RxSight, Inc. — Form 10-Q Summary
Business context and reporting period
RxSight is a commercial-stage medical technology company developing and selling light-adjustable intraocular lenses, Light Delivery Devices and related accessories for cataract surgery. The report covers the quarter and six months ended June 30, 2021. Products were marketed in the United States and had regulatory approvals in Europe and Mexico, although the company was primarily focused on the U.S. market.
At June 30, 2021, the company had 130 installed Light Delivery Devices and surgeons had performed more than 11,000 procedures using its system. The company was a non-accelerated filer, smaller reporting company and emerging growth company.
Financial performance and liquidity
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Sales | $4.9 million | $2.7 million | $8.4 million | $5.6 million |
| Gross profit (loss) | $(0.8) million | $(0.5) million | $0.3 million | $(0.4) million |
| Gross margin | (16.6%) | (17.5%) | 3.7% | (7.1%) |
| Operating loss | $(13.9) million | $(8.8) million | $(25.0) million | $(18.2) million |
| Net loss | $(13.5) million | $(12.9) million | $(20.3) million | $(29.4) million |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(22.2) million | $(20.0) million |
- Second-quarter sales increased 81.0% year over year, driven by 1,163 additional LALs sold, higher average selling prices and 10 additional LDDs sold.
- Six-month sales increased 49.8%, reflecting 2,011 additional LALs and eight additional LDDs sold. LAL revenue was $3.3 million for the six months, compared with $1.3 million in the prior year; LDD revenue was $4.8 million, compared with $4.2 million.
- Operating expenses increased 56.8% in the second quarter and 42.2% for the six-month period. Six-month SG&A rose to $12.1 million and research and development expense rose to $13.2 million.
- Cash, cash equivalents and short-term investments totaled $61.7 million at June 30, 2021, consisting of $41.7 million of cash and cash equivalents and $20.0 million of short-term investments.
- Long-term term-loan debt was $39.5 million, with $40.0 million of principal drawn. The loan bears interest generally at 9.25% or higher, is secured by substantially all personal property other than intellectual property, and matures in October 2025.
- Accumulated deficit was $450.9 million and stockholders’ deficit was $313.4 million at June 30, 2021.
- Cash used in operations was funded primarily by $33.7 million of investing cash flow from investment maturities, $15.0 million of additional term-loan proceeds and $1.3 million from option exercises.
Material changes versus the prior comparable period
- Revenue growth materially exceeded the increase in cost of sales, producing a six-month gross profit compared with a prior-year gross loss. Management attributed the improvement to higher volume and operating leverage.
- Second-quarter gross loss remained negative, partly because the company recorded a $1.7 million reserve for excess LAL inventory following introduction of an updated LAL incorporating ActivShield technology.
- SG&A increased substantially because of expanded sales and marketing headcount, higher travel and consulting costs, and preparation for operating as a public company. R&D increased primarily because of personnel, materials, clinical-study and stock-based compensation costs.
- The six-month net loss improved by $9.1 million, principally because the prior-year period included an $11.6 million unfavorable warrant fair-value change and $8.3 million of accretion to redemption value. The 2021 period included a $5.0 million gain from expiration of the Series W warrant and a $1.2 million favorable warrant fair-value change.
- The Series W warrant expired unexercised on March 31, 2021. Related redeemable common stock and stock options were reclassified into permanent equity.
Guidance, outlook, commentary and risks
- Management expects substantial net losses and negative operating cash flow for at least the next several years as it expands sales, marketing, research, development and clinical activities and incurs additional public-company costs.
- The company stated that available capital, including approximately $120.0 million of net IPO proceeds received in July 2021, is expected to fund planned operations for at least 12 months from issuance of the financial statements. The filing nevertheless notes that additional financing may be required and that future equity or debt financing could dilute stockholders or impose restrictive covenants.
- The commercial strategy is a “land and expand” model: place an LDD with a practice and increase recurring LAL utilization. Management expects LAL manufacturing scale and higher volume could improve gross margins, but LDDs carry relatively low margins.
- COVID-19 continued to affect elective cataract procedures, customer activity, clinical studies, travel, supply chains and access to capital. Further restrictions or patient caution could reduce revenue and delay commercialization.
- Major risks include limited commercial history, uncertain market adoption, competition from substantially larger medical-device companies, reimbursement and patient affordability, regulatory compliance, clinical-trial outcomes, product liability, intellectual-property disputes, reliance on single- or sole-source suppliers, manufacturing concentration in California and debt-covenant compliance.
- The company reported no material legal proceedings for which a loss was considered probable and estimable, and no off-balance-sheet arrangements with a reasonably likely material effect.
- Subsequent events included a 1-for-10.33 reverse stock split, conversion of preferred stock in connection with the IPO, adoption of new equity plans and additional equity awards. The filing contains inconsistent references to the IPO completion date, describing completion on July 29 in one section and August 3 in another; investors should confirm the definitive offering date and proceeds in the registration statement and related filings.
Important facts for investors to verify
- Confirm the IPO closing date, final share count and approximately $120.0 million of net proceeds, given the inconsistent dates in the filing.
- Assess whether revenue growth and the installed LDD base are translating into sustained LAL utilization and positive gross margins after inventory reserves.
- Review the $40.0 million term-loan balance, interest rate, collateral, repayment schedule, revenue-related covenants and availability of remaining tranches.
- Monitor operating cash burn, the timing of potential additional financing and the duration of the company’s liquidity runway after the IPO.
- Evaluate the effect of the updated ActivShield LAL on inventory levels, product demand, manufacturing costs and future gross margins.
- Verify regulatory, reimbursement and clinical evidence supporting broader use of the RxSight system and any planned product or indication expansions.
- Track COVID-19, supply-chain, single-source supplier, product liability, intellectual-property and manufacturing-site risks.