heftily so.
And we didn't know what the balance of the year was gonna be, particularly with the election coming up, but that seems to so far been a little bit less of a factor compared to everything else that's going on as well. So the timing was good, but also the reason for raising the money is that we felt, you know, at that point in time, we knew we have, you know, eight hundred plus LDDs installed. We're increasing our number of LALs. We ended the quarter at about 10% market share at the premium IOL market, and there's a point in time where we have enough visibility in the marketplace, you know, among ophthalmologists and also hopefully with customers as well. But we saw an opportunity to invest a bit more, because you don't want to over-invest too early, right?
You don't want to wait later. What we did say, you know, in our second quarter call, as well as the CMPO, back to that, we wanted to invest more in sales and marketing, and not necessarily feet on the street. We always add to that number every quarter, primarily clinical and training people. But we wanted to increase our marketing to optometrists as well, because they're a referral source, and there's 50,000 of them in the U.S. as well. Important to adoption is somebody introducing the idea of a premium IOL to a patient, and more specifically, in our case, the LAL. We want to do that. We want to put a little bit more money in R&D. We have a philosophy of continuous improvement on the product. You've seen that with over 40 PMA supplements.
And so the timing was right to do that, and the reason for doing it at that moment was it was a good time for investment. Would you add anything about the investments, Ron?
Yeah, and I'm sure- I think you'll probably get to this, but obviously we're also looking OUS to start to-
Mm-hmm
... start that process, and there's, you know, some costs associated with that as well.
Mm.
And that was yes.
Yes.
Yes, I mean, OUS, different kind of market, a lot of different dynamics in different countries. It's a big old world, and actually, cataracts, because of their very nature, a lot of the volumes, most of the volumes, by definition, are OUS. How are you thinking about where even to begin to tackle that opportunity? Because there's so many places you could start, and what the pros and cons of the different sort of approaches might look like.
I would start by saying, clinically, ophthalmology is more the same globally than different. I can go to an ophthalmic meeting anywhere in the world and feel very comfortable. I would also say that the U.S. market, although it's represents, you know, about, you know, I think it's, the overall, maybe it's about 15% or so.
Mm
... of the overall cataract market, maybe 25% of the premium cataract market. It's still a minority, but it's an important market because it's it still sets the pace for generally. Historically, there were some regulatory reasons why sometimes Europe would be ahead, but those have now almost reversed. And so you know, the U.S. Being successful in the U.S. is an important step to move internationally. And in Shelley and I's previous two companies, that was our approach as well: have penetrate the U.S. market to some level of success, and then leverage that internationally. And I think that'll play out here as well. You're right, every market, every country is different. There are...
You know, we do have the benefit that, the premium IOL industry now has been around for about 20 years, and so we've seen where premium IOLs have, had success. And if you look at, the market, you know, about 80% of the OUS premium IOLs are done in about 20 individual markets. Now, these are. You know, they're big countries and smaller countries, but they're, or I shouldn't say small countries, but medium-sized countries. And so, they're a varied group, but they're primarily located in Europe and Asia, in the developed or partially developed world. And, those are the countries that can, you know, afford, where they have patients who can afford, to pay, for this.
The systems are a little different, but, you know, within each system, people have figured out how to adopt premium IOLs, and for the same clinical advantages that we see here in the U.S., we anticipate that this will be similar OUS. Obviously, there's a regulatory hurdle that we have to get over, and, you know, and I'm sure that your audience has experienced this across different fields in medicine, that there's been a convergence of regulatory levels, requirements across the globe, and so it's, you know, it takes some effort, maybe not quite as much as an initial one in the U.S., but still significant, and we're working through those in, you know, the markets that have the highest potential.
Do we have a sense of potential timeline of what that could look like?
We're, you know, we haven't laid out. We'll start to lay out a timeline, I would say maybe, you know, into early part of next year. But it's a, you know, it's dependent on regulatory. There are a lot of attractive markets to us, and where exactly the regulatory hurdles fall will obviously influence that. But we see, you know, we see all of those markets as being approachable to our technology.
Maybe shifting gears to something a little shorter term. Q3, you know, and the balance of the year in general, how are you feeling it's shaping up relative to, you know, expectations from your end? Any changes in the market dynamics out of the summer is a little bit slower anyway, but the more sort of recent trends, I'd love to hear anything, any updates you have there.
Yeah, I can talk a little bit about numbers, and we can both talk about trends a little bit. You know, we do have very tight annual guidance at this point in time, $139-$140 million at the top line, 68%-70% in gross margin. And we also increased our OpEx guidance just a bit. You know, some of this relates to the reason we raised money in the CMPO, additional investments in sales and marketing and R&D. And I think if we think about the overall dynamics in the marketplace, you know, typically the first quarter and the third quarter tend to be seasonally, you know, more difficult. You know, they're a little lower, particularly the third quarter.
You know, just from both LDD placements, capital equipment overall in the market, as well as procedures, just because doctors are on vacation, patients are on vacation as well. And so we typically do see that. We did say, publicly, that we would grow sequentially from second to third quarter, on our last call, but it would be very nominal. And, you know, that's really based upon, one, the seasonality, but also, you know, a really great second quarter. We also had a really great first quarter as well. But the market dynamics, other than seasonality, you know, and Ron has talked about this before, have remained the same, right? You know, overall, our patient population, maybe Ron, you want to talk about that, is the wealthiest population. In the U.S., they control about two-thirds of the wealth, about...
You know, they're about a third of the population, they continue to grow, right? So the barriers to entry from an economic viewpoint, from a patient viewpoint, there's nothing that's recession-proof, but we're definitely recession-resistant just because of who, you know, we're selling to and doctors are selling to. And then, of course, as Ron talked about just a little bit earlier, doctors really need to offer premium IOLs to stabilize profits. They're not making it on their biggest procedure, which is cataract. Would you add anything to that, Ron?
You know, there is an internal control, and we've talked about this within ophthalmology, which is LASIK surgery or other refractive procedures that are done on a younger patient population, which are very much affected by financial cycle, the economic cycle. And we certainly hear that from our customers, that you know their LASIK volumes may be down, but that puts, you know, in a somewhat self-serving way, it puts the onus on driving more premium IOLs and more focus of their business. Because they want to build their business, you know, not on a cyclical procedure, but more on something that's going to be steady. And if you look at the cataract population, you know, it's not going away.
We're still at the beginning of the baby boomers entering into the cataract age. You know, the population after that didn't get any smaller, so you won't see maybe a huge spike, but it's very steady. People have reduced tolerance. You know, people are otherwise living longer and healthier lives, therefore, they want to have vision. And vision is incredibly important to not only their longevity, but also, their overall, you know, successful aging. If you look at... There was I mentioned this in our Q2 call, but I just attended another lecture on this. You know, probably the- besides hearing loss, vision loss is the number one input to...
The number one modifiable input for dementia risk.
Mm-hmm.
So it's, which affects, you know, a huge percentage of the population as it gets into its seventies and eighties. So I just think, you know, it prevents falls. There's just a lot of reasons why vision and, you know, now with Zoom and increasingly active lifestyles for people in their sixties, seventies, and eighties, they don't want to be burdened with glasses either. And so, there's more of a desire. And as Shelley pointed out, these are the people who have worked, you know, they've worked hard all their lives. They have the ability to pay.
There's going to be the largest transfer of wealth in the history of mankind going on over the next twenty years, and a good percentage of that, people are going to spend on themselves and on their, you know, overall health and well-being over their remaining twenty or thirty years.
With three small kids, I feel like it's currently, for me, the largest transfer of wealth in the history of mankind, directly there. They're not cheap. I mean, there's another trend in the market. It's very small at the moment, but to your point around aging and that side of things is, you know, refractive lens exchange and that side of things. And given you guys have a lens that is, dramatically, I would argue, lower rates of dysphotopsia in that side of things, and can remove some of the surgeon anxiety, I guess, about doing it in younger patients, is that a category that you'd expect to continue to see grow? Could it really become a more meaningfully sized category, or are just people gonna wait anyway to clinically intervene until later?
Well, we call that early cataract surgery, and, you know, because, you know, essentially everybody has a cataract over the age of forty. That's, you know, if you look histologically. And so, you know, when does that become symptomatic? Well, when I first started training, you know, we used to wait until the cataract got ripe. You know, what does that mean? You know, the definition keeps changing. The age that people are having coverage, the mean age continues to fall. It's lower for us than it is for... You know, if you look at one of our studies, you know, one of our post-marketing studies, typically it's around sixty, sixty-one. You know, typical cataract surgery might be sixty-four, sixty-five, so it's already younger.
And that's the mean. Obviously, there's a distribution. So, and then if you look at, and I think you very perceptively have identified the problem of doing early cataract surgery, for that patient population, is, they've got high expectations. You know, it's, you know, frankly, a lot of people in this room, myself included, are in that age group, and it's. You know, you don't want to give up quality of vision, for distance, and you want to have a high degree of certainty that you're not gonna require glasses afterwards.
And really, your choices are you could do LASIK or some other type of procedure, but if you do that, you know, you're gonna be facing cataract surgery over the next five to ten years anyway, and now you've made your cataract surgery a little bit more complicated by doing that. So would it make sense to do earlier cataract surgery? And there are a lot of doctors who feel that it could, and I think that that's expanding. It tends to be, you know, patients who are more well-heeled and can afford a premium lens. So we see that as continuing to grow, and we think that our technology is well suited to that earlier cataract surgery patient population.
You've both mentioned R&D and product development and that side of things over time. I'm curious, from an outside-in perspective, it sounds flippant. What is there to do in terms of, like, the lens is extremely well-tolerated, it gets great visual outcomes, there's very few complication rates? Sort of, is there? Like, what is the further development that could help spur that market? And then, I guess, connected to that, but ancillary, is the efforts from some people to try and make an accommodating IOL that doesn't require any kind of intervention.
Yeah.
You know, I'm thinking of, like, the Crystalens from years ago, and we remember the disaster with Crystalens. And whether that's ever something that's in your eyes likely to happen, or just the physics of it too difficult, so?
Yeah. So, you know, at the outset of your question was, you know, you're already pretty good, how are you going to be better? And you can say that about anything. You can say that about cataract. You know, the intraocular lens has been around now for 75 years, and there's been continued evolution, including us. And so we see this as just the beginning, of, you know, this. You know, if you think about, how much money we've been able to devote to R&D, it's grown over the last 10 years considerably versus what we were able to do before, because we're growing and we're able to. You know, we know more, we can do more. And it's part of our core culture, is to continue to move.
Shelley mentioned, you know, about 40 PMA supplements over since we got our first approval. That's, you know, a hectic pace. I don't know any other company that's been able to do that. And we, you know, we're able to do it because the technology allows it. It's a very flexible technology. It has... You know, when you add in the Light Delivery Device , we have now essentially multiple devices that we can improve upon and improve the procedure for the patient, and there's always room for improvement. And that, in fact, helps to drive adoption because, you know, there's always a reason why somebody has not adopted your product... and it's hard to predict exactly what that is.
Sometimes the person who's in that position doesn't know what it is. But at some point, they say, "Oh, okay, now I'm going to adopt this product." And, you know, for some people, it was, you know, when we first got onto the market. For some people, it was when we introduced ActiveShield, or some people, it was when we introduced LAL+. For some people, it was when we just recently got approval for a broader range of diopter powers. There's always a reason for the adoption curve, and we just want to continue to drive that so that we get to that greater than 50% adoption.
And it's also a reason why doctors and practices feel comfortable investing not only in the LDD, the capital equipment, but their team's knowledge, their clinical expertise in light postoperative light treatment. Because they see that, okay, the company is going to continue to upgrade my technology. They're going to continue to invest in this, and what I have today is going to be useful for many years to come. So that's an important feature. With respect to competing, you know, accommodating IOLs, just to level set, we're an adjustable intraocular lens, meaning that we can adjust the power, and then at some point, the power becomes fixed, and so then it does not change in real time.
An accommodating lens is able, theoretically, to change shape or location or move in the eye to be able to do what a young lens does, which is to focus at multiple distances and change that focal length in real time, which an artificial lens has not been able to do. That's been a holy grail in ophthalmology for about seventy-five years, and nobody's been able to do it. It's a complex problem because you know, if you look at the structures of the eye, they're incredibly delicate, and you know, you disrupt a lot of them when you do cataract surgery. So, is that to say that nobody will be able to do it?
No, I'm sure that eventually we'll have accommodating IOLs, but it's gonna take time. And at the end of the day, you know, the level of accommodation, so it's not zero and one, that you have accommodation or you don't have accommodation. You have. You know, if you're, if you ever, you know, you check out your three-year-old-
Mm.
They, they have a, you know, they can accommodate, you know, they can hold something up here, which you can't do at this point. And so your accommodation changes with age. So, you know, by the time you're 50, you might have, you know, a diopter. When you're 10, you have 20 diopters. So how much accommodation is an artificial lens going to give you, an accommodating IOL? And the likelihood is that it's gonna be a limited amount. You know, maybe, if we're lucky. The FDA requires one diopter. Nobody's been able to meet the FDA standard. So one diopter is a pretty small amount. You know, I'm 61. I have probably about a diopter. And you know, it, it's not enough.
Maybe somebody can get two or three diopters. The implicit limitation on that is that you have to hit the distance vision perfectly if you're only gonna have a very limited amount of accommodation. And so my view has always been that in order to do an accommodating IOL, you have to have an adjustable IOL first.
Makes sense. I think that's almost perfect timing, in fact. So Ron, Shelley, thank you so much. Thanks, everybody, for joining us. So appreciate it.
Thank you very much for having us.