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spk10: Good day, ladies and gentlemen, and welcome to the Site Sciences second quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. An instruction will follow at that time. If anyone should require operator assistance, please press star, then the zero key on your touchstone telephone. As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Mr. Philip Taylor, Investor Relations. You may begin.
spk03: Thank you, and thank you all for participating in today's call. Presenting today are Site Sciences Co-Founder and Chief Executive Officer, Paul Badawi, and Chief Financial Officer, Jesse Selnick. Earlier today, Site Sciences released financial results for the three months and six months ended June 30th, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind everyone that comments made by management today and answers to questions will include forward-looking statements. Those include statements related to Site Sciences' future financial and operating results and plans for developing and marketing new products. Forward-looking statements are based on estimates and assumptions as of today and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements, including the risks and uncertainties described in site sciences filings made with the SEC. 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 statements notices, and risk factors in our recent SEC filings. And with that, I will turn the call over to Paul.
spk04: Thank you, Tripp, and thank you to everyone joining us on our first earnings call as a publicly traded company. Our Chief Financial Officer, Jesse Selnick, and I look forward to updating you on our performance in the second quarter, and our Chief Commercial Officer, Sean O'Neill, is also with us today. Since our story may be new to many of you, I'd like to start by providing an overview of Sight Sciences, our mission, our guiding principles, and our growth strategy. We are gratified and humbled that many new and existing investors participated in our IPO and are joining us on our journey to transform the lives of patients suffering from the world's most prevalent eye diseases. Eye sight is fundamental to our quality of life. Over 50% of the human brain is devoted to vision, and over 80% of the information we need to perceive the world enters through our eyes. Our overarching goal is to improve quality of life by protecting and enhancing our most precious sense, vision. Sight Sciences is not a conventional eye care company. I started Sight over a decade ago with my brother David, a world-class ophthalmologist. We came up with the all-encompassing name Sight Sciences while performing simulated glaucoma experiments out of the garage of Dan O'Keefe. our first outside employee and our current vice president of research and development. We believe from the very beginning that if we did things right and had some good fortune along the way, we could methodically build a platform eye care company serving many disease categories through the development of novel and improved medical devices. To fully address the breadth and importance of our mission, we built our company for the long run from day one. Many years later, and thanks to the efforts of our now almost 200 talented team members, we've created and commercialized two differentiated products in what we believe to be very underserved areas of eye care. And we intend to create many more in the coming years. We thrive on transforming ophthalmology and optometry through products that target the underlying causes of the world's most prevalent eye diseases. We seek to develop interventional solutions and an interventional mindset in eye care that can replace conventional outdated approaches, thereby creating new treatment paradigms while also maintaining a laser focus on optimized patient care as our utmost priority. Many investors and industry participants are curious why we have initially chosen to pursue and tackle both primary open-angle glaucoma and dry eye, two very different disease categories. The simple answer is that we will pursue opportunities wherever we can leverage our organic, clinically differentiated problem-solving methods and expertise to develop and commercialize products for improved clinical outcomes that empower eye care providers or ECPs to take the best care of their patients. Moving on now to our four pillars of product development. Days at site are spent competing head-on against serious eye diseases with an obsession on developing devices to meaningfully improve the standard of care in eye care. We are hyper-focused on developing and commercializing clinically transformative products that maximally empower eye care providers to take the best care of their patients. Our focus on product development is governed by four fundamental requirements that we believe are mission critical to delivering the most robust and consistent clinical outcomes for patients. Number one, disease physiology mastery. We review and analyze all available clinical data, science, and literature that is relevant to a disease to achieve a sound understanding of its underlying causes, which we then use to guide the development of our product. Number two, treatment of underlying causes. Healthy eyes are self-regulating marvels of evolution, biomechanics, chemistry, and physiology. We believe that restoring the natural functionality of diseased eyes by comprehensively treating underlying causes of diseases provides the optimal combination of effectiveness and safety. Number three, intuitive design. Our products are designed to transform complex, impractical, or invasive treatment approaches into intuitive, minimally invasive, user-friendly procedures. Our product development goals are focused on delivering a preferred go-to treatment of choice to ophthalmologists and optometrists. Number four, patient access. We seek to maximize the availability and accessibility of our products for as many patients as possible. We believe that our devices have the potential to offer differentiated clinical, experiential, and economic value to all eye care stakeholders. With the goal and expectation to clinically lead any category we enter, we must have conviction that all four criteria are attainable before we begin a new project. Most of our ideas do not advance into development because they fail to satisfy all of our requirements. Today, We have commercialized two products that successfully ran the gauntlet of our rigorous product development process for use in adults with primary open-angle glaucoma, or POAG, the world's leading cause of irreversible blindness, and in situations where the medical community recommends application of a warm compress, including dry eye disease, the number one reason for a patient visit to an eye care provider. We believe both Omni and TierCare are poised to have tremendous global clinical impact in the years ahead. Maximizing global clinical impact requires more than a transformative product. It requires meticulous ECP training and commercial excellence. Over the past three years, our commercial leadership team has built distinct sales and marketing teams and training programs for both Omni and TierCare. Our commercial team works passionately with thousands of ophthalmologists and optometrists, prospects and customers. We hear that we have a reputation among eye care providers and within the industry as the team doing great things the right way and the team you want to join. We strive to continue to earn this reputation every day. Because of our commitment to the relentless pursuit of improved patient care and outcomes, we are rewarded with the best gift possible, customers choosing our product as the reliable go-to intervention when the clinical stakes are high and when we believe we can have significant impact on patient quality of life. Our passion and commitment to help our customers fight disease rises in lockstep with the clinical severity of the situation, not just with the size of a market. There is no greater satisfaction or joy to me personally or to the dedicated people of Site Sciences than to be blessed with a meaningful role in improving the lives of patients. We are gratified and humbled that many of you have chosen to join us on our mission to protect and enhance the eyesight of patients around the world in the years to come. We believe that substantial shareholder value accrues disproportionately to those select healthcare companies that can rely on putting the patient first as their competitive advantage. Now, moving on to our three key strategic value drivers. Our strategy will always include further innovation in devices intended for use in our two core disease areas, primary open-angle glaucoma and dry eye disease, as well as potential expansion of our pipeline into other eye diseases, both in the U.S. and internationally. In the near term, however, we will be laser-focused on advancing three key strategic imperatives for our two current commercial products. Number one, continuing to expand OMNI's adoption and usage by surgeons for adult patients with POAG in the established combination cataract segment of the minimally invasive glaucoma surgery, or MIGS, market. Please keep in mind that this share expansion will prepare these surgeons to perform procedures within the standalone segment, which brings us to number two, continued development of the virtually greenfield and substantially larger standalone POAG segment of the MIGS market, And number three, expanding our labeling and indications for use for tear care for the treatment of evaporative dry eye disease, while also advancing market access among Medicare and commercial payers. In the second quarter, we made substantial progress in all three of these goals. Our first two goals relate to advancing the treatment of adult patients with POAG by offering a device that can be used for a minimally invasive intervention. POAG is a pressure-based disease, and elevated intraocular pressure, or IOP, is the greatest risk factor associated with POAG, and therefore the focus of treatment. Cataract surgery on its own is known to have IOP-lowering benefits, and today the MIGS market is segmented into procedures performed in combination with cataract surgery, which we refer to as the combination cataract segment, and procedures performed on their own, which we refer to as the standalone segment. This segmentation is largely artificial and primarily the result of MIGS bypass stents only being indicated for use in combination cataract procedures, which has necessitated this unnatural division for the past decade. In their pivotal clinical trials, trabecular bypass stents demonstrated modest incremental efficacy over the IOP-lowering effect of cataract surgery alone. Trabecular bypass stents are not indicated for use in standalone MIGS procedures in the U.S. The surgical decision-making criteria and clinical effectiveness and consistency requirements for standalone MIGs are elevated beyond those for combination cataract procedures. We believe both the degree of effectiveness and the consistency of effectiveness are crucial factors for both patients and surgeons when considering a procedure. For patients, we believe the anxiety that may accompany the need for ocular surgery can be tempered with the knowledge that there is a high likelihood of success. For surgeons, consistent outcomes simplify the treatment choice and the decision to perform a procedure. We believe this is especially important for standalone MIG procedures, which must deliver a very high consistency of effectiveness and a very high degree of effectiveness to not only justify the procedure, but also provide surgeons with enough confidence to recommend standalone surgery to their patients and take them to the operating room for a singular reason. We believe devices capable of delivering consistently effective results will be crucial to unlocking the standalone market, as well as capitalizing on the full potential of the combination cataract market, which we believe is currently capturing less than one-third of its potential procedure volume in the U.S. In March of this year, the FDA cleared an expanded indication for use for OMNI that we believe bridges the unnatural divide between combination cataract and standalone MIGs. and which we believe covers the broadest patient population among all mixed devices supported and FDA cleared based on ab interno clinical data. Importantly, this indication for use broadly covers the reduction of intraocular pressure for all adult patients with POAG without limitation with respect to severity of disease, mild, moderate, and advanced, or LEN status, phagic patients, combination cataract patients, and pseudophagic patients. We believe this is the holy grail indication in MIGS, and we intend to invest very aggressively in the clinical and commercial development of Omni. So why did Omni's clinical performance achieve such a broad indication in MIGS? We believe that Omni has two critical physiological and clinical advantages. Number one, Omni is capable of comprehensively addressing up to all 360 degrees of the disease conventional outflow pathway. Implantable focal treatments address a smaller segment of the diseased outflow pathway. And number two, OMNI is capable of addressing all three points of resistance in the conventional outflow pathway, trabecular meshwork, Schlemm's canal, and the distal collector channels. As shown in our ROMEO multicenter study used for FDA clearance and label expansion, use of OMNI for sequential, combined, and comprehensive canaloplasty and trabeculotomy has been demonstrated to safely, effectively, and consistently lower IOP in adult patients with POAG in both combination cataract and standalone settings. We have always viewed MIGS as a single market that seeks to improve the lives of any patient with POAG. Despite the intense entrenched competition, since Omni's launch in early 2018, we have deliberately chosen the universe of over 3,000 MIGS-trained surgeons as our highest priority customer targets. We have successfully trained a large number of these surgeons and brought them up the Omni learning curve. In the second quarter of 2021, we sold Omni to nearly 700 ordering facilities, and we still have many more to go. While our commercial team deservingly received so much praise for their incredible achievements, we collectively believe it all starts with our clinically transformative mission and the clinically differentiated surgical technology we developed and perfected over a 10-year period. Our focus on putting the patient first and mastering the physiology of glaucoma allowed us to create a product that comprehensively and effectively reduces IOP and that we believe surgeons love to use. We painstakingly designed Omni with the goal of transforming effective but complex and invasive surgeries into safer, routine, and minimally invasive yet equally effective procedures with an elegant device that surgeons can master within an intuitive learning curve. Our goal in pursuing existing mixed-trained surgeons was to facilitate an exceptional training and support experience that would allow surgeons to achieve such high levels of confidence in the safety, effectiveness, and consistency of OMNI that they would prefer the device to reduce IOP in adult POAG patients in all settings, consistent with its broad clearance, including standalone cases which have a higher clinical bar than add-on combination cataract MIGS procedures. As we have made tremendous inroads in the established combination cataract segment, we believe this phenomenon is already starting to occur. Many of our surgeons have indeed chosen to expand their use case for Omni to treat adult POAG patients in standalone settings. Based on the results of an internal field study we conducted late last year, we estimate that approximately 20% of the procedures using Omni were standalone cases in 2020. I would like to note that our surgeons' early increased usage of Omni was achieved even without the benefit of our standalone marketing campaign, which we launched after Omni received its expanded FDA label in March of this year. We believe the U.S. standalone MIG segment is approximately five times larger than the $1 billion U.S. combination cataract segment and is substantially undeveloped. Our plan to fully develop standalone usage among both comprehensive ophthalmic surgeons who perform the vast majority of eye surgeries, including cataract surgeries, as well as glaucoma specialists, includes a first-of-its-kind market education, awareness, and development program that seeks to introduce and educate the primary eye care providers who first diagnose and treat POAG patients, both general ophthalmologists and optometrists, to the possibility and benefits of earlier MIGS intervention, regardless of the patient's lens status. We are currently developing methods to track our progress in the standalone segment on a more consistent and reportable basis and look forward to sharing more information about our progress in the coming quarters. We believe the standalone mild to moderate POAG segment is the most exciting in all of MIX. We couldn't be more thrilled to be in a position to deliver the power of sight to adult POAG sufferers who do not require cataract surgery. So that summarizes our first two value drivers. continuing to take share in the existing combination cataract MIG segment and leading the development of the much larger standalone MIG segment. Moving on now to our third value driver is our tier care system and development program. We currently market tier care as a power heating pad for the application of localized heat where the current medical community recommends the application of a warm compress to the eyelids. We purposefully built tier care to deliver a precise, and tightly controlled level of thermal energy through the outer eyelids over a 15-minute period in a comfortable office-based procedure. After over five years of product and clinical development and multiple rounds of iteration and product optimization, we introduced TierCare in mid-2019 in a controlled launch with approximately 10 reps covering the entire United States. Gathering additional data to demonstrate TierCare's safety and effectiveness through clinical trials, advancing dialogue with third-party payers regarding appropriate coverage and payment for tear care treatments, and working with the FDA to obtain clearance for an expanded indication for use for dry eye disease and MGD are key pillars of our tear care strategy. Dry eye complaints are the number one reason for patient visits to an eye care provider, and there are over 17 million people diagnosed with dry eye in the U.S. Out of an estimated nearly 40 million total dry eye patients in the U.S., and 739 million global sufferers. We believe the U.S. market for effective MGD treatment procedures could exceed $10 billion annually. Dry eye is a multifactorial disease that is typically characterized by insufficient tear production, known as aqueous deficient dry eye, or poor quality tears that evaporate too quickly, known as evaporative dry eye. Recent studies have determined that evaporative dry eye which is most commonly associated with meibomian gland disease, or MGD, is associated with 86% of dry eye cases. Yet dry eye treatments that aim to treat aqueous deficiency or inflammation represent 95% of manufacturer revenues. This represents a huge disconnect between the way dry eye is treated today and the actual underlying cause of disease. We studied dry eye extensively and concluded that the optimal way to help patients suffering from this potentially debilitating disease was to develop an effective way to treat MGD, the most common cause of dry eye. Meibomian glands line the top and bottom eyelids and produce an oily secretion called meibom. In healthy eyes, meibom has a clear olive oil-like consistency and forms the outermost lipid layer of tears. Meibom is released with each blink and forms a protective barrier over the tears and prevents premature tear evaporation. When the glands become blocked or obstructed, meibom gets trapped in the glands and hardens. As the disease progresses, the consistency of meibom can degrade to a toothpaste-like consistency, which precludes it from reaching the tear film and providing protection against premature tear evaporation. Despite the prevalence of MGD as the leading cause of dry eye, treatments have focused on over-the-counter and prescription eye drops that either treat aqueous deficiency or inflammation. The leading prescription dry eye eye drops have annual revenue in excess of $1.5 billion, yet none are indicated for or have a mechanism targeting the number one cause of dry eye, MGD. Currently, Medicare and commercial insurers have not established any meaningful reimbursement for MGD treatment procedures. We at Sight Sciences have developed a very thoughtful, well-informed, and long-term strategy designed to change that. Although we believe that a patient-paid business model for TierCare exists based on our own experience to date, we also believe that to maximize the reach of our procedure and technology and provide a comprehensive solution for the broadest range of MGD sufferers, patient access and appropriate reimbursement for clinicians utilizing TierCare must improve. We are seeking to expand TierCare's indication for use and are working with the FDA on this front. Our current controlled launch of the product for its indication has allowed us to begin commercialization with specialized and reputable customers while also initiating our long-term focused care care market access strategy. Just as we built site sciences for the long term, we are taking a long-term approach to developing devices for potential MGD indications. We have chosen not to maximize short-term revenue in favor of a more thoughtful strategy that has the potential to provide access to care care for the largest number of patients with MGD. if cleared for an expanded label. Now, moving on to clinical evidence, which is critical to everything we do. Generating robust clinical evidence is crucial to development and commercialization of our products. Beginning with dry eye and our Olympia RCT, tear care was associated with statistically significant clinical improvements in all assessed signs and symptoms of dry eye disease. The results of Olympia were published in a leading peer-reviewed journal, and we expect two other articles to be published in other leading journals in the coming months. We are also pleased to announce that enrollment in our second TierCare RCT, Sahara, is progressing nicely. Sahara is a crucial part of our market access and development strategy for TierCare. Last year, we convened a panel of medical directors from eight payers to understand their criteria for establishing an appropriate coverage and payment program for TierCare. We used very clear and consistent feedback from these numerous payer discussions to design the Sahara Protocol. In this head-to-head RCT that has begun, we are evaluating the efficacy of TierCare as compared to a leading prescription dry eye medication and are also assessing the durability of TierCare treatments over a 24-month period. We look forward to providing you further updates on Sahara and the other facets of our TierCare Market Access Development Plan over the coming quarters as we continue to make progress. Please do keep in mind that patient access for tear care is a long-term endeavor and may not always progress in a linear fashion each quarter, but it's certainly the right strategy to ensure patients have access to treatment as we pioneer procedure-based, reimbursed dry eye, and unlock this multibillion-dollar segment in the process. We also have multiple clinical trials ongoing or planned in MIGS with OMNI, Among the ongoing and planned clinical trials for OMNI are several exciting head-to-head RCTs versus either the leading trabecular bypass stents or eventually versus the standard of care early intervention prescription hypotensive medications. These studies will evaluate the effectiveness of OMNI in reducing intraocular pressure, the only treatable risk factor associated with POAG, and alleviating the burden of hypotensive medications as compared to these alternatives. In terms of completed OMNI studies, the 12-month primary endpoint data from our Gemini study, our first prospective multicenter clinical trial of OMNI in the U.S., was presented at the ASCRS conference in Las Vegas last month. We observed that sequentially performed 360-degree canaloplasty and 180-degree trabeculotomy procedures using OMNI and combination cataract surgeries resulted in clinically significant reductions in both IOP and the need for IOP-lowering medications through 12 months. We plan to submit the results of GemIIni for publication in peer-reviewed journals and present the results at other major ophthalmology conferences in the future. We are also pleased with the progress we are making with the FDA on our upcoming IDE trial for OMNI that, if approved and finalized, will allow us to study the safety and effectiveness of canalopathy-only procedures using OMNI and U.S. clinical trials. We expect to have further updates resulting from our discussions with the FDA on our canaloplasty alone IDE within the coming months. As a reminder, OMNI is currently cleared for canaloplasty followed by trabeculotomy to reduce IOP in adult patients with POAG. The purpose of a canaloplasty alone study under IDE would be to seek FDA clearance for a new indication for use for OMNI for use in canaloplasty only procedures to reduce IOP in adult patients with POAG. If Omni is cleared for this new canaloplasty-only indication, we believe this new indication for use would provide surgeons with additional flexibility to customize treatment based on the needs of each POAG patient. We have also made significant progress with Trident, our multinational European RCT. We expect to begin enrolling patients in the fourth quarter across seven countries in Europe. This 12-month RCT aims to study a total of 459 patients mild to moderate open-angle glaucoma patients who will receive on a standalone basis either canaloplasty followed by trabeculotomy using OMNI, canaloplasty only using OMNI, or implantation of trabecular bypass stents. We are particularly excited about Trident because it represents our very first opportunity to compare the performance of OMNI against MIG stents on a standalone basis across a large population, and we are eager to complete enrollment. At the annual meeting of the American Society of Cataract and Refractive Surgeons, or ASCRS, last month, physicians presented the results from five of our clinical studies featuring omni and tear care. Participation and leadership at important meetings like ASCRS are great opportunities for us to present our clinical trial results to a broad audience of ophthalmologists and optometrists and connect with longtime thought leaders, customers, surgeons, and friends. We will continue to make Our presence felt at other eye care industry events in the future, including the annual meeting of the American Academy of Ophthalmology in November and major optometry conferences like AOA and AAO. And finally, moving on to reimbursement and market access. Last month, as many of you may be aware as it relates to MIGS and OMNI, CMS released new proposed fee schedule rules for payments to physicians and outpatient facilities for 2022. These results are subject to a 60-day review period and may be further revised before finalized in November and taking effect on January 1st. Proposed payments related to CPT code 66174, which is used for OMNI procedures, were among those that were revised. The proposed national payment to physicians for 66174 would be $739, a $211 reduction from the current rate. While we are disappointed in the proposed reduction and plan to engage with CMS to increase the recognized value of this procedure in the final rule, we believe the proposed payment, if finalized, will still provide an adequate payment to physicians. We note that this proposed payment still exceeds the proposed payment to physician for cataract surgery by over $200. The proposed payment schedule for outpatient facility is billing CPT code 66174 featured modest increases of about 3% in both the ASC setting, which accounts for approximately 80% of OMNI's revenues, and the HOPD setting. CMS has proposed a 3.5% increase to $1,937 for canaloplasty in the ASC setting, and a 2.6% increase to $4,019 for canaloplasty in the HOPD setting. Under the proposed fee schedule, ASCs would receive over $800 more for a standalone OMNI procedure than for a standalone cataract procedure. In the HOPD setting, the difference is over $1,800. As we have discussed previously, we continue to seek device-intensive status for CPT code 66174, which covers devices including OMNI, in the ASC setting. Device-intensive status for code 66174, if approved, could result in a meaningful increase in payments to ASCs. We continue to work with our societies, CMS, and other stakeholders to encourage assignment of device intensive status, and we will report back when we have more clarity on the subject. The proposed rates cited above do not include device intensive designation for OMNI procedures. CMS and other payers rely in part on review of relevant medical literature when making coverage and payment decisions. We believe that our clinical trial program and subsequent associated peer-reviewed articles will provide further evidence regarding the effectiveness and safety of our products and support decisions regarding coverage and appropriate payments related to use of our products. Additionally, our market access team intends to supplement clinical efficacy and safety data packages with quantifiable health, economic, and outcomes information to illustrate the value of our product to payers and, more importantly, our patients' quality of life. we will continue to work with the major ophthalmology societies, patient advocacy groups, and influential physicians to advocate for appropriate patient access on behalf of Omni and TierCare. The proposed fee schedule also included changes to the billing codes and payments to physicians and facilities related to trabecular bypass stent implantations performed in combination with cataract procedures. The category three CPT code 0191T used for trabecular bypass stent implantation since 2008 will be replaced with new permanent Category 1 CPT codes describing trabecular bypass stent implantation in combination with cataract surgery. While we have analyzed these new codes and proposed payment amounts internally, we will not speculate on proposals related to other products or any impact such proposals could have on surgeons and facilities. The proposed fee schedule rules are publicly available, and we urge investors to draw their own conclusions after careful analysis. I will now turn the call over to Jesse Thelnik, our Chief Financial Officer, to discuss our second quarter financial results. Jesse?
spk09: Jesse Thelnik Thanks, Paul, and good afternoon, everyone. Our total revenue for the three months ended June 30th, 2021 was $12.5 million, which was a 258% increase from $3.5 million in the same period of 2020, and a 45% sequential increase from $8.6 million in the first quarter of 2021. Our results in the second quarter of 2020 were materially impacted by COVID-19-related elective procedure shutdowns during that period, and to a lesser extent were impacted during the first quarter of 2021 due to what we observed to be patient-driven cancellations. We were encouraged in the second quarter of 2021 that the operating environment closely resembled that during pre-COVID periods, with what we observed to be normalized cataract and glaucoma procedural volumes and controlled but open commercial access to facilities for prospecting and training eye care providers on Omni and tear care. All of that being said, we are closely monitoring the Delta variant and its impact on our end markets. To date, the primary observable impacts from the Delta variant have been related to operating practice restrictions, as opposed to noticeable widespread procedural volume impacts. However, just this week, we've been informed of some Delta variant related cancellations of Omni cases by both patients and surgeons. Again, we continue to monitor these developments extremely closely. Our combined gross margin for the second quarter of 2021 was 82%, as compared to 40% in the corresponding prior year period, and 73% in the first quarter of 2021. The drivers of this increase will be discussed more in depth as we get into segment performance. Our surgical glaucoma segment revenues, which is from the Omni product, for the second quarter of 2021 were $12 million, up 263% from $3.3 million in the second quarter of 2020, and a sequential increase of 47% from $8.1 million in the first quarter of 2021. Sales of Omni benefited from a number of factors, primarily driven by an increase in the number of new accounts sold in the quarter, due in part to what I mentioned as a selling environment that had more normalized commercial access to customer facilities, as well as increased utilization per active account. In addition, the comparative results benefit from seasonality factors in the second quarter and fewer COVID-related impacts during the quarter. Gross margin in surgical glaucoma was 85% in the second quarter of 2021, compared to 54% in the prior year period and 77% in the first quarter of 2021. The observable sequential improvement from the first quarter of 2021 was primarily the result of our transition in the first half of this year from a more specialized R&D-oriented development partner for our production to a low-cost, high-volume contract manufacturer. Further, as we continue to scale the Omni business within Surgical Glaucoma, our gross margins will benefit from greater absorption of fixed-cost labor and overhead. In our dry segment, revenues were $0.5 million in the second quarter of 2021, which is up 169% from $0.2 million in the corresponding prior year period and an increase of 10% or $51,000 sequentially from the first quarter of 2021. Similar to our surgical glaucoma segment, our dry eye sales benefited from a more normalized selling environment with respect to COVID than comparative periods and seasonality factors. In addition, our second quarter of 2021 results benefited from a growing number of new facilities sold vis-a-vis prior periods, as well as a larger base of reordering customers as we continue to build our embedded customer base on a focused basis. Gross margin in dry was 3% in the second quarter of 2021 versus negative 184% in the second quarter of 2020, and 11% in the first quarter of 2021. The improvement in gross margin from the comparable 2020 period was due to a significant increase in units sold in the 2021 period. In general, we expect tier care gross margins or dry eye gross margins to run in this year-to-date range until we begin to accelerate our commercial investment and increase our revenue base for dry eye, which will cover fixed labor and overhead costs. as well as grow our installed base of eye care providers, which will shift our mix more towards smart lid sales, which are the higher margin single use component of the system. Note we typically sell our smart hubs on a cost plus basis. Total operating expenses for the second quarter of 2021 were $21.6 million, which is 138% increase from $9.1 million in the second quarter of 2020 and an 18% increase from $18 million in the first quarter of 2021. Not surprisingly, as we've gained traction in the launches of both Omni and TierCare, and in preparation for our initial public offering, we have been consistently scaling our business and our business investment. Another specific factor which contributed to the increase of year-over-year OpEx was the accounting treatment of our $2.2 million Paycheck Protection Program, or PPP loan, which we received in the second quarter of 2020 which was forgiven in the second quarter of 2021. Our PPP loan was accounted for similar to a government grant, and where specifically the earnings impact of the loan was recognized in the earnings in the period in which we recognized the cost. And so really, you know, that's what the loan was intended to accomplish. In our instance, because we utilized the loan proceeds in full in the second quarter of 2020, this effectively resulted in an expense offset of $2.2 million to our second quarter of 2020 operating expenses. or understating what was actually incurred for the principal amount of the PPP loan. I will now walk through the primary paths in future areas of our OPEX investments in greater detail. SG&A expenses for the second quarter of 2021 were $17.8 million, compared to $7.7 million in the second quarter of 2020 and $14.6 million in the first quarter of 2021. The increase in SG&A expenses was primarily due to our continued investment in scaling of operations and corporate headcount, to support our growth. As an example, in the first quarter of 2021, we expanded our Omni field team from 38 quota-bearing hunter reps to 61, and at the same time added marketing, training, and support personnel to support the growth. While we do not have a specific plan to expand reps for either business segment at this point in time, we will continue to be opportunistic when and if we see the opportunity to further accelerate our growth with attractive returns on incremental investment. In addition, over the periods presented, we made meaningful investment in our corporate systems and personnel and finance, accounting, human resources, legal and compliance, in preparation for operating as a public company and our continued business growth. R&D expenses for the second quarter of 2021 were $3.5 million compared to $1.4 million in the second quarter of 2020 and $3.4 million in the first quarter of 2021. The majority of the increase in R&D expense from 2020 to 2021 was due to three factors, an increase in personnel expenses as a result of increased headcount as we built out our clinical regulatory and R&D departments, contract manufacturing lab supplies and product prototype development expenses for tier care, and costs associated with clinical trials. We expect our R&D expense to continue to grow over the near term as we execute our clinical roadmap across both core products, and as we build out our internal R&D operational team to enable us to execute our product enhancement and development roadmap. Overall, loss from operations for the three-month end of June 30th, 2021 was $11.1 million compared to a loss of $7.7 million for the same period in 2020 and a loss of $11.7 million in the first quarter of 2021. We had a net loss of $17.6 million or $1.83 per share for the second quarter of 2021 based upon a weighted average pre-IPO share count of 9.6 million shares, compared to a loss of 8.3 million or 88 cents for the second quarter of 2020, based on a weighted average pre-IPO share count of 9.5 million shares. We ended the second quarter of 2021 with 35.6 million of cash and equivalents and 32.3 million of long-term debt. We were very pleased to complete our initial public offering last month, which generated net proceeds of approximately 253 million. which obviously puts us in an excellent financial position to make necessary investments to continue to scale our existing MIGS business, to execute robust clinical trials, to expand the indications for use for our products, and to advance our market access initiatives, and ultimately to develop new products such as new product markets such as standalone MIGS and procedure-based dry eye. One of the financial accomplishments we take a lot of pride in in site sciences has been our return on invested capital. As of June 30, 2021, we had invested approximately $120 million into our business. And with that capital, we've been able to create a substantial return when you consider that that level of investment has enabled us to bring two disruptive products to market, with strong clinical support and commercial traction, and further when you compare it to our current market value. We intend to continue to maintain this discipline and focus as we invest our IPO proceeds in the high ROI areas. Turning to our outlook for 2021, we expect full year 2021 revenue to be in the range of 46 million to 48 million, representing growth of 66% to 74% over our 2020 revenue. This guidance reflects a continuation of the growth trends we've been seeing in each business in recent quarters through the remainder of the year, with no incremental benefit from additional sales resources, although we are actively evaluating the potential to increase that opportunistically. This guidance takes into account seasonality patterns and a presumption of the operating environment that we saw in the second quarter of 2021 and to date in the third quarter as it pertains to COVID-related restrictions and the scheduling of elective procedures and our team's access to customer facilities remains consistent through year-end, specifically meaning no pronounced worsening from the current commercial environment that we're seeing. Further, we are not assuming any explicit in-year step function benefits from the proposed CMS payment rules. These rules are still in proposed form. They will not be finalized until November 2021 and are subject to change in the interim and will go into effect only on July 1st, 2022. As we get greater visibility of the potential acceleration of surgeons switching to or increasing utilization of Omni, we will, of course, update our view on the potential revenue impact to you. So with that, I'd like to turn the call back over to Paul for closing comments. And after that, we'll open it up for Q&A.
spk04: Thank you, Jesse. As I said earlier, we built site sciences for the long term, and our pledge to deliver the power of site to patients with eye disease is unwavering. We are grateful for the support from all of our investors, customers, eye care providers, team members, societies, payers, and other stakeholders. While we were thrilled by the outcome of our successful IPO, the most important result is that our newest investors entrusted us with their capital, which we will deploy with a singular focus on achieving our full potential. We look forward to updating you on our business again in a few months. We will now open up the call for questions. Jesse and I will be joined by Sean O'Neill, our Chief Commercial Officer, to answer your questions. Operator?
spk10: Thank you, sir. As a reminder, if you have questions, please press star 1. Again, that is star 1 to ask a question. Our first question comes from the line of Cecilia Furlong of Morgan Stanley. You may ask your question now.
spk02: Great. Thank you, and good afternoon, and thanks for taking the questions. I wanted to start off with Omni and really just ask what you've seen since you received the new label in terms of standalone volume trends as a percentage of your total OMNI procedures versus what you saw in 2020 at the 20%, just how the label is really resonating with physicians and then the impact on being able to expand into standalone.
spk04: Hi, Cecilia. Maybe Sean, Jeffy, and I can all tag in this one. I'll just start off with just some comments on the label itself to make sure that everyone's on the same page. The omni-surgical system is indicated for canaloplasty, microcatheterization, and transluminal visco-dilation of Shlem's canal, followed by trabeculotomy, cutting of trabecular meshwork to reduce intraocular pressure in adult patients with POAG. Importantly, what you don't see in our label is a restriction to advanced or refractory disease. You also don't see anything about LEM status or in combination with cataract surgery. So Omni is broadly indicated for IOP lowering in adults with POAG. We believe our label is the holy grail indication within the mixed category, and we were very appreciative of our highly productive, thoughtful, collaborative FDA review process late last year and early this year, which ultimately resulted in our expanded label in March. So OMNI has been many years in the making, and it's comprehensive and reproducible procedure profile. Again, 360 degrees of treatment through two procedures targeting all three sources of outflow resistance. And the resulting clinical data we provided to the FDA was fortunately compelling enough to warrant this very strong clearance. The expanded label is particularly important for us at CITES and omni because we differentiate ourselves on efficacy. We ask our surgeons to do more and perform significantly more angle surgery, again, two sequential procedures up to 360 degrees each to hopefully drive more consistency of efficacy and more robust efficacy. This consistency is particularly important in standalone surgery where omni angle surgery would be the only reason for the visit to the operating room. So we couldn't be more thrilled about our label that now allows us to educate the market referring ECPs and surgeons on Omni. It allows us to share our compelling clinical data in combo cataract and standalone and thereby effectively develop the much bigger and largely greenfield mild to moderate standalone market. Sean, Jesse, do you guys want to talk about what you've seen in the market and as it relates to increasing use of Omni and standalone?
spk08: Yeah, absolutely, Paul. Hi, Cecilia. This is Sean. Yeah, one of the things that we have always leveraged and discussed with even right at the beginning of the demand creation and bringing on new surgeons is the value proposition of standalone. The label, since the label, it really gives us an opportunity to hone in on that part of the value proposition. And with that, it's been well-received. I think it's been an accelerant to get new surgeons on board. but also has been well-received from an adopted surgeon standpoint. And we are currently, as Paul mentioned in the opening comments, preparing and launching an industry leadership level education, disease state education campaign around mild to moderate standalone patients to the eye care provider, primary eye care providers, as well as to patients, and that'll be forthcoming as well, which we believe will have, you know, again, additional impact on expanding into that standalone space.
spk02: Great. Thank you for the color. And if I could ask as well, just in terms of account openings, being able to leverage the new label that you have, can you just walk through what you saw in 2Q and really after 2Q, either with COVID headwinds abating, being able to access sites, but really, of the ability for your sales force to leverage this new label to open new accounts. And thank you very much.
spk08: Yes, Cecilia, this is Sean again. The opportunity that the new label really provides us is the ability to not only share the value proposition I spoke of a second ago, but also to share the data behind the product and really demonstrate the consistency and the efficacy that you get with Omni when treating primary open-angle glaucoma in adult patients. And with that, that's what's really been allowing us, I believe, to be the seller in a normalized selling environment when our sales reps have the opportunity to share that data, the compelling data that we have, and get the surgeon and the administrators in the facilities excited about bringing Omni in for additional patient care for the primary open-angle glaucoma patients.
spk10: Thank you. Our next question comes from the line of Joanne Wench of Citibank. Your line is open.
spk01: Thank you for taking the question. Can you hear me okay?
spk05: We can.
spk01: Excellent. Wonderful. Two things. The first one was... With the reimbursement changes that are on the table, what do you think the impact will be to your business model? And do you anticipate that it will start as we exit this year or sort of, you know, once it's finalized, or maybe even in January? Like, I'm just trying to understand, given your conversation with physicians, the type of feedback that you've been receiving.
spk05: Yeah.
spk04: Hi, Joanne. I'll just comment a bit, and then, Sean, if you want to add some color. I think, you know, we discussed the proposed adjustments that are not yet finalized, but if finalized, there's an adjustment to CPT66174 reduction to $739. In speaking with surgeons and KOLs during ASTRS a couple weeks ago, they were very encouraged by Omni's 12-month prospective multicenter U.S. clinical data on IOP lowering effects, duration, and maintaining target IOP levels, and the ability for patients to lower the number of their topical drop medications or go completely off drop therapy. So we're ultimately confident that given Omni's clinical benefits, this proposed speed reduction, if implemented next year, will not lead to a negative disruption for Omni. utilization given its proven efficacy and safety profile in a real-world setting of care. Now, that being said, we think the ROCS recommendation was thoughtful and thorough, and we fully support that recommendation. It would have resulted in a more accurate work value. We will be providing comments to CMS with additional information to hopefully inform a more appropriate work value and believe there is room for improvement for the 66174 physician fee since We don't believe the proposed value takes into full consideration the value of OMNI technology and the time and intensity required to perform a canaloplasty, and more specifically, a circumferential canaloplasty followed by a circumferential trabeculotomy. The evaluation of EPT66174 we don't think takes into account the skills involved in the concomitant trabeculotomy procedure performed using OMNI for their label.
spk01: Okay. And the second question. Yeah, thank you.
spk08: Hi, this is Sean Dwayne. Yeah, I agree with Paul's comments, especially around the feedback that we did receive at ASCRS as the proposal was very fresh in everyone's minds. The surgeons that we spoke with, we're really pleased with the responses that they had in terms of the increase on the facility side of the 3.5%, obviously, is favorable from a facility standpoint for surgeons that have financial ownership in some of their facilities. And then to Paul's point, we believe we have additional opportunity on the physician side. But overall, from a relative standpoint to other alternatives, the surgeons were still very positive on the reimbursement amount as relative to alternatives for 66174.
spk01: Thank you. My second question has to do, at the beginning of this conversation, you talked about investing aggressively in clinical and commercial. Can you just give us two or three examples of those levels of investments that you're looking towards? Thank you.
spk04: Yeah, so, how are you doing? It's Paul. On the clinical side, we have a very rigorous clinical roadmap across both omni and tier care. I think of it in three buckets. One, omni standalone, clinical studies and publications. Number two, omni combination cataract, clinical studies and publications. And number three, tier care. So I'll just talk about the larger studies. In omni standalone, we have One prospective RCT that's underway in Europe, that's omni-standalone versus trabecular micro-bypass stenting standalone. Three-arm study, about 450 patients at 22 sites across seven countries in Europe. And then we have three additional studies for omni-standalone that are retrospective studies. We're really excited about initiating this large RCT, and a patient should enroll by the end of the year. Then in Omni, in combination with Cataract, we have a prospective single-arm study that's concluded. Jem and I discussed that in the prepared remarks, and we're looking forward to publishing that 12-month data soon. We have a prospective RCT that we hope to – kick off soon. We are in discussions with the FDA around an IDE for that study, and I'd mentioned it in my prepared remarks, and that will hopefully, if successful, lead to a canaloplasty alone indication. We're looking forward to executing that trial in due course, and then we also have two additional retrospective studies that we're going to be executing. All of these studies I'm mentioning, they should have some important milestones either study initiation, patient enrollment, and or publications within the, you know, 12 to 18-month timeframe. And then lastly, on tier care, another four studies that should have some milestones in the next 12 to 18 months. One is the prospective RCT that we're super excited about, and I talked about in the prepared remarks. That's tier care versus Restasis. It's a two-year trial. with two goals, one to compare to Restasis, and hopefully we can show tier care superiority at the six-month endpoint. And then the second goal of the study, again, based on feedback from discussions with payers, was to show durability of treatment effect. So we're going to cross over all of the Restasis patients to tier care at six months and then run that study through to two years to show durability of treatment effect. In addition to that prospective RCT in the U.S., Sahara. We also have three retrospective studies that are either underway or will soon be underway, again, with milestones and hopefully publications in the next 12 to 18-month timeframe. So, again, we're super excited to execute all these trials. We spend a lot of time, again, as I had mentioned, on product development and truly addressing the underlying causes of disease. We believe that puts us in a very competitive, safety and efficacy position, and so we love to invest heavily in the clinical data that validates our thesis.
spk01: Thank you.
spk04: Sure.
spk10: Once again, if you have questions, please press star 1. Our next question comes from the line of Matthew O'Brien. Oh, your line is now open.
spk07: Thanks for taking that question. Paul, can we just flesh out a little bit more on the reimbursement side just to follow up on Joanne's question? You're talking about this one code that's potentially impacted in the proposal, but I think the market leader in MIGS has proposals in a couple of areas that are scheduled to be down meaningfully. I just think on a relative basis, you're probably in a little bit better position than, again, the market leader and then another player in the space. So, you know, I'm just curious if you've seen, and maybe Sean can talk a little bit about this, just an increase in the number of competitive clinicians that are coming to you just to ask about Omni in response to this. Maybe it's too early. And then, you know, even in the near term here, I know these are all proposed, but is there something you can do from a marketing perspective to really highlight the potential difference here and really drive more clinicians over to site in the near term? Yeah.
spk05: Hey, Matt, Sean, maybe you and I can tag team on that one.
spk04: You know, I think all along we've built tight sciences with a laser focus on trying to be best in class clinically and best in class from an efficacy position. So that's how we view kind of our jobs. And we've been commercializing Omni especially since that label expansion that allows us to share that differentiated clinical data. We're just really excited to lead first as we always do with safety and efficacy first. So as it relates to what's happened in the field, And with respect to the new codes and proposed values for combination cataract and stent procedures, our understanding, CMS proposed to reduce the independent value of inserting stent during a cataract procedure as compared to current payment amounts. You know, we think that if you look at the overall clinical and economic value that surgeons may reconsider, I mean, that's That's kind of what we've seen, at least. Sean probably has more insight into it. But, again, I think you get to add up the clinical and economic value, and surgeons will make their determination. Sean, do you have any color on?
spk08: Yeah, Matt, I'm happy to give some additional color to that. Okay. Obviously, there are proposed rules right now, so I think it's too early to – one of your questions was on a timing. I think it's too early to say that there's a meaningful change in the transition of customers outside of the demand that we're already creating, which is, as Jesse shared with the numbers, has been really, really positive for Omni. And to that stand, we are obviously focusing our marketing efforts on making sure that demand creation is built off of the consistent efficacy delivered by addressing all three points of resistance in the conventional outflow pathway. And we're obviously sharing our known economics for 66174 so that both all stakeholders, the facility managers, as well as the surgeons understand what the financial aspect of performing an omni procedure is. And again, the sentiment right now is even under the proposed rule that those are positive opportunities for both those stakeholders. And so we're going to just continue to focus our message on those things, and we feel like that puts us in a position to not only, you know, compete in that combo space, but also take and develop the leadership position in the mild to moderate standalone arena.
spk07: Okay, thanks for that. And then for Jesse, I don't want you to feel totally left out here. One, you know, for you, but it's got a couple parts to it. The guidance for the year is completely understandable that you're trying to keep it in this range. It doesn't assume much sequential improvement, you know, throughout the back half of the year. Is that really COVID specifically? And you mentioned some cases that were getting canceled. Are you just kind of assuming now that those get pushed into 2022 at this point? I'd just love to hear a little bit more on that. And then with the size of the IPO, I think you talked a little bit about this too. I mean, is there any potentially for you guys to accelerate, you know, Salesforce expansion, other marketing activities, et cetera, here in the near term, which we could see impacting 22. Thanks.
spk09: A couple things, Matt. And thanks for letting me not feel left out. I was getting a little sad. Second quarter, we believe, is the seasonally strongest quarter, right? And I think when you couple that factor with the fact that, we believe that the second quarter for us at least was a greater than a hundred percent quarter. It's kind of something we talked about on the roadshow a lot, um, given that we had that preliminary number, um, that, you know, we didn't expect much sequentially from the third quarter, which is actually a sequentially weak quarter, um, heightened a lot, um, this quarter, I think just given the Delta noise, but also just in terms of, um, patient and surgeon availability for procedures. And so it does, you know, we do anticipate nice sequential growth, but we're really kind of with that one exception and that exception being that we had already discussed that we thought second quarter, second quarter Omni results were, were extra strong and that the third quarter is seasonally a weaker quarter than the second quarter in terms of, of procedural volume. You know, with respect to the proceeds, you know, I will say this. We're keeping a close eye on the market dynamics that, yes, the guy's about. You know, we want to be opportunistic. You know, we had a plan that we presented last month, and then obviously during that roadshow process, some potential, you know, changes to the competitive dynamics propped up. We haven't, we're still watching, right? But, you know, if we see pockets or verticals or geographies where we can accelerate, we will. Same thing on the tier care side. But, you know, it's kind of still that kind of prudently aggressive philosophy we've taken historically about how we'll spend it. But obviously we'll keep a very close eye on the mixed market in the near term and see if there's some attractive opportunities that pop up. Got it.
spk07: Thank you.
spk10: Our last question comes from the line of Clay DeMarcus from Bank of America. You may ask your question now.
spk06: Hey, guys. Congratulations on the first earnings call, and thanks for taking the questions. Two from me. First one kind of building on Cecilia's earlier question. As you think about the guide and that 20% of your mix coming from standalone last year, how do you think about that mix being reflected in the 2021 guide and then longer term also? How do you expect that mix to kind of shift as you further pursue the standalone opportunity? And then the second question, if you could just expound a little bit on the canaloplasty-only label, how significant do you think that could be in offering physicians further flexibility?
spk04: Hey, Clay. Good to reconnect. Jesse or Sean, do you want to tackle the first question? I can tackle the second. I mean, Clay, I can tackle the second question first. We think the canaloplasty alone label will be helpful. There's We view the overall MIGS category just to generalize or simplify and think of six buckets. So you have combo cataract and standalone, and within each of those, you've got mild, moderate, or severe. And in that mild combo cataract segment, I think surgeons are really serious about ensuring, you know, day one post-op visual acuity. They want perfect outcomes and they want their patients to be really, really stoked about their vision on day one post-op. So offering something that is more gentle, like an alloplasmic procedure, I think would be very well received in that mild combo cataract segment. I think as it relates to you know, moderate or advanced combo cataract or mild, moderate, severe, standalone. You know, we like our position by, you know, the current label for canaloplasty and trabeculotomy. And, you know, having the surgeons perform two sequential procedures that allows them to address all three sources of outflow resistance and do so for up to all 360 degrees of the disease conventional outflow pathway, we think that functionality is necessary in those other categories. So hopefully that helps explain where we think it has, that canaloplasty alone has a nice positioning, again, if successful with our IDE and clinical trial.
spk09: And, Clay, this is Jesse. I'll tackle the first one. So second quarter was very strong in terms of utilization, you know, per our customer, per facility. So we believe it was – when we look at it, probably beyond what organically happened, which would inform sort of my comments to Matt about – that we thought that the second quarter had some, you know, was a little bit greater than 100% quarter, right? We just saw some volumes from some very steadily ordering customers that were beyond what we were used to seeing from them. That being said, I think a big part of that is expanded use case as well. It's not all filling patient backlog or anything like that. And it was kind of across the board very strong demand you know, in terms of relative utilization to previous periods. You know, that comes in one of two ways, right, or one of three ways. We're either gaining more share within sort of the profile they've been using Omni for, they're expanding their use case for severity, or they're moving into standalone procedures. So we know it's uplifting. It definitely was uplifting on an accelerated basis. And as you're aware, and anyone that spent a lot of time with us in the roadshow or prep process, we're still figuring out a way to be able to more systematically measure our standalone mix as a percentage of whole. So a lot of the leading indicators and, like, what you would infer from the result were nice progress on standalone. We just don't have the ability to sort of convey that with – with a confident metric that's repeatable at this point in time. Okay, thanks.
spk10: And that concludes the Q&A session. I will now turn the call over back to Paul Badawi for closing remarks.
spk05: Well, thank you all.
spk04: We enjoyed our first earnings call.
spk05: Hopefully it was informative for everyone and we look forward to keeping everyone up to date on all the progress at Site Sciences. Thank you very much.
spk10: And that concludes today's conference call. Thank you again for participating. You may now disconnect.
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