Hello, everyone. I'm Robbie Marcus, the med tech analyst at JPMorgan. Happy to introduce our next presentation. Company is RxSight. I'm gonna bring up CEO Ron Kurtz, and then we'll do some Q&A. Ron.
Thank you very much, Robbie. Thank you for having us at the conference. These are forward-looking statements. RxSight is focused on growing the premium cataract surgery market, which is the most profitable segment of the highest volume surgical procedure in ophthalmology. Our strategy is based on delivering both better medicine for patients and better business results for doctors and practices, an approach that our team has used previously to build high margin, premium pay businesses in ophthalmology over the past 20 years. As we will discuss, RxSight's first-in-class Light Adjustable Lens, or LAL, delivers unparalleled visual results for patients and drives growth of premium pay procedures that are critical to the economic success of doctors and ophthalmic practices. As many of you know from Oops. Go ahead here.
Now as many of you know from personal experience, the conditions that lead to the need for glasses in the first half of life, such as myopia, hyperopia, and astigmatism, have been primarily linked to the cornea or the front surface of the eye, since this is the target of the surgical procedures like LASIK, which people can undergo to reduce their dependence on glasses or contact lenses. Around age 50, the conditions that affect the lens start to impact vision. First, the loss of lens flexibility initially leads to presbyopia, reducing a person's ability to see at near without glasses. Later, as the eye's natural lens loses transparency and becomes cataractous, vision is further impaired and can only be restored by surgical removal and replacement of the lens.
Cataract surgery is, in fact, one of the most common global procedures, with cataracts affecting most people to various degrees by the age of 60, and usually in both eyes. During cataract surgery, the cloudy or cataractous natural lens is removed and replaced with a plastic intraocular lens or IOL in nearly all cases. It is at this point that patients and doctors have to make a choice that will impact their vision for the rest of their lives. For the past 15 years, that choice has involved one of three types of non-adjustable IOLs. Most patients, about 80% in the U.S., receive a spherical monofocal lens, which provides good quality of vision, but requires most patients to wear glasses for best distance and near vision.
This option is primarily paid for by Medicare or insurance, which because of progressive reimbursement cuts means doctors receive only about $500 for performing the surgery and for providing all pre and post-operative care. The other two types of IOLs are termed premium or private pay because doctors are allowed to charge patients directly an additional fee to potentially reduce that patient's dependence on glasses. About half of the premium IOLs in the U.S. are so-called toric monofocal lenses, which provide patients who have astigmatism with somewhat reduced need for glasses than they otherwise would with a spherical IOL. Patients still require glasses for best distance and near vision.
In the U.S., doctors charge approximately $1,000-$2,000 per eye for placement of toric IOLs, which is in addition to the $500 they receive from Medicare. Multifocal lenses, which make up the other half of premium IOLs, provide patients with better near and intermediate vision without glasses, but are associated with reduced quality of vision compared to monofocal IOLs. In the U.S., doctors typically receive $2,000-$4,000 per eye in addition to Medicare reimbursement for placement of a multifocal IOL. A major problem with all three types of non-adjustable IOLs is that they force doctors and patients to make critical decisions before surgery when the person's vision is still affected by a cataract, and they really don't know what their priorities for vision will be after the cataract is removed.
For example, exactly how close do they wanna hold their phone, or how much will they be bothered by the glare and halos commonly seen with multifocal IOLs? Doctors are therefore forced to predict both the type and power of the IOL that will work best for a patient, which often leads to suboptimal outcomes after surgery when there's limited flexibility to address these issues, except by using glasses or undergoing a second surgical procedure like LASIK. For the past three years, a growing number of U.S. patients have been able to choose a new premium IOL, the first and only adjustable lens, or LAL, that empowers patients and doctors by enabling them to make important decisions after the cataract has been removed. The LAL surgical procedure is nearly identical to that of a spherical monofocal IOL with no special testing or alignments required.
Approximately two to three weeks after surgery, the patient returns to the office to undergo light treatments that customize the focusing power of the LAL to fit the patient's desired refraction. This is accomplished using the Light Delivery Device or LDD, which RxSight also manufactures and sells to doctors. After the light treatment, patients can test drive their vision at home and then return to undergo additional adjustments or make the prescription permanent with a final light treatment. The flexibility of this process empowers patients who might otherwise not be good premium IOL candidates. It also empowers doctors who might not perform LASIK, and therefore have been less able to offer premium IOLs in the past. The LAL enables superior clinical performance versus spherical monofocal, toric monofocal, and multifocal IOLs, since the patient and the doctor get more than one chance to deliver the desired visual results.
In our most recent reporting of a Phase IV real-world data collection at a large number of our customer sites, over 82% of eyes were 20/20 or better at distance without glasses, which is about twice the rate of any of the alternative non-adjustable IOLs. About 90% of patients choose to customize their vision in both eyes, with more than 90% of these able to see 20/20 at distance using both eyes without glasses, and over 90% also able to read five point font, which is typically this print size used for footnotes. Rates that are, again, much higher than those for non-adjustable lenses. The LAL also does not increase the rates of unwanted side effects such as glare and halo, which are common features of multifocal IOLs.
The better medicine features of the LAL technology are obvious to eye doctors who are increasingly choosing the Light Adjustable Lens for their loved ones and themselves. In our most recent customer survey, nearly 90% of doctors believe the LAL offers the highest quality of vision. Three-quarters would select the lens for their own eyes, and virtually all would recommend the lens to friends and family. Because the LAL delivers high-quality vision with less dependence on glasses, it is possible to offer it to a wide group of patients, including ones who are particularly discerning or have conditions that would make them less ideal candidates for multifocal IOLs. This has important implications for the LAL's better business features.
The most recent RxSight customer practice survey found that 40% of LAL eyes would have received a spherical monofocal IOL, thereby expanding the number of patients receiving a premium IOL in the practice. About 1/3 would have received a toric monofocal IOL, and about 28% a multifocal IOL. Taking into account these percentages and the relative pricing and costs for each IOL, each LAL implanted delivered nearly $1,700 in net additional revenue to the practice. Based on average utilization of the LAL in our practices, this translates into an average payback period of just nine months for the Light Delivery Device. Our commercial strategy is focused on building a large and durable infrastructure for LDD treatments at clinical practices that will then drive sustained growth of LAL utilization.
This starts with the sale of the Light Delivery Device to the practice, a process led by a dedicated LDD sales team. Our team of clinical, field, and customer service personnel then install, train, and prepare ASCs and practices to offer the LAL to patients and to perform LDD treatments. Working with these groups are our LAL account managers, who help build LAL utilization at practices by providing strategic, clinical, and marketing support. Since our initial introduction in the U.S. in 2020, and despite COVID, we have seen progressive growth in both our LDD installed base and LAL utilization. As we reported earlier this week, we saw record LDD and LAL sales in Q4 with outstanding results year-over-year and versus Q3. 2022 was an important year for RxSight, with a near doubling of our installed base of LDDs and tripling in the number of annual procedures.
Combined, this led to triple-digit revenue growth to just over $49 million. Our strategy for continued growth includes further penetration of the large U.S. market, where we currently have about a 5% share of premium procedures. The U.S. accounts for about 1/4 of the global market of premium IOL procedures and is still growing at about 12% CAGR, which is more than twice the rate of growth of the overall cataract market. In addition to our commercial efforts, we know from our experience at previous companies and at RxSight that continued technology advancements were also key to continued penetration of the market.
Since our initial FDA approval, we have successfully prosecuted over 20 PMA supplements, which in turn have enabled important technology advances, including ActiveShield, introduced at the end of 2021, the expansion of treatment ranges and IOL powers, and multiple other improvements that impact practice and manufacturing efficiencies. We believe there will be a strong global interest in the LAL as well and are starting to take steps outside the U.S. with our initial regulatory approval and sale in Canada, and evaluation of a number of attractive markets in Asia and Europe. Overall, the RxSight market opportunity is large, presenting a long runway for LAL sales growth.
There were an estimated 3.6 million global premium IOL procedures in 2022, with the number expected to double over the next five years, driven by higher overall cataract surgery volumes, progressive cuts to reimbursement for non-premium IOLs, and improved technology. At RxSight pricing, this translates into a TAM of over $7 billion in 2027. In summary, we believe RxSight is well-positioned to address this large market opportunity and to lead further growth of premium IOLs by delivering both better medicine in the form of superior visual outcomes that are customized to the patient and do not compromise quality, and better business by expanding the pool of premium patients with a scalable process that grows practice revenue and profits. By building a durable light treatment infrastructure, RxSight will drive sustained long-term high margin LAL procedural growth and shareholder value. Thank you very much.
Great. Maybe, we could start with the fourth quarter pre-announcement. You had a nice beat on the top line. How do we think about, you know, the LDD placements and the receptivity in the environment right now, and then also maybe talk to utilization, of account or doctors or however you can, size it for us of the LALs?
Thank you, Robbie. You were very pleased with our fourth quarter. It was the high point number of LDD sales. As Ron said earlier, we almost doubled our installed base from 206 at the end of 2021 to 400 at the end of 2022. The fourth quarter capped a very nice increase in our installed base. You know, importantly also, there were over 9,123 exactly IOLs implanted during the fourth quarter. One of the ways that the Street and we look at the, our LAL progression in terms of market penetration is the number of LALs per LDD performed in each quarter and on a monthly basis.
In the fourth quarter, it was 6.1, and that was the fourth quarter of 2021. We've seen progression each quarter. Since then, in the fourth quarter, we ended with 8.9 LALs per LDD performed in a monthly period. We look at it monthly, and importantly, what we see is all classes of our customers continue to grow. We look at it from the class of 2020, who was significantly impacted by COVID, 2021, who was less impacted, but nonetheless, and then more recently, the installs that we have had in 2022. What we see is all groups are growing and starting to converge on about the same averages.
Obviously, the 2022 accounts are a little behind the others, but we have seen, consistently in the last few quarters that these customers start with a higher number initially, and also they grow faster. That has contributed to the growth and the acceleration of the number of LALs per month during the year. There are a lot of reasons for that. We can have Ron talk about that a little bit, or we can go on to your next question.
No, go ahead. Go ahead.
I think it's interesting. You know, I think Shelley has given a good quantitative assessment. From a qualitative assessment, you know, there are a number of factors that really are driving that growth in utilization and ultimately driving LDD sales as well. The first is the clinical results and the dissemination of the quality of the results to a broader group of doctors and patients. We do that ourselves through large phase IV clinical studies, but we also just see word of mouth, both patient to patient and more commonly doctor to doctor. That has, you know, that obviously, makes people more confident when they acquire the technology to start more aggressively, as Shelley mentioned. The other factor is technology advancements.
You know, we introduced ActiveShield about a year ago, a little bit more than a year ago. That was a reduced the concern that doctors could have about non-compliance from patients, really made people more comfortable offering the technology to a broader number of patients. We continue to see the benefits of that, as well as other technology advances that we make. There's a, you know, the, we talk about an infrastructure of LDD treatment, and by that we mean not just the LDDs, but also just the clinical knowledge and the clinical expertise and the practice expertise in how to deliver that care efficiently.
That's something that, you know, we've learned with our initial customers, but we've also then disseminated that knowledge, with our, with every new group of customers, so that they can start more efficiently. We do that with, both our clinical trainers but also a relatively recent add to our commercial group, the LAL account managers. Those are folks who are incentivized, to grow, utilization specifically. They do that, you know, really by, looking at any potential roadblock to growth, in utilization and addressing that concern. Those are, I think are good underlying reasons.
You guys are very early in the launch and the adoption curve of the Light Adjustable technology. How do we think about the number of target accounts that might be out there? Of that, how do you think about the average utilization per account? I'm just trying to think about where you are today versus where you might be in the future.
Okay. Thank you, Robbie. That's a really good question. There are about 10,000 ophthalmologists who perform cataract surgery in the US today. Of those, probably 2,000-3,000 perform the bulk of the premium cataract surgeries, which numbered about 600,000 in 2022 and are expected to grow to about 1 million in the next five years. Those do the predominant amount of surgeries. Right now we have two opportunities. Obviously, you start where the procedures are and, you know, target those customers. We have about 400 of those. Also, you know, there's a great deal of room for expansion, not just among those practices, but among practices that are doing low volumes.
Perhaps they're not confident in their ability to use multifocals and deal with the side effects such as glare and halo, or also they don't have access to a LASIK suite. For the other products, the competing products, which we call fixed IOLs, the solution is, if the patient is no longer happy with the results that they got, you can do a little bit of LASIK surgery as well, and they would not want to refer that patient to another doctor as well. In our case, when a patient comes back in, they have an opportunity to participate in their own clinical care and determine what they want. Do you want to talk about that a little bit, Ron?
Yeah, I think that, you know, it's the idea of appealing to a broader class of patients. There are patients who right now are not a large fraction, only about 6%, 7%, 8% of the market is getting a presbyopia-correcting IOL. The vast majority of patients aren't doing that for reasons. Some of them are clinical reasons. The multifocal IOLs reduce quality of vision. They reduce contrast vision. A large fraction of the patients in this age group have already compromised visual quality due to ocular comorbidities, glaucoma, patients who are post-refractive, mild retinal disease. Those are really not candidates for traditional premium IOLs, presbyopia-correcting IOLs.
That represents, you know, probably 30%-40% of the population in this age group. Those patients can be great LAL patients. They can get the benefits of better vision. It also appeals to patients who, you know, wanna have control. This is the first lens where it's the patient driving the decision-making, literally, with their postoperative testing that's done, and then their decision, do I want a little change in one eye versus the other to give me better near or distance? That's, you know, is just very attractive to a group of folks.
The workflow is a little different than with other competitor IOLs. It's more one and done. Here there's a little more workflow difference in the physician office. What have you done to help minimize the changeover for physician practices? Do you think it's going smoothly?
I would, you know, take issue a little bit with the premise in that there's, you know, one and done, with a conventional, premium IOL. There's a lot. You know, those IOLs have been around for 15, 18 years now, and the field has figured out how to clinically optimize the issues that those lenses have. Multiple preoperative testing to try to be able to predict what the IOL power is. The, you know, intraoperative steps that people use to try to do that, extra intraoperative steps. Postoperative management, whether that's LASIK, which is a whole nother procedure, or handholding patients through a rocky postoperative course as they try to adapt to their new vision, with multifocal lenses.
If you look at, if you compare, you know, presbyopia-correcting IOLs to standard monofocal IOLs, there's a lot more chair time already with those. If you look at the LAL, yes, we do have some built-in additional visits. However, there are a number of things, just as those other technologies that we have figured out and our users have figured out to optimize the workflow. You know, an obvious thing was to do both, since most patients have cataract in both eyes, you know, and most doctors would typically separate cataract surgery a month or two in order to see the results in the first eye and then judge how did that patient react? Do I have to modify my surgical plan? Do I have to put a different IOL type in this other eye?
There's no reason to do that with an LAL. You're gonna adjust both eyes, and it's actually clinically superior to do them at the same time because both eyes work normally together. Typically, you know, people have the implants done if sometimes the same day, but usually a day or a week apart. Then they get on a schedule where both eyes are adjusted at the same time, you know, reducing the number of visits by about half. Then, just the within the clinic, and this is something that our clinical trainers and our LAL account managers do, just picking up all the efficiencies of the clinic. How do you know, simple things, how do you do a refraction on a patient with an LAL in an efficient manner?
How do you drive them to a decision point? How do you dilate them efficiently? Most of the work, 95% of the work is done by technical staff in the clinic, which is a scalable thing. It's not the doctor. Typically, more and more, it's not the MD that's doing the light treatments, which take about three to five minutes for both eyes. It's an optometrist that's already in the practice doing that and is already the one that's guiding that patient through their decision-making. You know, again, it's just to summarize, there's, you know, there's not as much of a difference as people think initially when they don't have the technology.
As they adopt the technology, they see the benefits, and they also see the efficiencies that they can actually adopt to make it, you know, as efficient or long-term, more efficient. As Shelly noted, you know, once you have this infrastructure in the clinic, you know, the doctor who was doing the high volume premium and, you know, who was able to leverage their selling skills, their clinical skills to be able to build a large premium practice, that now can be translated very easily to other doctors in the practice who may not have done a lot of premium, but now can tap into that infrastructure where they're essentially putting the lens in and then having that infrastructure do the treatments.
Questions in the room? In, in the premium segment, it's almost all cash pay out of pocket for the patient. With the market down a whole lot last year and, recession looming potentially in the U.S., how do you think the resiliency of the premium IOL market might hold up, versus other cash pay markets?
One of the unique things about our product is that it has significant advantages, even in a recessionary environment. First of all, you know, the patient population that's served by our practices is typically in the range of, you know, 60 to 70 years old. Those are folks who have had, you know, the opportunity to have a lot of equity in their homes, even though the market's down, they're still ahead, and they're in their peak years of earning or in terms of their net worth. This is compared to something like LASIK. You know, LASIK, a patient can put that surgery off. They can do it at 20, 30, 40 and work around the economics.
You do see a lot of the production or the number of procedures in LASIK is very highly tied to a recessionary period, and you've already seen them come down. In the case of a cataract surgery, the patient is going to need surgery no matter what. You know, their vision has become very bad. They can't see very well. Maybe they could put it off for a little bit. What happens is they're coming into the doctor's office, and even if they perceive that their only choice is to have a, you know, Medicare reimbursed procedure, the doctor can talk to them about other alternatives as well. In our case, you get superior visual outcomes. It is an easier procedure. You have, you know, better outcome, not just in terms of your ability to see a distance and near.
You participate in your own care, and you can decide what you want. The patient has some real advantages. We think that that provides us, nothing is recession-proof, but it is a patient population that's coming into the doctor's office no matter what. As far as the capital is concerned, doctors do have to buy our capital. We sell it for about $125,000. The most recent patient, you know, doctor survey showed that the payback is about 9 months.
With Medicare being cut consistently, another about 8.5% last year, expected another 8.5% this year, they're looking, practices are looking for a way to make money because the doctor only receives around $500 for all the preoperative and postoperative care for three months associated with the cataract surgery, but that also includes the actual surgery. You really do need a premium procedure and a premium practice to bolster the profitability. I think that we have some great economic arguments for both the practice as well as for the patient.
Shelly, if I look at the consensus numbers for 2023, there's a decent range from the high to the low, and I know we'll get the full guidance on the fourth quarter earnings call. Any preliminary thoughts you have heading into next year versus your jumping off point in fourth quarter we could think about?
Yeah. Thank you very much. You know, the fourth quarter is a great stepping off point for our 2023. While we don't, you know, as a policy talk about the street guidance, I think that when we look about what we're going to do in 2023 to grow the business, it's very similar to the blocking and tackling that we did in 2022. Ron, do you wanna talk about that a little bit, you know, the specifics of, you know, where we're focused at for business?
Yeah. It's very simple. I mean, it's, you know, in the U.S., it's placing LDDs, continuing to, you know, have that LDD sales force mature and penetrate that the existing market, and then to continue to grow utilization just as we've done, using all the tools that we have at hand.
Great. Maybe if I move down from the top line, down the P&L, you're clearly in investment mode, very fast growth, very big expansion phase. If we look 2 years out down the road, you know, how do we think about, you know, what a peak type of margin profile might look like for a company like RXST?
Yeah. That's a really good question because currently in the first three quarters of the year, our gross margin was 42%. Like most razor-razor blade models your capital equipment has a modest margin. In fact, we intend to improve that margin with an introduction, hopefully at the end of this year, with a lower cost to manufacture, Light Delivery Device. The biggest thing that drives margin is the mix between the LAL, which is the implantable, versus the piece of capital. Of course, that margin is much higher on the intraocular lens and continues to go down in terms of its cost over time, because most of that cost is fixed overhead for your clean rooms, your chemistry labs, things like that. The higher volume you build, the lower the cost.
What you see is in the fourth quarter, for instance, just extrapolating from the numbers that we did provide in our press release, over 55% of the revenue will come from the LAL versus a mix earlier in the year of about 50/50. That will continue to grow. One of our key things that we wanna do is continue to make each practice more successful, and that translates into the metric that you see, which is the number of LALs per LDD per month. If we go way out, you know, because we would never hold back LDD sales in order to manage margin. As you go back, you want your customers to continue to grow, be more productive, and ultimately, now I'm not saying the next couple of years, but ultimately, that would likely lead to a gross margin of about 80%.
What was the number you said?
80%. Way... You know, when you're very much dominant with your, IOL procedures.
If right now it's you have a good utilization per LDD, I think you said something like 8.
8.9 per month.
8.9 per month. How do I think about how many doctors are using each LDD? Is it one LDD per doctor? Is it one LDD per practice? Is there an ability to, you know, down the road to continue to leverage the amount of use of each LDD to drive more LAL adoption?
You wanna take that, Ron?
Sure. Yeah. It varies quite a lot. I mean, you know, typically, a practice will have a lead, premium IOL surgeon who's, for whatever reason, they're a LASIK surgeon. They've, you know, gotten adept at selling and performing premium procedures. That'll be the driving force in the acquisition of the LDD. You know, it's and it's also complicated by the fact that, you know, most practices or many practices have multiple offices. They may have more than one doctor, but they often have more than one office that are separated by enough, you know, to get different catchment areas, separated by enough to make it impractical for patients to drive to one central location. It's, it's, you know, it's a little bit more than one.
Do you have a number on that, Shelly?
I don't. Not exactly.
Yeah.
It's somewhere around one and a half or so. You know, that is something we look at.
That is an opportunity for growth.
Mm-hmm.
You know, we definitely look at, within a practice, and this is, you know, this is where, you know, the macro numbers really is less important than the individual practice level decision-making that our account managers do, where they look to see, okay, here's a doctor who could be doing more premium IOLs in this practice and leverage the infrastructure that's right there. They'll work with that doctor to get them to do a few cases, and then ultimately those can grow to a larger number. You don't need to have a lot of those to double the number of procedures that are being done in a practice.
That 8 per month, I imagine there's some doing well north of that and some doing well south of that. How do we think about where, let's say, your top quartile of users are? What can you do as an organization to get the bottom 75% to use it like the top 25%?
Why don't you take that, Ron?
It's, you know, it's a little misleading, again, looking at these macro numbers because it doesn't take into account practice differences. If you have a very large practice, they can be doing a small percentage of LAL, but still be doing a good volume, versus a small practice can be doing predominantly LAL and be doing a moderate volume, but, you know, relatively overall. We really need to look at it at an individual practice level, with our account managers who, you know, are incentivized based on growth within their territory.
It's, you know, it's, yes, we obviously would like to have, you know, we target higher volume practices who have the capacity to do more, but it's just as valuable for us to be able to move other people up that food chain.
Maybe the better way to ask the question is % of practices that are using LALs in the majority of their premium IOLs.
Yeah. It's, there are some, but it's the minority right now. More practices, you know, are, you know, as you see from the data that we did, they're continuing to offer other lenses because a lot of their patients are coming from the monofocal category. You know, more and more in practices, it's, you know, it offers significantly more benefits than a toric IOL. It's more expensive, but it's a... Again, this is a one-time cost for these patients. It's gonna last for 20, 30 years. You know, that oftentimes LAL oftentimes displaces toric IOLs in a practice.
Increasingly so as patients get, as doctors and patients get comfortable with the amount of near vision that they get with our solution, it's also taking over some share from presbyopia-correcting IOLs.
Ron, can I add one thing? You know, very excitedly, one of our customers told our Chief Commercial Officer, Eric Weinberg, last week that Most of the time, these LDD treatments are done by the staff, which would be an optometrist. In this case, this doctor likes to do it themselves. It's a quick touch point with the patient, and he excitedly said he did 42 light treatments in a day. The LDD treatment is not a barrier to adoption because you've got a lot of capacity in that.
All right. Any last questions? All right. Maybe we can end it there. We're about out of time. Thanks a lot.
Okay.
Appreciate it.
Thank you so much, Mark.