Sight Sciences Expands Portfolio Despite Reimbursement Pressure (NASDAQ:SGHT)

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A quick overview of vision science

Vision Sciences, Inc. (NASDAQ:SGHT) went public in July 2021, raising approximately $240 million in gross proceeds from an IPO at a price of $24.00 per share.

The business is growing surgical and non-surgical technologies for the treatment of various serious eye diseases.

SGHT continues to generate higher operating losses, a big negative in the current environment of rising cost of capital.

Until management can make a meaningful shift toward operating balance while growing revenue in a challenging reimbursement environment, I’m on hold for SGHT.

Presentation of vision sciences

Sight Sciences, based in Menlo Park, Calif., was founded to develop eye care medical devices for widely prevalent eye diseases.

Management is led by co-founder, president and CEO Paul Badawi, who previously earned a BS in biological sciences from the University of Chicago and an MBA from UCLA.

The company’s main offerings include:

  • OMNI Surgical System – Glaucoma

  • TearCare System – Dry Eye Disease

  • SION – bladeless goniotomy device

The company sells its glaucoma treatment device and dry eye products through ophthalmologists and optometrists.

Management estimates that there are approximately 40,000 optometrists and 20,000 general ophthalmologists who regularly see dry eye patients in the United States.

Vision science market and competition

According to a 2020 market research report by Verified Market Research, the global glaucoma treatment market was estimated at $6.9 billion in 2018 and is expected to reach $12.7 billion by 2026.

This represents a projected CAGR of 6.94% from 2019 to 2026.

The main drivers of this expected growth are the increase in the prevalence of glaucoma due to the aging of the world population.

Additionally, the North American region is expected to remain the largest market in terms of glaucoma treatment demand due to increased patient demand and better healthcare infrastructure for service delivery.

Major competitors or other industry participants include:

  • Glaukos

  • Ivantis

  • AbbVie/Allergan

  • Novartis

  • Johnson & Johnson

  • Alcon

  • Aerie Pharmaceuticals

  • Bausch and Lomb

  • STD

  • new medical world

  • Nova’s Eye

  • Kala Pharmaceuticals

  • Sun Pharmaceutical Industries

  • Others

Global Dry Eye Syndrome Market was estimated at USD 5.2 Billion in 2019 and is projected to reach USD 6.5 Billion by 2027, representing a forecast CAGR of 4.7% from 2020 to 2027 , according to a report by Fortune Business Insights.

Recent financial performance of Sight Sciences

  • Total revenue per quarter has increased over the past 4 quarters, as shown in the graph below:

Total turnover over 5 quarters

Total revenue over 5 quarters (looking for Alpha)

  • The gross margin per quarter also increased, although unevenly:

Gross profit over 5 quarters

Gross profit over 5 quarters (looking for Alpha)

  • Selling, G&A expenses as a percentage of total revenue per quarter remained high and well above revenue:

5 quarters SG&A % of revenue

5 Quarter SG&A % Of Revenue (Seeking Alpha)

  • Operating losses by quarter worsened as shown here:

Operating result for the 5 quarters

5th Quarter Operating Result (Seeking Alpha)

  • Earnings per share (diluted) has also produced increasingly negative results in recent reporting periods:

5 quarters of earnings per share

5 Quarter Earnings Per Share (Seeking Alpha)

(All data in the graphs above are in accordance with GAAP)

Over the past 12 months, SGHT’s stock price has fallen 78.5% compared to the approximately 3.7% decline in the US S&P 500 index, as shown in the chart below :

52 week stock prices

52 week stock price (seeking alpha)

Assessment and other measurements for vision sciences

Below is a table of relevant capitalization and valuation figures for the company:

Measurement (TTM)

Rising

Enterprise value

$203,980,000

Market capitalization

$389,780,000

Enterprise Value/Sales

3.41

Revenue growth rate

54.3%

Operating cash flow

-$67,510,000

Earnings per share (fully diluted)

-$1.76

Net profit margin

-133.9%

(Source – Alpha Research)

Vision Science Commentary

In its latest earnings call (Source – Seeking Alpha), covering Q2 2022 results, management highlighted the importance of its solution in the micro-invasive glaucoma surgery market.

The company seeks to expand adoption of its OMNI system within the existing combined cataract segment as well as “pioneer the $4 billion U.S. market for stand-alone MIGS.”

This expanded concentration may be the result of increased competition in its core market from new market entrants creating “market confusion”.

Additionally, the company saw its Medicare payments reduced for its reimbursement code, from $950 in 2021 to $750 in 2022 and finally to $600 in 2023, a significant deterioration.

Regarding its financial results, revenue increased 37% year-over-year and gross margin increased to 84% from 82% last year.

Notably, management claims that growth in the number of surgeons trained on its product is a key leading indicator of product sales growth and that the company has trained 2,000 surgeons on OMNI while citing a Market Scope report that “more than 5,600 American surgeons perform MIGS procedures”. society therefore has a track ahead of it.

However, operating losses have worsened significantly over the past two quarters, increasing 75% year-over-year, in part due to investment in the workforce for growth and the increasing stock-based compensation, diluting shareholders in the process.

R&D also increased as the company continued its development and commercialization efforts, including the soft launch of its SION device this month and expected to launch more officially in Q4 2022.

For the balance sheet, the company ended the quarter with $220.1 million in cash and cash equivalents and $33 million in long-term debt.

Looking ahead, management has guided topline revenue growth at 43% versus 2021 in the mid-range.

On the valuation side, the market values ​​SGHT at an EV/Revenue multiple of 3.4x, which is below the healthcare equipment industry median of 15.5x. The healthcare sector on Seeking Alpha consists of a variety of large and medium-sized equipment companies in the United States

The main risk to the company’s outlook is lower reimbursement rates for its OMNI system.

A potential upside catalyst for the stock could include strong adoption of its new SION system once it fully launches in Q4 2022.

In the meantime, the company continues to generate higher operating losses, a negative element in the current environment of rising cost of capital.

Until management can make a meaningful shift toward operating balance while growing revenue in a challenging reimbursement environment, I’m on hold for SGHT.

About William G.

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