STRATA Skin Sciences, Inc. (NASDAQ:SSKN) is a medical technology company dedicated to developing, commercializing, and marketing innovative products for the treatment of dermatologic conditions. The company's flagship products include the XTRAC® and Pharos® excimer lasers and VTRAC® lamp systems, which are utilized in the treatment of psoriasis, vitiligo, and various other skin conditions. Additionally, STRATA Skin Sciences offers the TheraClear® X Acne Therapy System, a combination of intense pulse light and vacuum technology for the treatment of acne-related skin conditions.
Business Overview
STRATA Skin Sciences' XTRAC ultraviolet light excimer laser system has been a widely recognized treatment among dermatologists since receiving FDA clearance in 2000. The system delivers targeted 308nm ultraviolet light to affected areas of the skin, leading to psoriasis clearing and vitiligo repigmentation following a series of treatments. As of March 31, 2024, the company had 907 XTRAC systems placed in dermatologists' offices in the United States under its dermatology recurring procedures model.
The VTRAC Excimer Lamp system, offered internationally in addition to the XTRAC, provides targeted therapeutic efficacy demonstrated by excimer technology with the simplicity of design and reliability of a lamp system. The Pharos excimer laser system, on the other hand, holds FDA clearance to treat chronic skin diseases, including psoriasis, vitiligo, atopic dermatitis, and leukoderma.
The TheraClear® X Acne Therapy System combines intense pulse light with vacuum (suction) for the treatment of mild to moderate inflammatory acne, comedonal acne, and pustular acne. The TheraClear device was cleared by the FDA through the 510(k) process, and the company is currently focused on expanding its domestic installed base of TheraClear devices under its recurring revenue model.
Financials
For the fiscal year ended December 31, 2023, STRATA Skin Sciences reported annual revenue of $33,357,999 and a net loss of $10,830,000. The company's annual operating cash flow was -$519,000, and its annual free cash flow was -$5,538,000.
In the first quarter of 2024, the company's total revenue was $6,754,000, with dermatology recurring procedures contributing $4,696,000 and dermatology procedures equipment generating $2,058,000. Gross profit for the quarter was $3,080,000, representing a gross profit margin of 45.6%.
STRATA Skin Sciences has been negatively impacted by the COVID-19 pandemic, which led to the suspension of elective procedures in the U.S. and the temporary closure of many physician practices, which are the company's primary customers. The company has also been affected by the Russia-Ukraine war, which has impacted the supply and price of neon gas, an essential component for the proper functioning of its lasers.
Liquidity
Despite these challenges, the company believes that its cash and cash equivalents, combined with the anticipated revenues from the sale or use of its products and operating expense management, will be sufficient to satisfy its working capital needs, capital asset purchases, outstanding commitments, and other liquidity requirements associated with its existing operations for at least the next 12 months.
Turnaround Strategy and Outlook
Under the leadership of CEO Dr. Dolev Rafaeli, STRATA Skin Sciences has been implementing a multifaceted turnaround strategy to drive growth and profitability. The key elements of this strategy include:
1. Increasing direct-to-consumer (DTC) marketing efforts to drive patient awareness and utilization of the XTRAC system. The company has already expanded its DTC program to 6 targeted regions, generating over 500 patient appointments at a cost per appointment of under $300 and a cost per lead of under $40.
2. Optimizing the placement of XTRAC devices by removing underperforming devices from certain clinics and repositioning them in more promising accounts. In the first quarter of 2024, the company removed 32 XTRAC devices and placed 16 new devices, including 6 in comeback accounts that had previously owned an excimer laser.
3. Continuing to grow the domestic installed base of TheraClearX devices and leveraging the reimbursable acne treatment CPT code. As of March 31, 2024, the company had 104 TheraClearX devices placed in dermatologists' offices, with 47 of these clinics submitting reimbursement claims.
4. Maintaining a focus on cost controls, which has resulted in a 14% reduction in operating expenses compared to the first quarter of 2023.
The company believes that the successful execution of this turnaround strategy could increase the average gross recurring revenue per XTRAC device from approximately $21,000 in 2023 to $30,000, which the company last enjoyed in fiscal 2019 before the COVID-19 pandemic. This transition, however, will take time, as a similar turnaround that started in mid-2018 resulted in the fourth quarter of 2019 reaching nearly $8,000 in gross recurring revenue per device.
Geographic and Segment Performance
STRATA Skin Sciences' international business, which accounts for approximately 30% to 35% of its total revenue, has been a key focus area for the company. In late 2023 and early 2024, the company extended its exclusive distribution agreements with its partners in Korea, China, and Japan, which collectively account for over 50% of the company's international revenue.
In the first quarter of 2024, the company's dermatology recurring procedures segment generated $4,696,000 in revenue, while the dermatology procedures equipment segment contributed $2,058,000. Domestic revenue accounted for $4,461,000, or 66% of total revenue, while international revenue was $2,293,000, or 34% of the total.
Risks and Challenges
STRATA Skin Sciences faces several risks and challenges that could impact its turnaround efforts and future performance. These include:
- Continued impact of the COVID-19 pandemic and related disruptions on its operations and customer base.
- Potential supply chain issues and the ongoing impact of the Russia-Ukraine war on the availability and pricing of neon gas.
- Uncertainty around the outcome of state sales and use tax audits, which could result in significant liabilities.
- Ability to successfully execute its turnaround strategy and drive increased utilization of its XTRAC and TheraClearX devices.
- Potential changes to third-party reimbursement policies for laser treatments using its devices.
Conclusion
STRATA Skin Sciences is navigating a challenging period, but its new leadership team has implemented a comprehensive turnaround strategy that shows promising potential. By focusing on increasing patient awareness and utilization of its XTRAC and TheraClearX devices, optimizing its device placement, and maintaining a disciplined approach to cost management, the company aims to drive improved financial performance and return to profitability. While the path ahead may not be without obstacles, the company's proven track record, innovative product portfolio, and strategic initiatives provide a solid foundation for long-term success.