Good afternoon, everyone. Thanks for joining us on day two of the 24th Annual Needham Healthcare Conference. My name is David Saxon. I'm an analyst on the MedTech research team here at Needham & Company. With me today, we have the Sight Sciences team, including Paul Badawi and CFO Ali Bauerlein. This afternoon, we'll do a fireside chat. For those on the conference portal, there should be a box where you can submit questions. Alternatively, you can feel free to email me any questions you might have, and I'll try my best to fit them in. With that, Ali and Paul, thanks so much for joining us this afternoon. Maybe to just jump in, probably not surprising, we'll get to tariffs in a minute, but I wanted to actually start with a variation of the question we're asking all our companies this week.
The question is, do you think consensus is modeling the quarterly cadence correctly for 2025? I guess, has anything happened over the last couple of months that kind of gives you any more or less confidence in kind of hitting what the street's modeling from a cadence perspective?
Yeah, thanks, David. I can take that. Obviously, we're not going to be reiterating or updating our guidance today, just given where we are in the earnings cycle, and we do expect to report within the next few weeks. Just talking about our prior guidance, it called for a revenue of $70 million-$75 million, that included the expected impacts to the business associated with our surgical glaucoma segment, with the restriction on multiple MIGS done at the same time as a cataract procedure. It took into account our dry eye segment being flat at around $1 million in annual sales, so that when we receive those positive reimbursement policy or payment decisions, those will be upside to guidance. We do expect that we've set the bar appropriately for guidance.
In terms of cadence, we do expect kind of sequential improvements in our results throughout the year, with some seasonal impacts to the third quarter. Obviously, as we communicated on our prior call, we do expect Q1 to be a step down from Q4, associated with that being the full quarter impact of the multiple MIGS restrictions versus a half quarter impact in the fourth quarter of 2024. Because of that, also, Q4 should be our strongest recovery on a year-over-year comp basis, just because of the MIGS restrictions being fully lapped at that point. Obviously, there is a lot of moving parts. It is a dynamic MIGS environment right now, but we do feel like we are well positioned competitively, that we have a good understanding of the fundamental market dynamics, and that we provided upside in guidance on the dry eye side as we get some wind.
We feel like we're well positioned, and the street has kind of bracketed the revenue guidance that we gave, which seems appropriate.
Okay, great. Yeah, we'll touch on reimbursement in a bit, but obviously, tariffs have been a topic over the last week or so, or longer, I should say. Can you just remind us what is currently baked into guidance, and then how the most recent slate of tariffs, specifically for China as it relates to you, how might that impact Sight Sciences?
Yeah, obviously, this is a very dynamic situation as well, with the changes even today on the China tariffs going from the 54% tariff rate- 104% tariff rate. We do not give explicit gross margin guidance. Our last guidance is revenue and adjusted operating expense. We do not give either earnings or gross margin explicit guidance. However, as you mentioned, and as we discussed on our last earnings call, a significant portion of our Omni and SION products and certain TearCare System components are produced and assembled in a manufacturing facility in China. We do have China exposure in our supply chain. Obviously, that will have some impact to gross margin.
We do have some inventory pre-tariff that should mitigate that, at least in certainly the first quarter and into the second quarter, you'll start seeing some impact, but the larger impacts come in the third and the fourth quarter if these tariff environments continue. We are assessing the impact here and remediation and looking at what we can do here, both with our current partners and other partners, and what is the appropriate remediation, particularly because this is an escalating environment on the China side, and we are working to try and offset some of these costs through other business adjustments as well. Our plan is we'll provide an update on our next earnings call. I do want to note we have very strong gross margins in our business.
If you just look at our surgical glaucoma segment, our gross margins are in the 87 and change percentage points. It is very strong. We do have some room there. Of course, obviously, we would like to pay as minimal tariffs as possible. We will work to remediate this as much as possible, as quickly as we can, as many, many other companies are also looking to remediate.
Yeah. Okay. Maybe just a follow-up. I think you have a manufacturing partner in the U.S. Is that right? Okay.
Another U.S.-based manufacturer. Now, as we said on our prior call, at the 20% tariff level, it did not make sense to reconsider that. That is certainly an option we will be looking at there, as well as our manufacturing partner also has other locations that they manufacture at. We will consider all of those options when we look at what is the right solution for us here with our partners.
Okay. Just given some news or headlines around recession, are we in one? Are we going to be in one? Wanted to get your take. On the glaucoma side, you're exposed to older patients. On dry eye, you're kind of transitioning to be reimbursed from cash pay. What is your view on how a recession might impact the business and kind of underlying demand?
Yeah, I think we're relatively insulated there from the recession. Obviously, a strong majority of our business is covered by Medicare reimbursement or other third-party reimbursement on the surgical glaucoma side. On dry eye side, there is, obviously, it's a small portion of our total business at this point. The upside is really if we can establish reimbursement, which should minimize the out-of-pocket exposure to our patients. We think that those are minimal impacts to us. Certainly, the tariff impact is a much larger immediate impact to the business than potential recession influence.
I would just add to Ali's comments, David, glaucoma is a serious disease. It is the world's leading cause of irreversible blindness. Omni is chosen by glaucoma surgeons when efficacy is needed. Patients tend to listen to their ophthalmologist or optometrist as it relates to treatments. Being reimbursed and being a serious disease and the nature of the physician-patient relationship, I think, leads to a pretty insulated business on the glaucoma side. Dry eye today is cash pay. Obviously, cash pay businesses tend to be more impacted by a recession. We are working on reimbursement, obviously, and we are making great progress. We expect coverage policy wins this year, given that we are treating interventional procedures for dry eye will be first leveraged in moderate to advanced patients coupled with reimbursement. I think that tailwind would certainly outweigh any copay headwind in a recessionary environment.
Okay, great. All right, let's get into the portfolio. We'll start with the surgical glaucoma side. I'm going to start with a set of mainly reimbursement-related questions. We are about five months post the LCDs being implemented. Can you just remind us what your estimated exposure was to stent procedures in 2024?
Sure, happy to. When we look at the claims data for MIGS procedures, we see there was approximately 350,000 MIGS claims billed. Out of that, there's about 300,000 patient visits. There's about 50,000 or 15% of claims billed that under this new LCD restrictions would not be allowed. Obviously, some portion of that, it's five of seven max. It's not all max, so that won't go to zero. Commercial plans also can have some level of it. At broad strokes, 50,000 or 15% is the market headwind associated with the MIGS restrictions. We estimate our impact to be slightly higher than that, 20%-25%, just looking at the combination of how our product has been used in the market. Obviously, it is important to remember that in a one MIGS world, efficacy is very important.
Omni has a very strong efficacy profile and addresses multiple areas of resistance. That is important for clinicians. We have seen good success in messaging that to win as many of these procedure volumes as possible.
Okay. I guess just on that last point, what is baked into kind of the portion of the stent procedures that you win over? What's assumed in guidance?
Yeah, we have assumed we win our fair share, which we kind of define as about 50% of the procedures, that we are winning about half. Obviously, we are trying to win more than that, but that is kind of what is inherent in guidance.
Okay. It sounds like Alcon is gathering data to submit to try to appeal the LCD. Are you working on anything similar? I guess, is there a collective response from industry?
There's a lot of interest, as you can imagine, in the ophthalmic community maintaining that flexibility to offer patients what the surgeon believes they need. Yeah, we're aware of a number of different efforts. Canaloplasty and stent, often with Omni, is a common combination. Data is being collected there. Some of that data does include Omni. We're aware of that. We've spoken with a number of our Omni surgeons who are also collecting combination data. We'll see how robust the combination data is today and what is needed. I suspect over time, if there's sufficient rigor in the long-term clinical data showing that multiple procedures is better than a single procedure, this could return.
Okay. All right. Right now, from a combination perspective, there's a code for combo cataract with a stent. At AAO last year, we heard that there will be new coding introduced for the combo with canaloplasty and combo with goniotomy. I guess, what have you heard on that topic and what's the expected timeline?
Yeah, this is something that's always the case. If you reach a threshold of more than 75% of claims being done in combination with each other, they will look to establish a combination code reflecting that joint procedure. That, of course, happened many years ago or a few years ago with the stent codes. We haven't heard a specific timeline, but I think this change that we've seen in the LCD restrictions will get to the point where both canaloplasty and goniotomy reach that threshold in combination with cataract. One of the reasons they haven't, even though what we call standalone procedures for canaloplasty and goniotomy are still a fraction of the market, 10% or so of the market are done on a standalone basis.
The reason you haven't seen that 75% threshold triggered is because a portion of the time those have been billed in combination with a stent and cataract. Now, of course, that code combination is restricted in five of seven max. It would not be surprising that now the 75% threshold would be triggered as they start to evaluate 2025 codes, which would be probably 2027 implementation. Again, we haven't heard any specific timelines here. Obviously, we're focused on optimizing reimbursement to reflect the value of the Omni procedure. We'll continue to evaluate this as things move forward. This likely will happen at some point. It's just a matter of time.
Okay. All right. Maybe we'll switch gears to utilization. So can you just talk about the trends you're seeing with Omni, trying as best you can, at least, to exclude the impacts of the LCDs?
Yeah. I think our team's doing a great job getting into our accounts ever since the finalization of the LCDs, as the requirement to transition from stent procedures to a single procedure. Team's done a great job reminding surgeons about the comprehensive nature of Omni, the fact that it can treat all three points of resistance in the diseased outflow pathway. It's unique in that regard. The fact that it can, through a single incision, provide surgical access to all 360 degrees of Schlemm's canal. It's unique in that regard. If you have to choose one MIGS procedure in a one MIGS world, Omni's your choice. As Ali mentioned, we are indeed winning our fair share. In terms of procedural selection, we think about safety, efficacy, usability, professional fees, and facility fees. Omni does well across the board.
We're going in there and into all of our accounts and reminding our surgeons that Omni's their choice and our team's doing a great job.
Okay. Maybe how about ordering facilities? How's the sales team doing with engaging new reps to either drive deeper penetration among docs who aren't doing procedures, but also kind of trying to win share?
Yeah. At a high level, I think we're doing a good job with this transition here of maintaining accounts and making sure that surgeons continue to use Omni for the appropriate patients within their population. In terms of growing that patient pool, I think that's something that will take quarters. Obviously, every quarter, we add new surgeons and train new surgeons.
Really, this education effort is ongoing to make sure people understand how Omni fits into the overall treatment paradigm and driving awareness, both in combination cataract and the fact that there are still many combination cataract patients that have glaucoma that are not receiving a MIGS treatment at the time of cataract surgery, as well as the standalone market opportunity, and in particular, the pseudophakic standalone market opportunity that we've identified as a high unmet clinical need when patients are continuing to worsen and they're multiple years out from their cataract procedure.
Okay. I guess from a market perspective, where do you think MIGS penetration is at this point?
Yeah, I think we're still, obviously, it's hard to know exactly where we're at. The estimates are there are about 1 million cataract procedures done per year on glaucoma patients. If we say there are about 300,000 MIGS visits, obviously, a portion of those are standalone procedures. Just for high-level math, you're still a fraction of it. You have a couple hundred thousand of additional kind of advanced glaucoma procedures being done per year. There's still a large number of patients that may benefit from a MIGS procedure that aren't getting it in that combination space. Standalone, we are absolutely in the early stages here. We're still working with the surgeon community.
We've had some good success at AGS earlier this year and at upcoming the ASCRS conference events planned to really help engage with the surgeon community on these patients that have an opportunity to see much better outcomes by receiving a MIGS procedure instead of just another medication on top of what they've already received.
Okay. One thing we've heard at a lot of the industry conferences over the last couple of years is this whole interventional mindset, IG kind of, I think how they're branding it. It seems like to me, at least, that that kind of framework and mindset would help the device MIGS company. How are you thinking of that trend as it relates to Sight?
Significant. I think it's very meaningful. I think that's what has to happen. Standalone MIGS with Omni, the data is there. It's clear. It's a great solution to intervene earlier with Omni with a comprehensive procedure before a patient advances to the point where they need a highly invasive and complication-prone solution. The interventional mindset is what has to happen throughout the ophthalmic community. That's both within the surgeon community as well as the referring provider community. It is happening now, and there's multiple players in this space. There's multiple new technologies, and it's kind of groundswell of thinking to intervene earlier, whether that's with procedural pharmaceuticals, whether that's with SLT or more accessible SLT, with direct SLT as an example.
We believe all of these technologies are great to help educate the ophthalmic community around interventions and the fact that intervening earlier is better for this chronic lifelong disease to help delay the progression and help avoid the need for a patient to ever get to an invasive alternative. It is one of those, I think, the tailwind of an interventional glaucoma mindset will far outweigh any individual competitive headwind from this technology or that technology. We are excited about it. We have obviously been working on it. It felt like solo for a number of years, and we are just happy to see other players in the interventional glaucoma space and the standalone space trying to educate the broad ophthalmic community on the benefits of procedural intervention as opposed to daily pharmaceutical intervention.
Okay. I know kind of the workhorse is Omni, but I wanted to touch on SION. How is that product doing? How is it helping penetrate the market where it might be harder for Omni? I guess the second part of the question is maybe it was a year or so ago, you said SION was like mid-single digits, millions. Is that still a good way to think about the size of that product, or has it grown?
Yeah, sure. SION was always designed to be a complementary product to Omni, really targeting surgeons that were looking for something that was a more straightforward procedure and for patients who did not need that comprehensive efficacy that Omni delivers. It is still in that same general range of revenue, so it has not materially changed. Obviously, there also were questions around goniotomy and LCDs, and now we have the similar restrictions on goniotomy plus stents as we do canaloplasty plus stents. We do see this as an important part of the treatment paradigm, and it is a good entry way for doctors looking to start doing some canal-based procedures, but not yet ready to do an Omni procedure.
Okay. All right. Maybe a couple on the competitive landscape, and then we'll get into the pipeline. Obviously, there's been a drug-eluting launch, I guess it was earlier in 2024. Has that caused any disruption in kind of the core MIGS market that you can tell?
We think, again, whether there's a second drug-eluting stent, drug-eluting solution, there was an initial one from Allergan. We view these as all great alternatives to daily pharma. That's a problem that needs to change. I, again, view these companies and new technologies that are helping to educate the ophthalmic community on interventional glaucoma, whether that's with a drug-eluting stent or a direct SLT, that's helpful. I think it's creating a tailwind. I don't think we're bumping up in competitive. These are large markets. The combo cataract market, as Ali had mentioned, maybe 30%-40% penetrated. There's plenty of runway there. The standalone market is a multiple of that and is highly unpenetrated. We don't view these, not anytime soon, as being directly competitive.
I do think it's net-net helpful that everyone is trying to educate on the benefits of earlier intervention with any of these solutions, whether that's MIGS, whether that's laser, or procedural pharmaceutical.
Of course, just to clarify.
Those can be done in combination with Omni or stents or goniotomy. There are not restrictions from a coverage perspective of whether those can be combined. We have seen also doctors choosing to do MIGS alongside those drug-eluting products.
Okay. Just on the pipeline and maybe taking a different angle on this, the Alcon IP dispute, I think it centers around canalicular scaffold products and IP. Is that correct? I mean, I guess that implies you have something in the pipeline. When could we see that product hit the market?
Yeah, we do. We're working on it. We're excited about our helical canalicular scaffold as well as other pipeline in the glaucoma space. I think we'll be talking in greater detail soon. We'd like to get ideally into humans when we can. We'll be excited to share a lot more about them.
Okay. Outside of that, what else do you have in the pipeline on the glaucoma side?
Yeah. We are active, obviously, with the scaffold and other MIGS interventions, as well as an exciting sustained-release technology platform. Again, as we approach getting into humans, we will be excited to share more on those solutions.
Okay. All right. Let's maybe talk a little about dry eye. Maybe can you just start with a broad overview of where you are, what Sahara is, and then what you've done over the last couple of quarters to transition the business to be reimbursed and kind of leverage that Sahara data?
Yeah. We're super excited about the state of TearCare today, 2025. It's TearCare's year. We've worked for many years to get to this point. Years ago, we determined that patients needed access to reimbursed interventional treatments like TearCare, that the market of procedural interventions for meibomian gland disease or evaporative dry eye is primarily cash pay. That's a problem. We spoke with payers, a number of different payers, and said, "Look, we have this technology. It works. Doctors, ophthalmologists, optometrists love to use it. Patients love the results. It's cash pay today. It needs to be reimbursed. You're paying all this money for costly prescription Rx that doesn't necessarily address the root underlying cause of disease, like TearCare does in terms of actually addressing the obstructed meibomian glands. What clinical data do you need to see that will support coverage for TearCare?" That is the Sahara trial.
The blueprint was designed in collaboration discussion with payers. They wanted to see ideally superiority to the standard of care, which is the prescription therapeutic Restasis. We showed superiority in our primary science endpoint at six months. That's TearCare versus twice daily, six months of compliant Restasis use. At 12 months, we showed if you cross patients over from Restasis to TearCare, give them a single treatment, they continue to show clinically and statistically significant improvements in all signs and all symptoms at 12 months. Lastly, payers wanted to see what's the durability of treatment effect of TearCare.
If we decide to cover it, paying for one treatment a year, two treatments, three treatments, based on the 65,000-plus cash pay cases we've done today and the 1,500 or so installs we've made and trainings, we know that the average patient requires one to two TearCare treatments per year. We've completed the 24-month. We've submitted it for publication. It should be published this year. With all of that, with the Sahara RCT, as well as additional studies, both prospective and retrospective studies that have been peer-reviewed published, coupled with a budget impact analysis that talks about the health economic benefits of TearCare that has now also been published, a cost utility analysis, which has been submitted and will be published this year, we're taking all of that together and working with payers and speaking with their medical directors and working on coverage policies.
We've stated that we expect coverage policies in 2025. Those conversations, which are progressing nicely, are underway. In parallel with that, David, we're working with our top dry eye customers who are true believers in TearCare, and they've seen it in their own hands with their own patients, how effective it is. We are ensuring that they're able to submit claims while we're having coverage policy conversations at the medical director level. Customers are submitting claims to these same payers, demonstrating the unmet need that I did at TearCare. This patient was not doing well on everything else we tried. We did TearCare. It needs to be reimbursed. Those claims are going in parallel. We're making good progress in terms of claims getting paid with a number of different payers. We'll just keep advancing these efforts in parallel.
We are confident that 2025 is the year and we should see some coverage policy wins. We think that this category, we can create a very significant and necessary category in eye care with interventional dry eye. It should be a multi-billion-dollar category. There are tens of millions of patients that need to have access to a reimbursed interventional procedure like TearCare.
Okay. There were some, in the fourth quarter, there were some TearCare volume shifts under legacy contracts, which kind of skewed the ASP math following the price increase October 1. My math is, I'm coming around like 50-60 cases were shipped under the new ASP. I'd assume those are all being used in reimbursed cases. Is that the right ballpark? Or are the volumes that were being shipped under the legacy contracts, are those also being used in some reimbursed procedures?
Yeah. Those are really for cash pay purposes, the reimbursed volume. That's relatively close. It's a little light. The ASP, that list price was $1,200. ASP was more like $1,000. So slightly higher under that new pricing than the 50-60. In general, yes, those are the claims that we are working with targeted KOLs to get submitted to show patient interest and have the right conversations with payers around why they should be reimbursing for the TearCare procedure. Yeah.
Okay. And then we'll just fast forward. You get some coverage policies. I guess what does the adoption curve look like in kind of the months following that? Why wouldn't most or all of the accounts in that region treating those covered patients kind of adopt fairly quickly?
Yeah, I think it's a great question. Frankly, I think we're in a great position based on what we've already built on the cash pay side of the business with 1,500 accounts already trained on TearCare, done 65,000 cash procedures. We also have a level of commercial infrastructure already built into our P&L. We can really hit the ground running with reimbursement wins. Now, we have to see what the sizes of those wins and what areas, how does that layer versus our current accounts and the team that we have built. We will certainly leverage that quickly. That's why we didn't bake this into guidance. We said, as we get a win, then we can have the conversation of what that means in terms of revenue opportunity for the companies. I do think your point is fair.
We have a great opportunity in front of us that with a win, we can leverage what we've already built and what we've already invested to be able to have a fast start with these accounts.
David, just to add, it's a really interesting model. We're looking forward to getting a policy win so that people start building out their models like we have. But TearCare reimbursed has the appeal of a procedural intervention and the efficacy that goes with procedural intervention to addressing the root underlying cause of disease, procedural economics, and the incentive to perform these procedures, which is not the case with prescription pharma. Yet the procedure, like a MIGS, this one is being done in the office. It's got that high volume in-office procedure profile. Unlike glaucoma or MIGS, where you'll do a glaucoma surgery and hopefully the patient's going to be good for five years plus, in this case, it's likely to be one to two treatments per year.
It is kind of like the dental model of eye care, where the patients do well for a period of time, but they need to come back and get a retreatment. It is a very interesting model that I think people are going to pay a lot of attention to the minute we get our first important coverage policy win.
David, just to expand on that, the rate of reimbursement is obviously really important. Also, what's just the coverage density? How many covered lives? How easy is it for providers to identify the patients that could qualify for it? Is it a needle in the haystack, or do we have enough coverage that it's easier for them to find and prescribe the TearCare treatment? The more wins we have, the easier that will get over time.
Okay. Maybe just a question on the comment around rate of reimbursement. I've done some checks, and I get a number, and I don't want to put you on the spot now. In terms of the variability around the rate of reimbursement, is it fairly consistent, or are you seeing payers come in kind of all over the place?
There is a rate of variability in what we're seeing. We are seeing more and more consistency, particularly with a handful of payers that are really understanding the economics and what we're looking for. There is always variability early in this process. I think we're in a good spot, and we have a good path forward here.
Yeah. David, I think that's typical when you're starting off from scratch with a number of different payers who understand the technology and the treatment and the clinical outcomes differently, and you're just starting to educate them. It can be all over the place. Over time, the important thing is over time, it starts to tighten up, and you start to see positive trends. I think it's early, David, that that's starting to happen.
Okay. All right. Maybe just we'll close out with a couple of financial-related questions. Gross margins, obviously really strong, high 1980, despite the LCD turmoil and disruption and then also the dry eye transition. We'll get more of that in 2025, and maybe there's some tariff impact incremental to that. How should investors think about gross margins this year and going forward? At this point, maybe we'll just exclude the tariff stuff.
Yeah. I think that's probably fair given the environment. We do think that the surgical glaucoma, we have really market-leading gross margins there in the business, and we expect we can maintain that in the business. On the dry eye, I think there's a huge opportunity for us to materially expand those gross margin profiles as we get volume and as we see these higher ASPs and reimbursement rates roll into the model. I think we are well-positioned on the gross margin side. Obviously, the tariffs are the biggest variable here, but we will work very hard to offset these and look for other solutions. Remember, because our gross margin is so high, that also means the product cost is relatively small, and the tariff is only on the product BOM cost, not on the overhead portion of this cost.
Certainly, as we get into earnings, we'll provide more details there of how people should really think about that tariff impact, especially as we get more details on what these actually will be.
Okay. Great. Maybe just with the last minute, anything you'd like to close with or leave investors with?
I'll just say one thing, and Ali, you can add. We're excited. We're working to build a leading interventional eye care company. We have two leading interventional technologies and two of the biggest unmet needs in eye care, both glaucoma and evaporative dry eye disease with Omni and TearCare. Both of those technologies and products have exciting growth opportunities. Omni's got a solid combo cataract business, and there is a tremendous standalone market development opportunity, especially with the interventional glaucoma mindset increasing. That is very exciting. TearCare with reimbursement is another significant market development opportunity that we have in front of us. We have a rich pipeline of additional interventional technologies in these two categories that we're excited to start sharing more details with in due course. Those are my thoughts. Ali, anything else to add?
You hit it. Yeah. Thanks, David.
Great. All right. Yeah. Paul and Ali, thanks so much for joining us this year again. Thanks to everyone who tuned in.
Appreciate it. Thank you all.
Great.