Sight Sciences, Inc. Q2 FY2022 Earnings Call

Hello and welcome to the Sight Sciences' Second Quarter 2022 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn the call over to Mr. Philip Taylor, Investor Relations. Please go ahead, sir.

Thank you for participating in today's call. Presenting today are Sight Sciences Co-Founder and Chief Executive Officer, Paul Badawi; and Chief Financial Officer, Jesse Selnick. Earlier today Sight Sciences released financial results for the three months ended June 30th, 2022. A copy of the press release is available on the company's website at investors.sightsciences.com. I'd 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, market opportunity, the future impact of COVID-19 on operations, business strategy, and plans for developing and marketing new products. Forward-looking statements are based on estimates and assumptions as of today and 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 annual report on Form 10-K filed March 24th, 2022, and other 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. For more information, please refer to the forward-looking statement notices and risk factors in the recent SEC filings. I will now turn the call over to Paul.

Thank you, Trip, and thank you all for joining us. Our second quarter 2022 performance was strong across the organization. Revenue increased to $17.2 million, representing 37% growth year-over-year and 16% sequentially. Our total gross margin increased to 84% in the second quarter, up from 82% in the prior year period. Surgical glaucoma revenue grew 33% year-over-year and 15% sequentially to $15.9 million, while dry eye revenues grew to $1.3 million, up 143% year-over-year and 32% sequentially. We are pleased with our execution across both businesses and are encouraged by the leading indicators to support further market penetration and expansion. A year out from our IPO, it is readily apparent that we have steadily emerged as the market leader in MIGS. Our analysis indicates that OMNI's growth continues to outpace that of other MIGS products. We intend to extend our lead over the coming quarters and years both with continued share growth and market expansion. We remain in a favorable position with over $200 million of cash on our balance sheet to fund our strategic initiatives and growth plans. Since our IPO, external factors across the MIGS market and the global economy have changed the operating environment significantly. In response, we have fine-tuned our strategic and operational plans to help us thrive in today's evolved market and ensure our long-term success. My remarks today will focus on these topics. Jesse will then discuss how we believe our growth trajectory and disciplined expense management will facilitate our path to profitability over the medium-term while maintaining a very comfortable liquidity position. I'll now move on to our two strategic growth initiatives in surgical glaucoma. One, increasing adoption and utilization of OMNI in the established combo cataract MIGS segment; and two, pioneering the $5 billion US market for standalone MIGS. OMNI continues to win share in the combo cataract segment and expand the standalone MIGS segment because of its duration of efficacy and safety in lowering and maintaining target IOP, broad indication for use, precision engineered usability, and Category I CPT code recognition. Our ever-increasing confidence in OMNI's ability to continue to both gain market share and expand the market in MIGS is predicated on its mastery of these four critical concepts. Years of research and development have culminated in an intuitive and elegant device that allows surgeons to consistently achieve clinically meaningful outcomes, along with the safety benefits of a minimally invasive approach. Our growth came from continued new physician training, increasing active ordering accounts, repeat orders, strong utilization, and extremely minimal account churn amid a MIGS market that includes multiple new products. We continue to win because of our strong fundamentals and our unshakable bedrock of placing our patients at the center of everything we do. We have discussed previously the headwinds from the trialing of new entrants and the resulting confusion in the marketplace. As we expected, the surgical community has quickly learned what these products can and cannot do. We have seen medical societies and payers make strong statements clarifying the limit and limiting the coding and reimbursement pathways for some of these new entrants based on whether the procedures meet the clinical or medical requirements necessary to be reported with existing procedure codes. Some of these products have at best very limited indications because quite simply, they are not supported by sufficient clinical evidence that they can improve patient outcomes. We anticipate trialing of these products will continue in the second half. These trials can impact the adoption cycle for new OMNI users and result in pockets of account ordering softness in certain subsets of customers. At the same time, we have seen many accounts cycle through these trialing programs and subsequently return to OMNI. Overall, we believe trialing impacts will be transitory. Regarding reimbursement, CMS issued proposed payment rules for 2023 last month. As a reminder, OMNI is billed under Category I CPT code 66174. The professional fee for 66174 was revalued by the RUC in 2021 and scheduled to be reduced in value. The Medicare payment was reduced from $950 in 2021 to $750 in 2022 and is proposed to continue this phased-in final reduction to approximately $600 in 2023. Revaluation for professional fees for Category I CPT codes typically lasts for five years. So we would not expect any further adjustments to the 66174 pro fee for several years. On the facility fee side, CMS did not propose to designate CPT code 66174 as a device-intensive procedure for ASCs in 2023. We continue to believe device-intensive status would represent a fair, appropriate, and deserved adjustment if and when it happens. Nonetheless, in the interim, our competitive position, underpinned by superior efficacy and patient outcomes remains very strong, as evidenced by our continued share growth and market expansion. We do not foresee any meaningful hindrance to our ability to continue to penetrate the combination cataract segment and grow standalone usage of OMNI over the long term. The outstanding real-world outcomes and the robust clinical data published in reputable peer-reviewed journals support our belief that OMNI's adoption by the ophthalmic community will continue to grow. Turning now to our second strategic initiative, accelerating adoption of OMNI as the leading standalone intervention. For POAG patients who do not require cataract surgery, the current standard-of-care relies on the increasing use of topical eye drop medications to limit progression of the disease with the objective of deferring conventional more invasive surgical procedures for as long as possible. We believe that OMNI, given its indication for use, safety profile, and reliable duration of efficacy offers the perfect product-market fit for standalone interventions earlier in the treatment continuum for mild to moderate POAG patients. Clinical trials have demonstrated that OMNI can safely and consistently lower IOP and reduce dependence on medication independent of cataract surgery. Our market research indicates that 85% of glaucoma patients would likely choose a standalone intervention using OMNI if recommended by their doctor. To drive adoption of OMNI as a standalone procedure, our efforts concentrate on raising awareness and educating the glaucoma community. We strategically placed our glaucoma clinical consultants in territories with numerous qualified OMNI-trained surgeons. GCCs communicate the potential benefits of standalone OMNI procedures to office-based primary care eye doctors who serve at the front line of POAG diagnosis and treatment. They also certify that their assigned surgeons are ready for standalone cases. Although the GCC program just launched earlier this year, we are already beginning to see results. In the second quarter, GCC accounts demonstrated meaningfully higher sequential growth than non-GCC accounts. These initial results are by their nature inconclusive but directionally very encouraging. Also, preliminary projected claims data from a well-respected advanced analytics provider indicate accelerating standalone usage of 66174. Projected claims using 66174 alone for the first five months of 2022 have already exceeded those for the first six months of 2021 by almost 30%. We believe both of these data points regarding standalone adoption are informative and look forward to sharing additional measures of progress as our initiatives mature. Our success with OMNI has provided us with a unique perspective on the MIGS market. While OMNI has the indication, safety profile, and efficacy to meet the needs of the vast majority of surgeons and patients across the POAG spectrum, we have identified three distinct smaller yet important customer segments who prefer MIGS solutions that can be performed more efficiently, more easily, or more cost-effectively than OMNI. First, the more efficient MIGS segment consists of ultra-high volume cataract surgeons with very mild POAG patients. For these accounts, where every minute matters in a full OR schedule, efficiency can be as important as significant IOP reduction. Second, the easier MIGS segment consists of academic institutions and training facilities where residents and fellows learn MIGS for the first time. We expect these surgeons who first learn MIGS on easier-to-use devices and procedures such as goniotomy will eventually transition to OMNI for broader use cases as they gain surgical experience. And finally, third, the more cost-effective MIGS segment consists of facilities that may emphasize procedural profitability. To meet the specific needs of these subsegments, we engaged our internal innovation engine to design our new breakthrough SION bladeless goniotomy device. We believe that just like OMNI and TearCare, our best-in-category canaloplasty and MGD devices, SION will be the best-in-category goniotomy device. SION is the world's first and only bladeless goniotomy device. It's designed to allow surgeons to smoothly, efficiently, and reliably excise and remove several clock hours of diseased trabecular meshwork tissue via an ab interno approach. Unlike bladed devices that cut tissue, SION's bladeless design, micro-engineered and precision manufactured using specialized lasers, excises tissue without cutting. Instead, SION grasps and removes diseased tissue as the surgeon sweeps the instrument around Schlemm's Canal with a single smooth motion. We believe the SION procedure fully satisfies the American Academy of Ophthalmology definition of goniotomy and aligns perfectly with CPT-code 65820 goniotomy. We do not foresee any ambiguity from payers or the medical community regarding SION’s ability to perform a true goniotomy. We believe experienced surgeons, and perhaps even more so, MIGS surgeons, residents, and fellows in training at academic institutions will absolutely love the gentle and less stressful bladeless design. We are soft launching SION among select surgeons this month with plans for a more comprehensive launch in the fourth quarter. A handful of cases have already been performed, and initial feedback has exceeded the lofty expectations we have for all of our products. We believe there will be minimal use case overlap between SION and OMNI. SION will enable broader penetration of the market through our existing surgical glaucoma sales force and allow us to develop strong early relationships with surgeons learning MIGS through goniotomy. In situations that require more robust IOP lowering, such as late mild to moderate or severe combination cataract patients and all standalone patients, or in other words the vast majority of the POAG addressable market, we believe OMNI will remain the procedure of choice as it is today. Our third strategic growth initiative is developing fair market access and reimbursement for dry eye treatment procedures. As demonstrated by our results, TearCare continues to make significant progress in the current cash pay environment. Supported by data from our OlympiA RCT, TearCare was cleared by the FDA in 2021 for evaporative dry eye disease due to meibomian gland dysfunction. With this expanded indication in hand, our commercial team has the freedom to articulate the full benefits of TearCare, consistent with the compelling clinical evidence from OlympiA. We expect our currently enrolling SAHARA RCT to provide the clinical foundation for our market access and reimbursement strategy. A key objective of SAHARA is to illustrate the superior clinical outcomes of TearCare treatments relative to daily use of the market-leading dry eye prescription eye drop, Restasis, at six months. We are on pace to complete patient enrollment in SAHARA in the fourth quarter and aim to provide an update on the superiority endpoint by the second half of 2023. In other clinical updates, we had three clinical studies accepted for peer-reviewed publication. First, we're excited to share that long-term, three-year safety and efficacy outcomes for canaloplasty alone, performed with OMNI and its predicate device, were accepted for publication in the leading Journal of Cataract & Refractive Surgery. In this study, the preoperative mean IOP of 21.1 mmHg on an average of 2.0 hypertensive medications dropped to a mean postoperative IOP of 15.3 mmHg plus or minus three mmHg on less than one medication at 36 months plus or minus six months. Next, the results of our US prospective multicenter GEMINI study were published in Clinical Ophthalmology. GEMINI measured the effectiveness and safety of OMNI when used in combination with cataract surgery in patients with mild to moderate open-angle glaucoma. The results of the study demonstrated that canaloplasty and trabeculotomy performed using OMNI in conjunction with cataract surgery significantly reduced unmedicated mean diurnal IOP and medication use in patients with OAG. Moving beyond OMNI, our third study accepted for peer-reviewed publication this quarter is related to TearCare and will be published in Clinical Ophthalmology. This article analyzed the symptoms data from our OlympiA RCT and showed that TearCare performed significantly better than LipiFlow in improving quality of vision and overall dry eye disease symptom frequency determined by OSDI and SANDI in subjects with more severe gland dysfunction. We are very happy with the findings of all three studies and articles and we are excited to leverage our mounting library of clinical evidence to drive continued adoption. We have kept a close eye on market development and have adjusted our clinical program to better suit our needs going forward. When we conceived our twin 459-patient TRIDENT and PRECISION RCTs several years ago, we believed OMNI would require large RCTs demonstrating superiority against the then market-leading growing trabecular microbypass implants to gain traction. The rapid penetration of OMNI, especially following its expanded clearance last year coupled with the declining use of trabecular bypass implant has allowed us to rethink our clinical strategy. It is clear to us that the market requires no further proof that OMNI is the most effective trabecular canalicular MIGS procedure for POAG, and that we can redirect our clinical investment to more focused and streamlined clinical trials that will allow for faster enrollment completion and clinical data generation without sacrificing clinical impact on the market. To that end, we are simplifying the protocol for our PRECISION RCT to focus on the pivotal canaloplasty-alone, IDE arm, which will significantly speed completion while delivering the most important clinical data needed from the trial; prospective multicenter data on canaloplasty alone. We will also be redeploying resources dedicated to our large multinational TRIDENT RCT in Europe, which we are in the process of terminating, to focus instead on smaller yet fully effective clinical studies in select European markets. We are excited to continue advancing our goals in Europe more cost-effectively, efficiently, and systematically going forward. Our updated clinical strategy is part of a broader effort to reposition our resources proactively. We recently completed a thorough review of our operating structure and key strategic needs in light of the current operating environment, economic conditions, and the financial market. Last month, we streamlined our organization and reduced non-headcount expenses that do not align with our current needs. These changes will greatly improve operational execution, focus and efficiency, provide significant operating expense savings, and noticeably shorten our runway to breakeven as Jesse will discuss in greater detail. We made these decisions from a position of strength. We have a strong balance sheet with over $200 million of cash, commercial momentum, and attractive growth prospects. Importantly, we do not expect them to have any direct impact on our near and long-term growth profile. These moves will allow us to take advantage of the superb opportunities in front of us while preserving flexibility to continue investing in high ROI growth initiatives. In addition, we have implemented changes to optimize and align our commercial organization according to the stage, objectives, and strategy for each of our growing businesses. We have eliminated the role of CCO and are operating surgical glaucoma and dry eye as distinct business units. Considering all of the company-specific and macroeconomic factors discussed today, we feel that our growth this quarter is a clear reflection of our attractive ongoing prospects over the medium term. We are not providing out-year guidance but expect that our continued effective execution through current competitive market dynamics, coupled with our ongoing market expansion into the greenfield standalone market, can support an annual revenue CAGR of approximately 30% over the medium term. We remain confident in our market leadership position in MIGS, as evidenced by growing surgeon adoption and sustained positive patient outcomes. We believe we will continue to win in the MIGS market and have a long runway to increase adoption and utilization to extend our lead. We also have utmost confidence in our dry eye reimbursement strategy and the significant investment we have made in our pivotal RCT SAHARA. Every patient chronically suffering from evaporative dry eye due to MGD deserves fair access to treatment. In conclusion, all our strategic goals, which we are advancing nicely, are anchored around our steadfast commitment to improving the lives of patients with glaucoma and dry eye disease. Jesse will now discuss our second quarter financial results and our outlook for 2022.

Thank you, Paul. I will start by reviewing our second quarter results and then move on to our 2022 guidance. Our total revenue for the three months ended June 30, 2022, was $17.2 million, a 37% increase from $12.5 million in the same period of 2021 and up 16% sequentially. Our surgical glaucoma revenues for the second quarter were $15.9 million, up 33% from $12 million in the second quarter of 2021 and sequentially up 15%. Underlying fundamental growth drivers in utilization retention and ordering facilities all remain strong. Two important key leading indicators for our growth funnel are trained surgeons and new ordering facilities. In the second quarter of 2022, we trained over 190 new surgeons. This compares to approximately 120 in the first quarter of 2022 and is well over our quarterly average in prior years. We believe growth in trained surgeons will continue to be robust as product awareness of OMNI and our library of differentiated clinical data grows. While we are making great progress, we still have a long runway. At the end of the second quarter, we have trained approximately 2,000 surgeons on OMNI, while Market Scope estimates that over 5,600 US surgeons perform MIGS procedures. And our ultimate goal is to extend the addressable surgeon pool to include all of the estimated 10,000 US ophthalmic surgeons. With a sizable pool of recently trained surgeons and a world-class training experience, we continue to post strong customer wins. 96 new facilities ordered OMNI in the second quarter of 2022 compared to 105 in the first quarter of 2022. This is on par with our average of 99 in 2021, which included a spike of 131 in the second quarter of 2021 after OMNI's label expansion in March. The commercial success can also be measured by our consistently growing and extraordinarily sticky ordering base. In the second quarter of 2022, 875 facilities ordered OMNI, an increase of 64 from the first quarter of 2022. We continue to feel great about the continuing growth of our base. Customer retention is obviously another key metric for us. We calculate developed customer retention for customers that have placed their first OMNI order over nine months prior. This is the net ratio of accounts that go inactive during the period to the number of active customers at the beginning of the period. Throughout 2021, and thus far in 2022, approximately two-thirds of our active customer base consisted of these developed customers with over nine months of experience. In the second quarter, our developed customer retention rate was 100%, which means that we had exactly as many developed customers return as went inactive during the quarter. While we believe this is extraordinary, it also happens to align closely with our historical retention. Our dry eye segment revenues for the second quarter were $1.3 million, which is up 143% from $547,000 in the second quarter of 2021 and a sequential increase of 32%. Our small focused sales effort in dry eye has delivered an installed base of approximately 750 facilities at June 30, 2022. Our combined gross margin for the second quarter was 84% compared to 82% in the corresponding prior-year period and 80% in the first quarter of 2022. Gross margin in surgical glaucoma was 88% in the second quarter compared to 85% in the prior-year period and 89% in the first quarter of 2022. We remain very pleased with the performance of our operations group even as global supply chain issues persist. Gross margin in dry eye was 41% in the quarter versus 3% in the prior-year period and negative 53% in the first quarter of 2022. As a reminder, our first quarter of 2022 included one-time charges related to a voluntary recall program. Absent those charges, gross margins would have been positive 32%. So what we're beginning to see is the margin uplift as we cover our fixed costs that are allocated to dry eye with our growing revenue base. Operating expenses for the second quarter of 2022 were $37.4 million, a 75% increase from $21.3 million in the second quarter of 2021. Operating expenses included non-cash stock-based compensation of $3.5 million, compared to approximately $900,000 in the prior-year period. SG&A for the quarter was $31.4 million compared to $17.8 million in the second quarter of 2021. The increase in SG&A was primarily due to our continued investment in headcount to support our growth. As of June 30, 2022, we had 284 full-time employees versus 264 at the end of the first quarter and 218 at the end of 2021. R&D expenses for the quarter were $5.9 million compared to $3.5 million in the second quarter of 2021 and $5.6 million in the first quarter of 2022. All increases were associated with the ongoing execution of our clinical roadmap and development pipeline. Our loss from operations for the three months ended June 30, 2022 was $22.9 million compared to a loss of $11.1 million for the same period in 2021. We had a net loss of $23.8 million or $0.50 per share in the quarter based on a weighted average post-IPO share count of 47.7 million shares, compared to a net loss of $17.6 million or $1.83 per share for the second quarter of 2021 based on a weighted average pre-IPO share count of 9.6 million shares. We ended the quarter with $220.1 million of cash and cash equivalents and $33 million of long-term debt, which includes $2 million of debt discounts. As Paul discussed, we have been very proactive in our liquidity management despite our greater than $200 million cash balance. We recently completed a comprehensive review that aligned our operating structure and growth investments with our key strategic themes. Our heritage is one of differentiated capital efficiency and high returns on investment. We went public with two internally developed disruptive commercial products with an accumulated deficit at the IPO of only $102 million and just $105 million of invested capital. Our applied multiples of invested capital as of the IPO were in the top two of all med-tech IPOs since 2015. The internal development of SION and the powerful early surgeon feedback from our very first surgical cases this month is yet another demonstration of our capital-efficient heritage and disruptive ophthalmic innovations. We have high confidence that SION will be our third groundbreaking product. Our strategic and financial plans support continuing investment in all of our current growth initiatives and are designed to provide a highly achievable path to free cash flow breakeven with substantial liquidity push. We made limited adjustments to both labor and non-labor spend that together reduced our cash burn and put us on a faster path to profitability. Importantly, we are not reducing investment or headcount in the field, in product development, or in foundational clinical work, the cornerstones of our plan that will drive continued growth in the near and long term. We expect to exit the year with less than 270 employees versus an original plan that had us approaching 300 full-time employees by year-end. Further, we anticipate non-labor spend, which constituted approximately half of our second quarter operating expenses, to decrease by an even higher percentage as we both narrow and prioritize our project pipeline and execute more efficiently. We anticipate that the impact of these efficiencies will be apparent in our fourth quarter results since we are implementing a number of these non-headcount changes this quarter. We believe our strong balance sheet, leading gross margins, and disciplined spend can support positive free cash flow in 2025. Assuming approximately 30% top-line growth in the medium term, we would have a cash drop of well over $100 million. This includes over $30 million of discretionary growth investments earmarked for specific development projects that are discrete and financially flexible. We believe we have more than enough capital to execute our plan and can retain the flexibility to make decisions based on maximizing long-term value. Finally, turning to our outlook for 2022. We are tightening our full-year revenue guidance range to $68 million to $72 million, with more sequential uplift in the fourth quarter than third to match typical eye care procedure seasonality and modest contribution from SION in the fourth quarter. For the year, the range implies annual growth rates of approximately 39% to 47% over 2021. It's been a very productive first half of the year for Sight Sciences, and we are excited to continue our efforts as a leading glaucoma and dry eye technology provider that's transforming care and improving patients' lives. This concludes our prepared comments. Operator, please open up the call for questions.

Your first question comes from the line of Cecilia Furlong with Morgan Stanley.

Hey. Good afternoon and thank you for taking the questions and congrats on a strong quarter. I wanted to start with the guidance and just the revised guidance range. Just following the 2Q upside, just curious if you'd talk to, one, what you're contemplating now, either from staffing challenges, what you're seeing from a competitive trialing standpoint that you factored into the back half, as well as just the benefit from the GCCs, the education side that you talked about as well.

Sure, I'll address most of that, but please feel free to add. Cecilia, even at the lower end of our revised guidance, we anticipate an acceleration in year-over-year growth in the second half compared to the first half. Our conservatism isn't due to a lack of confidence but stems from being cautious about the contributions from the GCCs included in that guidance. Additionally, we expect only a modest contribution from SION, given that it’s still early in the process and we are currently in the phase of gathering feedback from surgeons, which is very encouraging. The timing of these contributions is reflected in our guidance, and we are intentionally being conservative about it. As Paul mentioned earlier, we do not expect the emergence of new competitors to diminish in the second half, which has influenced our view on full-year guidance. I want to highlight that our retention rates for the OMNI user base are outstanding. The main challenge we face is encouraging people to adopt and utilize our services at the desired pace, rather than affecting our core business. We are observing some anecdotal evidence of staffing shortages impacting hospitals and ASCs, but this has not been a significant factor in our tightened guidance.

Okay. Got it. That's very helpful. And if I could follow up, just on OpEx. But with all of the changes, the restructuring initiatives that you've talked about today, or business optimization, just how we should think about the 3Q to 4Q, just trajectory overall. And then, I did want to ask if you could provide a bit more color. Just the decision to terminate TRIDENT, realizing what's going on in the market, but just the definitive evidence that could have provided and your outlook for additional trials maybe to supersede that. And thank you for taking the questions.

Hey, Paul, I'll hit the OpEx and then turn to you for the TRIDENT color.

Sure. Yes, yes.

Looking at our operating expenses, particularly in the four quarters following our IPO, we've observed a quarter-over-quarter increase. I don’t anticipate that trend will continue, and you’ll receive more detailed guidance on operating expenses in our next quarterly call. We are still finalizing some project work and non-labor expenses which will allow us to provide definitive information. However, you shouldn't expect to see that growth in the latter half of the year. Regarding the potential savings, we'll clarify that further in Q3. I touched on how this would affect our headcount plan, and I believe the non-labor savings from our focus on projects will exceed expectations.

Hey, Cecilia. This is Paul. Regarding TRIDENT, it was a large multinational randomized controlled trial across five countries with 25 centers. While it will yield valuable data, the reality is that since we initiated the trial some time ago, we have generated substantial clinical evidence that has been published and we are continuing to gather more. The trial itself was enrolling slowly and would require many years to produce any significant data and publish it. In Europe, we want to adopt a more targeted strategy focusing on select markets where we know we can achieve results in the near term. Currently, we are active in the UK and Germany, where we are accumulating a lot of data. I mentioned one of the recent publications detailing three-year canaloplasty data. We also have another publication from Germany regarding long-term, durable safety and efficacy with OMNI, which includes canaloplasty and trabeculotomy. Beyond the UK and Germany, we will identify other attractive markets and determine the specific clinical data those markets will need. We can conduct more focused studies that will allow us to enroll participants more quickly and enter those markets sooner. This is our reasoning. We are continuing to conduct large multicenter studies in the US as well, which will support our endeavors in Europe. We remain committed but want to concentrate on select markets instead of expanding too broadly at the beginning.

Great, understood. And thank you for taking the questions.

Your next question comes from Andrew Brackmann with William Blair.

Hi guys. Good afternoon, and thanks for taking the question. Maybe to start on the goniotomy device and a few questions there. Obviously, as you noted, this has become a bit of a crowded market for other players bringing forth tools that sort of bill under that goniotomy pathway. So, I guess three questions here. One, can you sort of give us a little bit more color around the bladeless component there? I heard your comments but maybe just be a little bit more specific on what's differentiated in terms of the mechanics of the device. Two, can you just share some of the plans for clinical data generation for that device? And then third, how should we be thinking if at all of cannibalization here of OMNI with this new device that entered? Thanks.

Thank you for your questions, Andrew. Regarding the bladeless design of our goniotomy instrument, it's specifically intended to help surgeons excise and remove portions of diseased trabecular meshwork more smoothly and reliably. Unlike most current options that cut tissue, this bladeless design is particularly beneficial for training surgeons, as it provides a gentler approach to accessing the angle. It has unique features that have been validated by early users, which include dimensions that allow surgeons to grasp the tissue without cutting during advancement. These micro-engineered dimensions, achieved using specialized lasers, enhance the surgeon's ability to accumulate diseased tissue as they sweep through the angle. This gentle sweeping action enables tissue removal efficiently and comfortably, thereby boosting the surgeon's confidence. Preliminary feedback from experienced MIGS surgeons has been overwhelmingly positive, indicating they were surprised by the significant improvements in goniotomy. As for clinical data, it's essential to our mission to deliver best-in-class products, and we plan to start generating that data as soon as possible for the SION device, likely within 2023. While we are still in the initial stages and have yet to establish protocols, we are currently focused on introducing the device to a small group of surgeons to ensure it meets our high standards before shifting towards commercialization, ramping up manufacturing, and generating clinical data. Regarding your question on cannibalization, we have given it considerable thought before moving forward with any portfolio project. We observe distinct segments within the MIGS market, with procedures like goniotomy, canaloplasty, and trabecular microbypass stenting coexisting in many accounts. We have numerous satisfied OMNI surgeons who use goniotomy and bypass stenting for different cases. Thus, we believe that introducing a best-in-class goniotomy device will not only enhance our product offerings but also strengthen our existing relationships with our surgeon customers.

That's great. I really appreciate all the details about the device and I'm looking forward to seeing it. I would like to follow up on some of the longer-term and medium-term goals you mentioned regarding revenue and profitability. Could you elaborate on the underlying assumptions for those? How are you segmenting that between glaucoma and dry eye, and what is the planned spending in that medium-term? Thank you.

Sure. I'll give it a shot. We are not providing specific guidance at this moment, but we plan to offer more concrete updates for 2023 as the year progresses. The growth in TearCare is primarily due to the expanded label we achieved at the end of last year. However, we do not intend to scale the sales force until we realize a breakthrough in patient access. The growth expectations between the two segments are quite similar. Additionally, I think our projections regarding timing and the magnitude of contributions from our major market development initiatives in standalone and dry eye are conservative. Our outlook on the incremental impact of SION is also cautious. While we recognize the potential, the current operational environment and growth trends we are observing at the moment reflect this cautious approach.

Great, I'll leave it there. Thanks, guys.

Your next question comes from the line of Matthew O'Brien with Piper Sandler.

Afternoon. Thanks for taking my question, just maybe to put a finer point on a couple of things, Paul or Jesse. The guidance for the year, the high end was taken down by $3 million. The midpoint was taken down by $1 million. I know you had a wider range. But you just beat by about $1 million, so you're taking the midpoint down by a couple of million bucks. What is it specifically that is making you take that midpoint down by a couple million or just take off the high end of guidance? Is it something competitively you worried about? The proposed reimbursement changes something specific there that you want to focus folks on?

I can take a shot at this, Jesse, and feel free to jump in. Matt, you've likely noticed a surge of new competitors entering the market. Although they are not clinically validated, there are many questions surrounding these devices, including what they can and cannot do, as well as how they may be coded. This has been a significant issue in the first half of the year and is continuing into the summer. We remain very confident in our position, but the reality is that well-established companies with solid commercial systems are promoting these products in operating rooms, and there is a gradual process for surgeons to grasp their capabilities and limitations. We have done exceptionally well by concentrating on creating the best clinical innovations for surgeons, delivering products they truly appreciate. Consider an iPhone; people may stray from it only to return due to dissatisfaction. We see a similar trend with OMNI. Surgeons love it; it’s dependable and has strong customer loyalty. However, whenever a new attractive product enters the market, surgeons will explore it. Recently, we've noticed that these surgeons are returning more frequently. We're not finished yet, and while there is an impact on how quickly our surgeons are transitioning to adoption, we anticipate they will return to OMNI as they often do because of their preference for it. Until they fully understand these new products and comeback to OMNI, there will be some effect on our progress. That, to me, is the main factor. Jesse, do you have anything else to add?

Matt, I want to emphasize that the expected growth in the second half is greater than that in the first half, which reflects our confidence in the business. It's really important for us to successfully guide people through the trial process and encourage adoption. We believe it's wise to consider what we can observe and measure, and while we may not have maximized growth proportionately, we hope you recognize our confidence in also targeting the lower end of the range.

Yes. Okay. And then just on the 30% medium-term growth rate, I don't really know what medium term means or even interim or long-term, I have no clue. But you've got a proposed rate cut that's out there right now that historically has affected the number of cases that are done even if it's the best outcome. So how can you offset potentially that impact with your existing product and then layering on goniotomy next year and SION to get to that 30% number that I'm sure everybody's going to go to in surgical glaucoma in the US, both probably next year and then 2024 as well? Thanks.

Hey Matt, when you say the proposed rate, are you talking about the pro fee?

Yes.

Yes. Reductions are never favorable for manufacturers or surgeons. However, it’s important to view the situation relatively. The pro fee for canaloplasty has historically been very appealing. Although it was reduced to $750, it remains attractive. The proposed rule suggests it may drop to $600, and we'll see if that holds in the final rule. In the worst-case scenario, if it ends up at $600, that should mark the end of any revaluation based on historical trends, as the RUC typically revisits these codes every five years. So, if we assume a pro fee of $600, we should consider whether this reduction has altered the economic profile for canaloplasty. The answer is no. The fee remains below goniotomy, and a $600 fee is still above cataract surgery and trabecular bypass stent. It was at $750 and continues to be higher than $600. Therefore, it doesn't place us in a different competitive position. Regarding its general appeal to surgeons, as they become more familiar with OMNI, we believe that $600 is more than adequate for us to achieve our growth expectations.

Got it. Thanks so much.

Sure.

Your next question comes from the line of Joanne Wuensch with Citibank.

Thank you, and good evening. So I'm going to try this at a slightly different angle. How do you define medium-term?

You know, Joanne, I think it's the next couple of years, you know. And it's a number that we will revisit. We'll revisit specifically as to next year. It's a number that I think is fairly conservative on what we think are the mega upsides that we're pursuing that for no other reason than we wanted to give what we think sort of our organic growth expectation is sort of without heavy reliance on that given that it's still in the early stages of development there.

Okay. The other thing I want to just spend a moment on was you talked about looking at how you're spending money to accelerate the path to breakeven. Can you clarify what the path is to breakeven?

Our perspective is that as we approach 2025, if we apply our medium-term growth assumptions, which align with a two-year outlook, we believe that our normalized spending will allow us to achieve positive free cash flow. We anticipate that this will position us comfortably above a cash burn of $100 million.

Above $100 million cash burn?

Yeah, that would be the trough balance.

Got it. Okay. Just big picture. You've been public a year now, congratulations or happy anniversary.

Thank you.

What has changed in the model? Many models have been updated in the past year, but I would like your perspective on what is different.

I'll comment Jesse, and then if you want to take it, I'll just take it from the market perspective. I think on OMNI, we've continued to grow in combo cataract. There's been this year, different than last year. I think if you think about it, we went from maybe three primary product competitors to six overnight. So a doubling of the competitive set. And we're growing right through that. Our team is executing right through that. OMNI is winning. It's been a noisy disturbance, but we're seeing again accelerating every day. We're seeing doctors figure out what's what and getting right back to their favorite product, which is OMNI. So that's been the biggest difference I think in terms of our market presence and what we've seen in the market compared to 2021. And again, we believe and we're seeing it now that this is transient. OMNI is winning. Now on the dry eye side, we've continued to sell nicely into more and more early adopting dry eye accounts. And I think the most important thing there is we are getting very close to the completion of enrollment in SAHARA. That's a really big study. It's payer designed. We spoke to eight different insurance companies, eight different medical directors to help educate them on dry eye and get their perspectives on what it would take in terms of clinical data to successfully cover and pay at the fair rate for a dry eye procedure with TearCare. So this study again, payer designed. It's been enrolling very nicely. We're on track, and by the end of this year, it should be completely enrolled and we're looking forward to turning the card on that superiority endpoint next year. Other than that, we're continuing to execute very nicely across the board. Our team's doing a great job. And I think our growth is an illustration of that.

I just want to emphasize that the current economic uncertainty is different from before. While it's not significantly affecting our commercial activity, it's an important factor to consider when thinking about our level of investment and our strategy. Paul highlighted some insights regarding US activity. This presents a great opportunity for us, but we could waste a lot of capital if we try to do everything all at once. Therefore, we will be cautious with our incremental investments and be deliberate about where we allocate resources. This is important for us, especially given our current cash flow situation.

Thank you.

Your next question comes from the line of Tom Stephan with Stifel.

Great. Hi, everyone. Thank you for having me. To start with the GCCs, there seem to be some promising signs of early traction. When should we expect these representatives to reach full productivity at maximum capacity? Additionally, the stand-alone mix appears to have stabilized around 20%. Do your internal models anticipate a shift at some point? Could you provide us with an idea of what that growth might look like over the next two to three years?

Sure. In regards to the GCCs and their results, we are pleased. Each GCC is assigned to several OMNI accounts and is engaging with primary eye care providers such as ophthalmologists and optometrists who refer glaucoma patients to OMNI surgeons. We have analyzed the utilization of OMNI before and after the introduction of the GCCs, and the increase is noteworthy. It's early; we hired them in the first quarter, and they were trained in the second quarter. They have only spent a few months in the field educating the referral community, but initial signs are very promising. We hope to provide specific updates soon. Additionally, with the claims data, we see a clear upward trend in the standalone claims reported, specifically code 66174. Regarding capacity, we will gain a clearer understanding as we see real results from the GCCs. From September onward, we will closely assess the situation, and we expect to draw conclusions and understand the model better. I don't anticipate any capacity issues in the near future. Once a referring community is established with OMNI standalone, they can transition to additional surgeons. We aim to expand the team soon, which indicates that the standalone market is growing rapidly. While we plan to grow the team in time, I don’t expect to reach capacity soon. Ultimately, we could see as many GCCs as surgical sales representatives, and we will determine what that capacity looks like as we move forward. The standalone market, estimated at $4 billion to $5 billion, appears to be in its early stages and could support a significant number of resources to drive growth.

Great. That's helpful. Thanks, Paul. And if I can just finish on the outlook. It sounds like you guys expect the trialing headwinds to persist into 2H 2022. But, what are your thoughts on these headwinds potentially slipping into 2023, just I guess given at this stage there are competing products still rolling out today? Any color there would be helpful. Thanks, guys.

I think it's embedded in the outlook that we're – we have a view that we believe that the impact is transient. And we're seeing it as customers sort of restore their level of utilization for OMNI that they historically have. But we're like kind of as it pertains to linking it to outlook, we're making the assumption for that purpose that it persists sort of like an environment like it is today like ultimately. Even though I think that's a very conservative way to look at it.

Got it.

I would just – with the first half of this year was pretty acute. Again, to go from three product competitors to six, that's pretty acute. Now, a lot of those things are being resolved. Some of them have been resolved and others are – seem to be resolving in terms of their impact. But do we need a total resolution to continue to dominate? No. Are we counting on total resolution? No. A lot of this is in our control, right. We continue to deliver best-in-class technology. Our sales force continues to deliver best-in-class customer service, develop best-in-class relationships. We control a lot of what we do despite these new entrants. And I think, I would just summarize this as the acute phase that happened, and we're winning. It's very clear that we are, and customers are going back to full OMNI utilization. And there can be competitive voice; that's okay. We welcome it.

Hello? Operator, I think we've lost, Tom. So, are there any additional questions?

At this time, there are no further questions. Are there any closing remarks?

Yes. I want to thank everybody for their time. Thank you all for your interest in Sight Sciences. Appreciate it and look forward to speaking with all of you again soon. Thank you.

This concludes today's conference. You may now disconnect.