STRATA Skin Sciences (SSKN), known for its XTRAC excimer laser treatment for psoriasis, has had its ups and downs. CEO Dolev Rafaeli, back for a third stint, aims to restore profitability. The company's Q1 2024 earnings call revealed a renewed focus on direct-to-consumer marketing and device utilization, but a key factor may be the potential fallout from a competitor's struggles.

Rafaeli points to 2019 when each of their 820 partner clinics averaged $7,200 per quarter, translating to a healthy $30,000 annual revenue per device. After the pandemic, a shift towards direct-to-provider marketing saw revenue per device plummet 28% to $5,200 per quarter in 2023, even with an expanded base of 923 devices.

The turnaround strategy involves optimizing the install base by removing underperforming devices and reviving direct-to-consumer marketing. This mirrors Rafaeli's past successes, emphasizing patient demand as the engine of growth.

The AviClear Shadow

An intriguing subplot revolves around STRATA's TheraClearX acne treatment system. With 92 devices placed under the recurring revenue model, the company is transitioning from cash-pay to insurance reimbursement.

Rafaeli alludes to an unnamed competitor's "disappointment" in attracting patients through both cash-pay and insurance. The context points to AviClear, Cutera, Inc.'s laser treatment for acne. Despite initial buzz, AviClear's adoption appears limited, potentially due to pricing and insurance coverage issues.

STRATA sees an opening here. TheraClearX, with an 86% insurance pre-authorization approval rate, positions itself as the affordable, reimbursable alternative.

The Revenue Potential of TheraClearX

STRATA owns 200 TheraClearX devices. If they can mirror XTRAC's pre-pandemic performance, the financial impact could be significant. With an average Medicare reimbursement of $120 per procedure and private payers following suit, every new patient translates to roughly $500 and $1,200 in revenue for STRATA and the provider, respectively.

Hypothetical Scenario: TheraClearX's Impact

Let's visualize a scenario where STRATA deploys the remaining 108 TheraClearX devices under the insurance model and achieves a conservative $20,000 annual revenue per device (similar to XTRAC in 2021). This could add $2.16 million in incremental revenue.

Assuming a conservative 5% growth in international recurring revenue and a successful XTRAC revitalization, achieving $7,200 per device per quarter in Q4 2024, the combined recurring revenue could exceed $26 million, signaling a robust comeback.

Conclusion

Challenges persist, but STRATA Skin Sciences seems well-positioned for a brighter future. Rafaeli's strategic vision, a proven direct-to-consumer approach, and the potential opening created by a competitor's misstep could see STRATA re-emerge as a leader in dermatology and finally achieve sustained profitability.

"Fun Fact: The excimer laser, the technology behind XTRAC, was initially developed for etching microchips in the 1970s! Its application in dermatology came later, showcasing the power of technological adaptation in medicine."