A Primer on Iridex

Improving fundamentals meet a declining share price..

Introduction

• Iridex (IRIX) produces laser-based medical devices used for treating glaucoma and retinal diseases (its two segments).

• The company went through a lengthy process in which it put itself (or parts of it) for sale, this process ultimately didn’t produce the desired results, as interested companies were themselves acquired, even if the company managed to get a strategic investor onboard for $10M (and a possible additional $10M for M&A to leverage its existing distribution channels and customer base).

• The lack of selling the company has hammered the stock, but underneath, fundamentals are actually improving.

• While retina is its core business, good for 66% of revenues and growing at 3-4%, glaucoma has better growth opportunities and can leverage its existing retina infrastructure.

Products

• Iridex Corporation develops, manufactures, and markets a range of innovative and versatile laser-based medical systems, delivery devices, and consumable instrumentation for the ophthalmology market. Their products are primarily used for the treatment of glaucoma and retinal diseases. Iridex's product strategy is system-oriented, with laser consoles forming the base, complemented by interchangeable delivery devices and single-use disposable probes for specific clinical applications. Here's a breakdown of Iridex's product lines:

1. Laser Consoles:

These systems generate the laser energy used for various treatments. Iridex's laser consoles incorporate solid-state and semiconductor laser technology for portability and reliability. The main product lines include:

• Glaucoma Consoles:

  • Cyclo G6 Laser System: An infrared (810nm) laser designed for a range of glaucoma disease states. It is used with disposable probes like the patented MicroPulse P3 probe (utilizing MicroPulse technology), G-Probe, and G-Probe Illuminate.

  • PASCAL Laser System: Available in 532 nm or 577 nm wavelengths. It supports Pattern Scanning Laser Trabeculoplasty (PSLT) for reducing IOP in open-angle glaucoma. It now also offers MicroPulse Technology and Endpoint Management Technology, expanding treatment capabilities.

  • IQ Laser System: Primarily a medical retina console but also supports glaucoma laser treatments like single-spot laser trabeculoplasty using MicroPulse technology.

• Medical Retina Consoles:

  • IQ Laser System (IQ 532 and IQ 577): Portable systems with MicroPulse technology and CW capabilities. The IQ 577 delivers yellow (577nm) and the IQ 532 delivers green (532nm) laser light. They are used with delivery devices like the TxCell Scanning Laser Delivery System and Slit Lamp Adapters.

  • PASCAL Laser System: An integrated workstation with Endpoint Management technology and MicroPulse technology. It is ideal for multispecialty practices as it can also be used to treat glaucoma (PSLT).

• Surgical Retina Consoles:

  • OcuLight TX: Delivers visible green (532nm) laser light.

  • OcuLight SLx: Delivers infrared (810 nm) laser light and features MicroPulse technology. These systems are often used in vitrectomy procedures.

2. Delivery Devices:

These optical-mechanical products attach to ophthalmologists' diagnostic equipment and transmit laser energy.

• Slit Lamp Adapter (SLA): Allows the use of a standard slit lamp for both diagnosis and treatment of retinal diseases and glaucoma.

• Laser Indirect Ophthalmoscope (LIO): A head-worn device used to treat peripheral retinal disorders.

• TxCell Scanning Laser Delivery System (TxCell): Used with IQ laser systems to perform multi-spot pattern scanning for efficient delivery of MicroPulse laser therapy.

3. Single-use Disposable Probes:

These sterile devices deliver laser energy to targeted regions inside the eye and create a stream of high-margin (80%) recurring revenue.

• Glaucoma Probes:

  • MicroPulse P3 Probe: Used with the Cyclo G6 laser system for transscleral laser therapy (TLT) using MicroPulse technology to treat various types of glaucoma by targeting the ciliary body.

  • G-Probe: Used with the Cyclo G6 laser system to deliver CW laser to the ciliary body to reduce aqueous humor production in refractory glaucoma.

  • G-Probe Illuminate®: Similar to the G-Probe but with built-in transillumination for optimized probe placement in refractory glaucoma treatment.

• Surgical Retina Probes:

  • EndoProbe Handpieces: Used with IQ and OcuLight lasers for endophotocoagulation during vitrectomy procedures to treat conditions like proliferative diabetic retinopathy, macular holes, retinal tears, and detachments. They are available in various styles and sizes.

Key Technologies

Iridex's products utilize several key technologies:

• Continuous-Wave (CW) Laser: Traditional laser technology that delivers continuously-on laser light for photocoagulation.

• MicroPulse Technology: Chops a CW laser beam into short "ON" pulses with longer "OFF" periods, allowing tissue to cool between pulses. This provides finer control and minimizes tissue damage, making it safer for treating glaucoma and retinal diseases.

• Endpoint Management Technology: Uses a proprietary energy delivery algorithm to titrate laser energy to subvisible, tissue-sparing levels for treating retinal diseases and glaucoma.

• Pattern Scanning Laser Technology: Efficiently delivers large laser patterns, reducing treatment time and patient discomfort. The PASCAL system is a prime example, also offering Pattern Scanning Laser Trabeculoplasty (PSLT).

Iridex generates high-margin (80%) recurring revenue through the sales of these consumable products (predominantly single-use probes), as well as repair, service, and extended service contracts for their laser systems. Their products are used by ophthalmologists in various settings, including hospital operating rooms, ambulatory surgical centers, and their offices and clinics.

Local Coverage Determination

• The LCD (Local Coverage Determination) is a policy that came into effect in November 2024 and has changed the reimbursement environment for glaucoma treatments, particularly by placing new restrictions on the use of implantable MIGS (Micro-Invasive Glaucoma Surgery) devices. Management anticipates that this will favor their laser-based glaucoma treatment options. They have started to see utilization increase as a result of the LCD.

Multi-year clinical trial

• Late in 2024, the company announced the results of a 5-year clinical trial with the Iridex Cyclo G6 Laser in MicroPulse Mode with the original MicroPulse P3 Delivery Device for the treatment of both primary and secondary glaucoma, with favorable outcomes:

  • Significant average reduction in intraocular pressure (IOP) by 32.5% (p<0.001).

  • Significant decrease in the need for IOP-lowering medications (p<0.005).

  • Low incidence of complications across a variety of glaucoma types and severities.

  • Only 38% of eyes required retreatment during the five years, with retreatment success rates comparable to initial treatment and no significant increase in complications.

• The company also announced the initiation of a prospective UK clinical study in collaboration with Imperial College Healthcare NHS Trust. This ongoing study aims to further evaluate MicroPulse TLT in a multicenter setting, expanding the clinical evidence base and patient enrollment to assess the therapy's impact under real-world conditions, adhering to strict ethical and regulatory standards

Novel $10M strategic investment

• This is what management had to say about the strategic process, trying to sell (parts of) the company, from the strategic review:

Look, we were in a strategic process and it wasn't a complete failure. We had many interested parties. We were really close with two of them. We were really at the altar with one of them. And quite frankly, those parties entered a strategic process and themselves got acquired. So that was last year.

• Instead, they got a strategic investor in the form of Novel. That investment closed on March 19, 2025 and resulted in $10M of gross proceeds for Iridex, with an option for Novel to fund up to an additional $10M for future growth initiatives. Management mentioned roll-up type M&A, buying cheap small companies and leverage its distribution channel and customer base which are difficult to amass for small companies, from the strategic review:

the cost of doing business and opening up new distribution channels, calling on new doctors is very expensive.

• An initial $10M was invested. This involved the sale of $6M of new Series B Preferred Stock and $4M in aggregate principal amount of notes convertible into Series B Preferred. Novel has an option to invest an additional $10M through "Growth Notes" convertible into common stock.

• The Series B Preferred and the initially issued convertible notes were priced at a common stock equivalent of $2.00 per share. The convertible notes (both the initial $4M and the potential $10M Growth Notes) bear interest at 12% per year, payable quarterly in the form of common stock.

• The investment is considered strategic and not merely a passive cash infusion. It is intended to enhance and intensify Iridex’s involvement in the ongoing consolidation and transaction opportunities within its active markets.

• A portion of the initial proceeds was used to repay the Senior Convertible Promissory Note dated August 7, 2024, with the remaining proceeds intended for general corporate purposes.

• Novel has affiliations with a long-time Iridex business partner and distributor in Asia.

• The evolving strategy related to this investment will be discussed in depth during a special call in mid-April 2025, prior to the ASCRS meeting.