2023-03-28 12:16:42 ET
Summary
- RxSight's innovative product, the Light Adjustable Lens, was launched in 2020 and managed to capture a 5% market share by late 2022.
- The market is expected to double in five years and international expansion is another significant long-term opportunity.
- RxSight is still generating losses, but gross margins are improving and the company is well-funded to continue to execute.
- RxSight looks well-positioned to disrupt the premium intraocular lens market.
RxSight's (RXST) innovative product - the RxSight Light Adjustable Lens ('LAL') system was launched in the United States in 2020 and it was able to capture 5% of the premium intraocular lens ('IOL') market by the end of 2022. Revenues in 2022 grew 117% to $49 million and there is room for continued strong growth in the following years.
The RxSight LAL is the first and only adjustable lens and it enables lifestyle verification with up to three refractive adjustments after cataract surgery followed by a final light treatment that "locks in" the correction and makes it permanent. The alternative to RxSight's LAL is a permanent adjustment after which the patient needs to either wear glasses if the outcome is suboptimal or undergo laser-assisted vision correction surgery.
This is a razor/razor blade business model where the company sells the Light Delivery Device ('LDD') to ophthalmic practices and Light Adjustable Lens ('LAL'), a premium intraocular lens for each procedure.
The company is also collecting real-world data that indicate its approach delivers superior outcomes with twice the number of eyes with 20/20 vision or better without glasses versus non-adjustable IOLs and with the vast majority of patients optimizing their vision without glasses using both eyes. Specifically, more than 90% of patients are able to see 20/20 at distance and more than 90% of patients are able to read a 5-point font which is usually used in footnotes.
The company's focus is on the premium IOL market that accounts for approximately 20% of all procedures in the United States and is currently estimated to be a $1 billion market in the United States and a $3.6 billion global market based on RxSight's current pricing. And the company estimates the global market will grow to over $7 billion by 2027.
Since this is a private pay market, there are some risks in the near term due to the worsening macro conditions, but the company says there is no impact to date.
As mentioned, revenues grew 117% in 2022 to $49 million and the company guided for $78 million to $83 million in revenues in 2023 which was above the $77.2 million consensus at the time and implies 59% to 69% growth over 2022. There is quite a bit of room for growth given the size of the addressable market and RxSight having just 5% market share at the end of 2022.
International expansion is also planned and the initial geographic areas of interest are Asia and Europe.
Gross margins are expected to improve from the low 40s to a range of 52% to 54% in 2023 thanks to the increasing revenue share of LALs that have a higher gross margin and we should see steady improvements as the business scales going forward.
The ingredients for strong share price performance in the medium term are strong execution with revenue growth and guidance that are exceeding Street expectations.
RxSight recently raised cash through a follow-on offering and it has more than two years of runway based on the recent quarterly burn rates but the burn rates will likely go down as the business scales in the following quarters.
The negatives and risks in the near term are poor market conditions and the market's potential lack of appreciation for loss-generating companies like RxSight. The company is in the early stages of growth and operating expenses this year are expected to be between $105 and $108 million, a 24% to 28% Y/Y increase, implying significant operating margin improvement considering the 59% to 69% revenue growth guidance. But this is still above total revenues and well above the expected gross profit for the year.
Conclusion
RxSight looks well-positioned to disrupt the premium IOL market, initially in the United States and around the world in the medium to long term. The company is still generating losses but the investments are necessary to drive market adoption and revenues should grow substantially in the following quarters while margins should improve as the business scales.
The key risks in the near term are macro headwinds that may lead to slower adoption and fewer premium procedures, and longer term, RxSight's success will attract competitors that may develop a similar or better product.
For further details see:
RxSight: Disrupting The Premium Intraocular Lens Market