Time to bring up a new idea to the board: RxSight.
Activity:
RxSight operates in the premium cataract surgery market. A cataract is a cloudy area in the lens of your eye and reduces the quality of your vision. Cataract develops slowly over time and mainly affects people over the age of 60 with estimates of around 50% of the total population eventually develops cataract.
Treatment is to replace your natural lens with an intraocular lens (IOL). The traditional treatment is through a fixed lens (reimbursed by insurance) implying that the prescription can no longer be changed after the surgery.
RxSight operates in the premium IOL market (not covered by insurance) and has developed a so-called LAL (Light Adjustable Lens) that allows you to change the prescription up to 3 times after the initial surgery before “fixing” it, ensuring that you get the best vision possible. While there are other players in the premium IOL market, RxSight is currently the only player in the market offering such a post-surgery adjustable lens.
Business Model:
The typical razor/blade model. The LDD (Light Delivery Device) is sold at an average price of 130K $ with 30% gross margins. The LAL (Light adjustable lens = consumables) are sold at an average price of 1K $ with 85% gross margins.
The LDD are typically paid in cash by ophthalmologists and creates the switching costs. Once the investment has been made, the ophthalmologists have all the incentives to recover their investment.
The unit economics are attractive and on average, the ophthalmologists have earned back their investment within 6 months, and anything after that is pure profit. The total cost for the patient is a couple thousands $ per lens and is paid out of pocket.
I like how all the incentives align: the ophthalmologists have financial incentives as it can charge a premium price whereas the patients have the incentives as it ultimately leads to the best outcome with the best vision.
TAM:
The premium IOL market in the US is around 1.3B $ annually. RxSight has a revenue run rate of 130M $ and currently captures 10% of the market (up from 0% a couple years ago). Management’s longer-term target is to capture 50% of the market, implying it could 5x LAL revenue from here.
RxSight is not only capturing share in the premium IOL market but also expanding the market. Certain patients, that without RxSight would have chosen the basic reimbursable IOL, are now also opting for RxSight.
More importantly, 80% of the premium IOL market is outside of the US and concentrated in approx. 20 markets in Europe and Asia. RxSight is still waiting for approvals and some of those are expected in 2025.
Summary:
US: 1.3B $ TAM, 130M $ captured → 10% share
Out of US: 6.5B $ TAM, negligible share.
Numbers:
Revenue:
2021: 23M $
2022: 49M $ (+117%)
2023: 89M $ (+82%)
2024: 140M $ estimated (+58%)
It is important to differentiate between the LDD and the LAL. The LDD revenue (lower margin) for 2024 is estimated at 41M $ growing 28% YoY. The LAL revenue (higher margin) is estimated at 99M $ growing 84% (vs 116% in 2023). Therefore while topline growth is slowing, the more attractive business segment is growing at a much faster clip.
The LDD installed base is currently at 888 units and grew 51% in the last quarter. There are around 10.000 cataract surgeons in the US. The realistic installed base TAM is a bit lower as one office can hold multiple cataract surgeons (and you won’t need more than 1 LDD per office). In one of the conferences, management mentioned that around 1.5K surgeons are currently doing LAL treatments, implying 15% cataract surgeon penetration.
The utilization (comparable with the NRR in SaaS) has been growing consistently in the mid to high teens over the last couple of years. Surgeons are consistently doing more procedures per LDD.
Gross margins in most recent quarter were 71%, up from 61% in 2023 and 43% in 2022. As the company matures, gross margins should be higher than 80% as most of the revenue will be derived from the LAL.
The company is not yet profitable with an operating margin of -26% in the last quarter. This is quickly improving from -56% in 2023 and -129% in 2022. Considering the business model, long-term margins between 25% and 35% appear realistic.
Geographically, they are really only generating revenue in the US and Canada now. They operate with a direct sales force in the US whereas they work with distributors in Canada. Management expects several regulatory approvals in 2025 for Europe and Asia and while the US will inevitably slow down (law of large numbers), the international opportunity is just getting started. The unit economics should be similar in those markets.
Valuation:
With a market cap or 1.6B $ and a net cash position of 0.23B $, the current enterprise value is 1.35B $. EV/S for 2024 is 9.6x. If we look forward, I am estimating 192M $ revenue in 2025 (+36%), RxSight is trading at a forward revenue of 7x. If RxSight can ultimately achieve those 25-35% long-term margins, I believe that’s a relatively attractive valuation.
Management:
CEO Ron Kurtz has significant experience in the sector and his track record is one of the reasons I am bullish. He co-founded IntraLase Corp and IPO’d the business in 2004. IntraLase ultimately got acquired by Advanced Medical Optics. Afterwards, he became CEO of LensX, which then got acquired by Alcon, one of the main competitors of RxSight. He ran the Lens division for Alcon until he became CEO of RxSight. Given the history, I won’t be surprised if RxSight also end up getting acquired.
I am holding a position. Brian Stoffel also created a video about the company yesterday: x.com