Sight Sciences, Inc. (NASDAQ:SGHT) Q3 2023 Earnings Call Transcript

Sight Sciences, Inc. (NASDAQ:SGHT) Q3 2023 Earnings Call Transcript November 11, 2023

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Sight Sciences’ Third Quarter 2023 Earnings Results Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would like now to turn the conference over to your speaker today, Trip Taylor, Investor Relations. Please go ahead.

Philip Taylor: Thank you for participating in today’s call. Presenting today are Sight Sciences’ Co-Founder and Chief Executive Officer, Paul Badawi; Chief Financial Officer, Ali Bauerlein; and Chief Commercial Officer, Matt Link. Earlier today, Sight Sciences released financial results for the three months ended September 30, 2023. A copy of the press release is available on the company’s website at investors.sightsciences.com. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements within the meaning of the federal securities laws. Those include statements related to Sight Sciences anticipated financial performance and operating results, cost savings initiatives, market opportunity, business and product reimbursement strategy, clinical trial results and plans for developing and marketing new products.

Forward-looking statements are based on estimates and assumptions as of today, are neither promises nor guarantees and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements. A description of some of the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements on this call can be found in the Risk Factors section of the company’s public filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. On this call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including adjusted operating expenses.

The company believes these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. See the company’s earnings release for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. I will now turn the call over to Paul.

Paul Badawi: Thanks, Trip. Sight Sciences’ mission is to elevate the standard of care for Glaucoma and Dry Eye patients by providing eye doctors with market-leading interventional technologies focused on the preservation of sight and improving the quality of life for all patients. We are confident that we are redefining the glaucoma and dry eye treatment paradigms. To continue these efforts, currently, our main focus is on establishing, maintaining and enhancing market access to our innovative technologies and clinically effective procedures to ensure the best treatment options are available to all patients. Based on the clinical efficacy profile of our products, coupled with demonstrated integration into routine clinical practice, we strongly believe our Surgical Glaucoma products should continue to have broad reimbursed access.

Turning to discuss where we stand with market access in our Surgical Glaucoma segment. We were extremely disappointed with the final LCD that was published by WPS on October 26th that identified certain procedures as investigational in patients over the age of 18 for glaucoma management, including canaloplasty in combination with trabeculotomy ab interno to the procedural description WPS associated with OMNI. We strongly disagree with the LCD’s coverage limitations with respect to these procedures, and we are pursuing all remediation possibilities to maintain Medicare coverage in the states administered by WPS. We do not have any further updates at this time about the draft LCDs published by the other four MACs in June. If these proposed LCDs are implemented as currently drafted, many non-implantable MIGS technologies would be considered investigational and non-covered for Medicare beneficiaries in the states administered by these MACs. We believe coverage for OMNI is supported by a significant body of peer-reviewed clinical evidence, demonstrating consistent safety and efficacy, a broad FDA-cleared indication for use for IOP lowering in adults with POAG, primary open-angle glaucoma, and broad adoption by ophthalmic surgeons.

We strongly disagree with the LCD and are working tirelessly to prevent loss of coverage for canaloplasty in combination with trabeculotomy ab interno. With regard to our SION technology used for goniotomy procedures, we are seeking further clarity as to whether it falls within the coverage limitations of WPS’s final LCD as well as the other draft LCDs. GEMINI 2, a prospective multicenter study to obtain 36-month follow-up for patients treated in the original 12-month GEMINI study has been completed and favorable results demonstrate sustained IOP and medication reduction at 36 months for OMNI. These results have been submitted for peer-reviewed publication, and we expect that will be published in the coming months, which will add further long-term evidence of the safety and effectiveness for OMNI that we believe should meet WPS’s coverage requirements to be deemed medically necessary and reasonable.

Our position is that WPS should pause implementation of its final LCD and the other four MACs should institute a temporary hold on publishing additional future effective MIGS LCDs to allow for full consideration of multiple missing studies, pending studies for GEMINI 2 and IRIS Registry data as well as resolution of what we believe are material, substantive and procedural flaws in the WPS LCD and LCD process. As a result of the uncertainty in the reimbursement environment, we are also actively taking steps to protect our cash reserves and reduce our operating expenses while driving enhanced focus on our key strategic priorities. Separately, as part of our long-term market access strategy, back in May of this year, we applied to CMS to establish new procedure codes and assign them to new technology ambulatory payment classifications or new technology APCs for the unique multimodal and comprehensive interventional procedures enabled by our OMNI technology, which we call TCOR, our trabeculo canalicular outflow restoration.

New technology APC designation is provided by CMS to establish payment for facilities like hospitals and ASCs for procedures that are not fully and appropriately reported with existing codes. We believe the TCOR procedure falls squarely into this category. In our applications, we requested that CMS create three new C-codes to describe the stand-alone TCOR procedure and the TCOR procedure when performed in conjunction with routine or complex cataract surgery. We also requested that CMS assigned a stand-alone TCOR procedure and combination cataract TCOR procedures to new technology APCs consistent with the cost data and invoices provided to CMS associated with furnishing these procedures. We are awaiting feedback from CMS on our requests to establish new C-codes as part of the new technology APC designation process.

CMS issues these determinations on a rolling quarterly basis. In summary, we believe WPS should pause implementation and revise its final LCD. The other four MACs should stay their publication and revise future effective MIGS LCDs and CMS should create new C-codes to describe TCOR. While we do not control the timing or ultimate outcomes, we believe the evidence clearly and convincingly supports continued fair access to our OMNI technology for patients and providers. On other fronts, in one of the more exciting clinical developments for OMNI this year, we collaborated with Verana Health to leverage the AAO’s IRIS Registry to better understand the clinical value proposition of MIGS technologies in real-world settings on a very large scale. We believe this represents the most comprehensive MIGS data set ever assembled.

Verana Health compiled data from over 100,000 glaucoma patient eyes to evaluate long-term two year post-surgical outcomes for the three most commonly used FDA approved or cleared MIGS devices in the United States as well as cataract surgery alone. 9,000 of these eyes were treated with either OMNI, Hydrus Microstent or iStent Inject combined with cataract surgery. The remaining eyes received cataract surgery alone. The complete details of this study have been submitted and are under peer review by a top-tier journal. At the two year endpoint and in the full OMNI cohort of 428 patients and 541 eyes treated specifically with OMNI technology, the TCOR procedure delivered clinically and statistically significant improvements in mean IOP and medication reduction.

Moving to the larger cohort of all patients in the study receiving any of the MIGS interventions. At the two year endpoint, the TCOR procedure with OMNI technology delivered the numerically greatest IOP and medication reductions compared to Hydrus, iStent inject and cataract surgery alone. This study corroborates existing peer-reviewed literature and supports our thesis to technologies that enable comprehensive interventional procedures by targeting the underlying causes of disease in a minimally invasive manner, can deliver highly compelling long-term safety and efficacy outcomes for patients. This analysis developed from the independent IRIS data is extremely valuable, and we think it can help inform surgeons’ decision-making when considering treatment options for their glaucoma patients going forward.

We expect to continue our work with Verana Health to explore additional data sets to leverage the IRIS Registry to further validate the clinical efficacy of our technologies. Turning now to our Dry Eye business. Our TearCare technology can provide safe and effective procedural intervention for millions of patients suffering from meibomian gland disease. The traction generated by our controlled commercial launch in a cash pay environment is evidence of not only the technology’s market fit with our eye care provider customers, but also the consumer demand for interventional dry eye procedures, which address the root underlying cause of evaporative dry eye disease. With extensive clinical experience and feedback from the market, we believe this demand would accelerate with appropriate insurance reimbursement.

On our last call, we reviewed the top line success of our SAHARA RCT. Six month results were presented last month at the American Academy of Optometry’s Annual Meeting, and we also held an investor event last Friday at the American Academy of Ophthalmology meeting to review these results in more detail. The SAHARA trial achieved its primary objective six month endpoint, demonstrating the superiority of interventional eyelid procedures enabled by TearCare over Restasis, prescription eye drops and the improvement of tier breakup time or TBUT, at all measured time points, one week, one month, three months and six months. TBUT is a key measure of aqueous retention, tear stability and the tear film’s ability to protect the ocular surface. Patients receiving TearCare treatment exhibited statistically significant improvements in TBUT from baseline that increased from a 1.5 second improvement from baseline at one week to a 2.5 second improvement from baseline at six months.

TearCare and Restasis also delivered comparable clinically and statistically significant improvements at every time point measured in patient-reported outcomes measured by Ocular Surface Disease Index, or OSDI scores, the trial’s primary subjective endpoint. We believe the combination of clinical outcomes from this groundbreaking RCT and a rigorous budget impact model that demonstrates the compelling comparative health economic value of TearCare will together serve as the foundational building block to achieve fair market access for TearCare. We plan to begin payer discussions in early 2024 upon publication of the six months SAHARA clinical data and completion of our budget impact model. Although the reimbursement process requires considerable time, effort and investment, we are confident the results of our efforts can improve the lives of the millions of dry eye sufferers who lack access to effective MGD treatment.

We are happy to be leading the way for this important clinical cause and societal need. Our highest priorities for TearCare are market access execution, payer education and existing account support. As a result, we have scaled down dry eye commercial resources by approximately 50% to focus more on market access execution and the publication of additional clinical data from SAHARA such as the one year crossover data that we expect will further enhance our market access initiatives as we await market access wins. We expect Dry Eye sales in 2024 to be modest as we focus instead on building long-term value through market access and payer education throughout the year. In summary, at Sight Sciences, we create and commercialize interventional technologies and procedures that comprehensively address the underlying causes of eye disease.

We have produced substantial bodies of clinical evidence that demonstrate the clinical value of both our interventional TCOR glaucoma procedure with OMNI technology and interventional dry eye procedures with TearCare technology. Both procedures have demonstrated substantial potential to improve treatment paradigms and elevate the standards of care. As we work to maintain and achieve fair market access for both technologies, we are poised to positively impact millions of patients’ lives, while driving more profitable growth. I will now turn the call over to Ali to discuss our financials.

Ali Bauerlein: Thanks, Paul. Before I go into the third quarter financial results, I want to provide additional commentary on our cost reduction initiatives. As we announced in mid-October, we implemented a targeted plan intended to reduce operating expenses, improve cost efficiencies, better align our operating structure for long-term profitable growth and further extend our cash runway. We reduced our headcount by approximately 10% or 25 employees. Specifically, we reduced our commercial infrastructure and operating expenses within our Dry Eye business segment, including approximately half of our Dry Eye sales and marketing employees as we shift our commercial focus to market access, payer education and higher utilization with an existing account.

And secondly, we eliminated certain positions in the Surgical Glaucoma commercial support. Infrastructure deemed nonessential to continued Surgical Glaucoma, account penetration and revenue growth. In addition, we’ve reduced our operating expenses principally by implementing measures to limit marketing costs, primarily for TearCare, limiting general administrative costs and delaying replacement hires for certain roles. We estimate the workforce reductions alone will yield savings of approximately $7.9 million on an annualized basis. We also estimate that the other cost savings measures should yield SG&A savings of an additional $5 million on an annualized basis for total annualized savings of approximately $13 million, with such savings primarily being realized starting in 2024.

Lastly, given the additional reimbursement uncertainty in our industry, we are evaluating other cost reduction opportunities to extend our cash runway. As we have more material information to share, we will provide an update. Moving back to the third quarter. Total revenue for the third quarter was $20 million, representing 7% growth compared to the third quarter of 2022 and at the top end of the guidance range we provided mid-September. Surgical Glaucoma revenues for the third quarter were $18.4 million, up 8% versus the comparable period. Over 1,100 customers ordered Surgical Glaucoma products in the third quarter, up 16% compared to the third quarter of 2022, but down 2% from the record second quarter of 2023. Utilization of ordering accounts was relatively flat in the third quarter compared to the same period in the prior year, but down sequentially by approximately 10%.

While our customer retention remains strong, we believe we experienced lower utilization from ordering accounts and lower new account additions than expected, primarily as a result of the uncertainty resulting from the proposed LCDs and more pronounced summer seasonality. While this impact was higher in the areas covered by the five MACs, we saw an impact to utilization and ordering accounts across all geographic regions. Our Dry Eye revenues for the third quarter were $1.6 million, down 1% compared to the third quarter of 2022 and down 24% compared to the record second quarter of 2023. We believe the decline was primarily due to the evolution of our commercial strategy, which emphasizes driving higher utilization with an existing accounts as we focus on market access and more pronounced seasonality pattern.

For the third quarter of 2023, we had 318 active Dry Eye customers, over a 40% increase versus the third quarter of 2022. Additionally, we sold 5,090 Dry Eye treatment lids in the quarter and 8% increases versus the comparable period. While both of our core operating metrics for Dry Eye improved compared to the same period in the prior year, our total revenue was down 1%, primarily due to fewer new customers added in the period, which led to lower SmartHub revenue. Gross margin for the third quarter was 86.6% compared to 84.3% in the same period in the prior year. Our continued strong gross margin was due to improvement in both Surgical Glaucoma gross margin and Dry Eye gross margin. Surgical Glaucoma gross margin improved primarily due to manufacturing efficiencies generated because of higher production volumes, partially offset by lower average selling price due to product mix.

Dry Eye gross margin improved primarily due to lower manufacturing costs, an increase of higher gross margin SmartLids versus SmartHub and higher average selling price of SmartHub. Total operating expenses for the third quarter were $30.7 million, a decrease of 18% compared to $37.6 million in the third quarter of 2022. Adjusted operating expenses were $26.8 million for the third quarter, down from $33.3 million in the same period in the prior year and well below expectations of our average quarterly target of $30.5 million. The decrease in operating expenses in the comparable period was primarily driven by $3.6 million lower personnel-related expenses, including lower incentive-based commission expense of $1.9 million, mostly due to lower-than-expected revenue and $0.9 million of restructuring costs incurred in the third quarter of 2022 that did not repeat this quarter.

In addition, we incurred $1.2 million lower clinical trial costs in the third quarter compared to the same period in the prior year. R&D expenses were $4.2 million compared to $6.1 million in the third quarter of 2022. SG&A expenses were $26.5 million compared to $31.5 million in the comparable period in the prior year. Our loss from operations for the third quarter was $13.4 million compared to a loss of $21.8 million in the third quarter of 2022. Our net loss was $13 million or $0.27 per share in the quarter compared to a net loss of $22.2 million or $0.46 per share for the third quarter of 2022. We ended the quarter with $144.5 million of cash and cash equivalents and $35 million of long-term debt, excluding debt discounts and amortized debt issuance costs.

We used $10 million of cash in the quarter, representing continued operational discipline and a sequential improvement from $12.8 million cash used in the second quarter of 2023. Moving to guidance. We are withdrawing our full-year 2023 revenue and adjusted operating expense guidance due to the uncertainty caused by the final LCD published by WPS and the proposed LCDs issued by four other MACs. Due to the lower sales volume, we expect gross margin in the fourth quarter of 2023 to decrease sequentially as overhead cost per unit increased versus the prior period. However, we still expect gross margin in the fourth quarter of 2023 to increase compared to the same period in the prior year. We expect to record a cash restructuring charge of approximately $1.3 million in the fourth quarter of 2023 related to our reduction in force, consisting primarily of one-time employee severance and benefit contribution costs, which will be excluded from adjusted operating expenses.

We plan to continue to be prudent in our spend and identify additional cost reduction opportunities to extend our cash runway. Now I’ll turn it back to Paul for closing remarks.

Paul Badawi: Thanks, Ali. Our main priorities for maintaining reimbursement for OMNI and SION, creating new coding that specifically defines the comprehensive interventional procedure delivered by our OMNI technology, creating a pathway for TearCare reimbursement, optimizing our cost structure and protecting our cash reserves, all while maintaining long-term investments in core research and development projects for the Surgical Glaucoma and Dry Eye markets. Before we open the call for Q&A, I want to introduce Matt Link, our new Chief Commercial Officer. Matt is a highly talented medtech leader with a track record of success scaling a high-growth public medical device company predictably quarter-after-quarter. When Matt joined NuVasive, a disruptive orthopedics company that transform spine surgery, it had similar revenue to Sight Sciences today.

Matt methodically and persistently helped lead and scale NuVasive’s business over a decade to over $1 billion in revenue. We believe his market development experience with procedurally focused less invasive solutions utilizing disruptive technology that transforms spine surgery is exactly analogous to the procedural transformation of glaucoma and dry eye disease we have undertaken. He has already made a significant impact on our commercial strategy and execution rigor. His leadership will be crucial as we enter our next phase of growth. Matt will now join us for Q&A. Operator, please open the line for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions]. The first question comes from Margaret Kaczor with William Blair. Your line is open.

Margaret Kaczor: Hey, good afternoon guys. Thanks for taking the questions. Maybe just to start, at this point, I imagine you’ve had at least a few, if not many discussions, with your customers on the WPS update. So I was just curious if you can give us any sense on the distribution or discussions so far? How many people have indicated they’re willing to at least keep using OMNI for patients outside of Medicare? Or are they indicating kind of the other way around? Well, maybe, unfortunately, they’ll have to pull back on use until there’s a more firm reimbursement update?

Ali Bauerlein: Yes. I can start with that, Margaret, and Paul and Matt can join in as needed here. But I think this is a very dynamic environment that we’re in. And at this point, most of the industry is still trying to understand what is in that LCD, what does it mean, what are the nuances of coverage. So that is really what we’re seeing from surgeons at this point is. First of all, seeking to understand and then second of all, significant disappointment of the lack of coverage for canaloplasty. So those seem to be the most prominent factors that we’re hearing at this point, but it is very early since the LCDs have been published, and there is a lot of work being done to try and change course here from many parties.

Paul Badawi: Yes, Margaret, we were just completed the American Academy of Ophthalmology Annual Meeting, and I can just say that there was — there’s so much support from the surgical community. They’re passionate, committed, our OMNI customers who now for years have relied on OMNI to take care of their glaucoma patients. There is tremendous support from our surgeon community, from our societies, state societies, national societies. We’re all rallying behind this to get it to the right place and address these LCDs that would ultimately — if they go into effect, takeaway treatment options for glaucoma providers, taking care of glaucoma patients. Again, this is the leading cause of irreversible blindness. So we do need to get this right.

Margaret Kaczor: Okay. That’s helpful. And as a follow-up, I’m curious if you guys had any discussions with commercial payers either on these proposed MAC rules, the final WPS rule at this point, to give us a sense if maybe they would at least hold potential reimbursement changes should they try to copy what WPS had said? And maybe just kind of a similar question, how the society is kind of banded together and said, “Hey, here’s our game plan, here is how we can respond more strongly?” Thank you.

Paul Badawi: Yes. So Margaret, since the proposals, there has not been any change in commercial payer. Cigna — around the same time as the proposals Cigna was doing diligence on our clinical evidence and did arrive at a coverage — a positive coverage determination. So that’s one example in the interim over the past several months since we’ve been in this LCD process. There hasn’t been any change on the commercial side. Commercial payers will regularly go through their annual cycle to review coverage. Different payers, some have positive coverage for procedures performed at OMNI, some are silent on it. And none of those policies has changed as far as we know during this period. So far so good on the commercial front.

Margaret Kaczor: Great. Thank you guys. Appreciate it.

Paul Badawi: Thanks.

Operator: Please standby for the next question. The next question comes from Kallum Titchmarsh with Morgan Stanley. Your line is open.

Kallum Titchmarsh: Thanks guys. I just wondered, I know you touched on it briefly, whether you could spend some time talking about the steps you’re taking to remediate the current ruling with WPS and just maybe discuss the timelines on any appeals or similar processes here? And then I have one follow-up? Thanks.

Paul Badawi: Yes, Kallum, it’s a collective effort, as you can imagine. A number of different parties involved, a number of different activities, were working — we’re communicating with the MACs directly, with WPS, with the other four MACs. We’re working, communicating with CMS, we’re communicating with our national societies. We’re communicating with state societies, as you can imagine, with our very strong OMNI-surgeon customer base. We’re also working with one of our medical device associations — Medical Device Manufacturers Association, MDMA. So all stakeholders are aligned here. We feel like we’ve got tremendous support. We’ll be making our arguments to WPS, to the other MACs, as we’ve been doing. We’re going to continue to do that. And we’re very encouraged by how much support from all of those groups I just mentioned and how aligned we seem to be to get this to the right conclusion.

Kallum Titchmarsh: Okay. Great. And then maybe if you could just provide some color around the reorganized commercial teams? What’s changed here aside from the reduced headcount? And how are you thinking about the commercial teams in those regions with anticipated OMNI coverage removal? Because I know the focus of the company so far have been skewed towards the Dry Eye business? Thanks a lot.

Matt Link: Yes. This is Matt. Thanks for the question. Look, so — as Paul covered in the — and Ali in the prepared remarks, the reorg was really about restructuring the business and allowing us to be in a place for sustained growth moving forward, thinking less about infrastructure, really more focused on capacity and capability. And as you know, independent of the final LCD with WPS and the posted LCD, we have two businesses that are at very different stages. And so, focusing on the growth potential of the Surgical Glaucoma business, but as you heard in the ocular service and TearCare business, really looking at the environment, focusing on market access, we’re really working with our existing customers to understand and how best to support their efforts towards increasing utilization in the use of the TearCare product, as we’ve stated in response to a couple of different questions.

Obviously, with the LCD posted by WPS and the others pending, we’ll need to continue to reevaluate how to optimize our structure to respond to the current environment. But again, as Paul just covered, we’re very encouraged despite the circumstances that there’s a universal and overwhelming support from all the constituency covered from our individual providers, the academy, other national societies, state societies, and other surgical and trade organizations that recognize that — at least in the case of WPS, they’ve arrived at what we see and believe to be as a foundationally incorrect decision. And so we’re focused on working with those other constituents in collaboration to arrive at the right outcome and then turn back to our business and really focus on the scale and growth opportunities we see in front of us.

Kallum Titchmarsh: Very clear. Thanks very much.