Sight Sciences, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter ended September 30, 2021; comparisons are with the quarter and nine months ended September 30, 2020, as applicable. Sight Sciences develops and sells ophthalmic medical devices. Its main products are OMNI for surgical glaucoma treatment and TearCare for dry eye disease.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $13.1 million | $8.7 million | $34.3 million | $18.6 million |
| Gross profit | $11.0 million | $6.0 million | $27.6 million | $11.8 million |
| Gross margin | 84.3% | 69.7% | 80.5% | 63.4% |
| Operating expenses | $25.1 million | $13.4 million | $64.4 million | $35.6 million |
| Operating loss | $14.0 million | $7.4 million | $36.8 million | $23.8 million |
| Net loss | $17.2 million | $8.1 million | $47.0 million | $25.6 million |
| Net loss per share, basic and diluted | $0.43 | $0.85 | $2.38 | $2.70 |
- Revenue mix: Surgical Glaucoma generated $12.4 million, or 95% of Q3 revenue; Dry Eye generated $0.7 million. For the nine-month period, segment revenue was $32.6 million and $1.7 million, respectively.
- Cash flow: Operating activities used $41.8 million in the first nine months of 2021, versus $23.6 million in 2020. Investing activities used $0.7 million. Financing activities provided $252.4 million, primarily from the IPO.
- Liquidity and debt: September 30 cash and cash equivalents were $271.5 million; current assets were $287.8 million and current liabilities $10.3 million. Term-loan principal was $35.0 million ($32.5 million carrying value after debt discount); the $5.0 million revolver was undrawn. Management said available liquidity was expected to fund operations for at least 12 months.
- Equity and IPO: The July 2021 IPO raised approximately $252.2 million net of underwriting discounts, commissions and offering costs. Preferred stock converted into common stock at the IPO. Accumulated deficit was $137.1 million at September 30.
Changes versus the prior comparable periods
- Q3 revenue increased 51.4%; nine-month revenue increased 83.8%. Management attributed growth primarily to more OMNI units sold, more facilities ordering, and higher utilization per facility. Nine-month growth also reflects recovery from COVID-related procedure declines in 2020.
- Gross margin improved to 84.3% in Q3 and 80.5% for nine months, primarily from OMNI sales volume and manufacturing efficiencies. The company shifted primary OMNI production to a lower-cost, higher-volume Asian contract manufacturer in 2021.
- Operating expenses rose sharply as the company expanded staffing, commercial activity, research and development, and public-company functions. SG&A increased 85% in Q3 and 80% for nine months; R&D increased 98% and 88%, respectively.
- Net losses widened despite higher revenue and gross profit. Other expense included warrant fair-value remeasurement: $2.0 million in Q3 and $6.9 million for nine months. The preferred-stock warrants were converted in connection with the IPO and net exercised in August; the company reported no recurring fair-value liabilities at quarter-end.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance was provided. Management expects continued net losses for at least the next several fiscal years and higher public-company and growth-related costs.
- Management expects to continue investing in clinical studies, sales and marketing, education, market access, and product development. TearCare’s SmartHub pricing is intended to encourage adoption; management expects Dry Eye margins to remain below Surgical Glaucoma margins in the near to medium term.
- COVID-19 remains a risk to elective-procedure demand, customer activity, clinical work and suppliers. Management reported market recovery beginning in Q2 2021, while noting that renewed restrictions or infection surges could reverse it. No material supply-chain disruption had occurred to date.
- TearCare’s expanded-indication 510(k) submission was withdrawn in May 2021 after FDA requests for additional information and testing; a revised submission was filed in September 2021. Timing and outcome are uncertain.
- The business is highly dependent on OMNI, with limited commercial products and limited long-term clinical data. Other key risks include reimbursement uncertainty, competition, reliance on third-party and single-source suppliers, regulatory compliance, and the need for continued market education. TearCare procedures generally lack meaningful Medicare or private-payor coverage, and patients have typically paid out of pocket.
- In September 2021, Sight Sciences sued Ivantis, alleging patent infringement involving the Hydrus Microstent and seeking damages and injunctive relief. Ivantis had not responded by the filing; the company could not predict the outcome or estimate financial impact.
- Controls: Management concluded disclosure controls and procedures were ineffective at quarter-end because of a material weakness involving insufficient experienced accounting staff and inadequate segregation of duties and review. Remediation efforts were underway; management stated the financial statements fairly presented the company’s financial position and results.
- Debt terms: The term loan is variable-rate and secured by substantially all assets, with monthly revenue covenants. The company reported covenant compliance at September 30, 2021. Principal amortization was scheduled to begin in December 2022, subject to potential extensions under the agreement.
Important facts for investors to verify
- Whether OMNI growth and improved gross margins persist, and whether the business can reduce losses as operating expenses scale.
- Cash consumption relative to the stated minimum 12-month liquidity runway, including planned investment and debt-service needs.
- Progress and FDA outcome for TearCare’s expanded-indication submission, alongside its adoption and reimbursement prospects.
- Manufacturing transition progress, supplier capacity and concentration, and any effects of COVID-19 or other disruptions on elective procedures.
- Remediation and sustained effectiveness of internal controls, and material developments in the Ivantis litigation or debt covenant compliance.