Glaukos Corp (GKOS) 2015 Q2 法說會逐字稿

Welcome to the Glaukos Corporation's second-quarter 2015 financial results conference call. A copy of the Company's press release, issued after the market closed today, is available at www.Glaukos.com.

(Operator Instructions)

This call is being recorded and archived. The replay will be available online in the Investor section at www.Glaukos.com.

I will now turn the call over to Sheree Aronson, Vice President of Investor Relations. Please begin.

Good afternoon. Joining me today are President and CEO Tom Burns, Chief Financial Officer Rich Harrison, and Chief Commercial Officer Chris Calcaterra. Following prepared remarks by Tom and Rich, all three gentlemen will take your questions.

Before we begin, let me remind you that all statements other than statements of historical facts made on this call that address activities, events, or developments we expect, believe, or anticipate will or may occur in the future, are forward-looking statements. These include statements about our planned objectives, strategies, and prospects, regarding among other things, our iStent product, our pipeline technology, our US and international commercialization effort, the efficacy of our current and future products, and our competitive market position, financial condition, and results of operations.

These statements are based on current expectations about future events affecting us, and are subject to risks, uncertainties, and factors relating to our operations and business environment, all of which are difficult to predict, and many of which are beyond our control. Therefore, they may cause our actual results to differ materially from those expressed or implied by forward-looking statements. Review today's press release and our recent SEC filings for more information about these risk factors. You'll find these documents in the Investors section of our website at www.Glaukos.com.

With that, I'll turn the call over to President and CEO, Tom Burns. Tom?

Thank you, Sheree, and good afternoon to all of you joining us for our inaugural public Company conference call. We are extremely honored by the investor interest in our Company, both during and since our IPO, which closed on June 30 of 2015. We are pleased to welcome our new investors, who clearly share our belief in the strength of our strategy and future promise in this large and growing glaucoma market. Rest assured that we are fully committed to improving you right.

I want to recognize the many Glaukos employees whose hard work and tenacious work over more than a decade built this Company into what it is today. Moving forward, our growing global team is working tirelessly to deliver solid results like the second quarter of 2015. Net sales in the quarter rose 60% year over year to $17.8 million, fueled primarily by a new surge in adoption of our flagship product, the iStent Trabecular Micro-Bypass. Our gross margin rose 3 percentage points to approximately 82%, as we leveraged fixed manufacturing cost against higher sales. The second quarter of 2015 marked our 8th consecutive quarter of at least double-digit growth in net sales. In July, we reached another important milestone, as the total cumulative number of iStents sold since our 2012 US launch surpassed 100,000 units.

These trends demonstrate the continuing embrace and adoption of our iStent technology by ophthalmic surgeons as a compelling new treatment for managing intraocular pressure, or IOP, in glaucoma patients. Glaukos is pioneering this new treatment class known as micro-invasive glaucoma surgery, or MIGS. The Company's iStent implant is currently the only FDA-approved MIGS device. Our goal is to transform the treatment of glaucoma with these micro-scale injectable therapies that can address the full range of glaucoma disease states, severity, and progression.

As you know, glaucoma is a chronic, irreversible disease that damages the optic nerve. Reducing IOP caused by a buildup of aqueous fluid is the only current treatment. The iStent offers an intuitive natural approach to restoring steady-state physiologic aqueous outflow by creating a patent outflow channel within the eye to reduce intraocular pressure. By intervening early into patients with mild to moderate glaucoma, the iStent can provide effective treatment of the underlying disease, and in so doing, begin to address the ubiquitous and long-standing problem of patient noncompliance associated with topical glaucoma drugs. Early intervention with this technology may also aid in deferring or avoiding altogether patients' need for complex and risky end-stage glaucoma surgeries. These factors are driving more and more surgeons to assess and adopt the iStent procedure in their practices.

We also differentiate Glaukos and iStent from conventional therapies in this growing $4.9 billion global glaucoma market. We believe this new MIGS treatment class has the potential to become the standard of care for glaucoma. To seize the market opportunity, we are highly focused and have aligned our organization behind four key growth objectives: first, to drive continued US adoption; next, to grow our international business; next, to secure FDA product and indication approvals for our expanded FDA product and indication approvals for our novel, micro-scale iStent pipeline of products; and finally, to develop and commercialize our iDOSE drug delivery system.

We made considerable progress during the quarter on multiple fronts, beginning with the expansion of our US sales force. The average number of US glaucoma sales representatives rose 41% in the second quarter to 45, versus 32 in the year-ago quarter. Note that these totals are sales reps only, and exclude other [seal] sales personnel, including sales directors and reimbursement and clinical managers. We continue to succeed in attracting high-caliber, seasoned sales professionals, typically with more than 15 years of ophthalmic medical technology or pharmaceutical sales experience. With the target market opportunity of more than 8,000 US surgeons, our sales force is charged with training new iStent surgeons and increasing penetration within existing iStent practices.

Most of that opportunity is still well ahead of us. We are moving swiftly to scale the organization in order to meet rising new surgeon demand and to fortify our position as the undisputed MIGS leader. iStent's efficacy and excellent safety profile create a benefit-to-risk calculus that continues to stimulate rapid adoption and provides strong tailwinds for our commercialization efforts. Even this is our focus on sound science and the growing body of clinical evidence in support of our technology platforms. We are currently conducting 19 prospective clinical trials, including three IDE studies and two phase IV post-approval studies, a remarkable number for a Company of our size. Combining these studies represents thousand of patients and span the full spectrum of disease severity from naive to severe glaucoma.

To further enhance surgeons' experience, and as a testament to our continued dedication to improving product performance, we recently launched the iStent XP. This is a new insertion system designed to improve surgeon control and facilitate smooth and precise stent delivery for our current iStent device. Our XP development efforts underscore our philosophy of spirited innovation and commitment to an optimal straightforward procedure. To that end, we have engineered the iStent XP for a more fluid stent implantation and increased ease of use overall. Feedback from both long-time iStent implanters and newly trained surgeons has been quite favorable. We expect the XP to help us to continue to drive iStent utilization even higher.

During the quarter we also made progress towards our goal to secure FDA approvals within our current five-year planning period for our next generation iStent technologies, the iStent Inject and the iStent Supra. Like iStent, the iStent Inject is placed directly into the eyes' drainage channel known as Schlemm's Canal. However, it includes two stents pre-loaded in an auto injection inserter that allows the surgeon to inject stents into multiple trabecular meshwork locations through a single corneal entry point.

Last week, we were delighted to announce the completion of patient enrollment and the achievement of our randomization goal in the US FDA pivotal IDE trial to evaluate iStent Inject in conjunction with cataract surgery. This marks an important milestone in the prospective, randomized, multicenter study that includes approximately 40 sites and 500 randomized subjects. The completion of enrollment is consistent with our internal timelines, and the results of the study will form the basis for our future PMA submission to the FDA.

Recall that we are conducting an initial US IDE study on a second version of the iStent Inject for use in a standalone procedure in phakic and pseudophakic glaucomatous eyes. Patient enrollment in this study is underway. This technology has the potential to expand our addressable market to include more of the 3.4 million people in the United States with open-angle glaucoma. Moreover, it offers the potential for the procedure to be performed in a minor surgical suite.

In addition, the iStent Supra, which accesses the secondary physiologic drainage space in the eye, is currently being evaluated in a US IDE trial in conjunction with cataract surgery. We believe iStent Supra can be used in combination with trabecular bypass stents to further enhance target IOP reduction in patients with progressive glaucoma.

Lastly, we remain on schedule to file a US IND application with the FDA next year for iDOSE, our targeted intraocular drug delivery system designed to control release of prostaglandin directly into the eye for sustained, 24/7 glaucoma therapy. We believe this new intraocular drug delivery platform will resonate with ophthalmic surgeons, build a clear, long-standing clinical market need, provide compelling combinatorial treatment options with flow devices for the successful management of glaucoma, and potentially yield additional drug delivery candidates to add to our already robust pipeline.

I'll turn now to our international commercialization efforts, which are currently focused on over 20 countries and currently served primarily by distributors. Earlier this week we announced approval by Health Canada of iStent Inject for use as a standalone procedure or in combination with cataract surgery. This new approval and expanded indication strengthens our product offering in the North American region, and as we expand outside the US, we continue to seek to conduct direct sales operations in commercially high-potential countries when meaningful reimbursement is established. Germany is a good example and represents the centerpiece of our European commercial campaign. We recently moved to a direct selling model there, and are pleased with the surgeon reception to our initial iStent Inject product launch. We continue to make meaningful advances in securing reimbursement at the provincial levels, and will add additional sales professionals later this year to continue to drive commercial adoption.

We've also made considerable progress in preparing the Japanese market for direct commercialization of the iStent implant. Our PMDA application for iStent use in conjunction with cataract surgery is currently pending. When approved, the device will facilitate our entry into Japan with the first ever MIGS device. To ensure that we are launch-ready, we have established a Japan subsidiary and hired a general manager, and we're building a team of senior representatives. Our Japan commercial team is well seasoned, with an average of 26 years of ophthalmology experience, which further strengthens our enthusiasm regarding iStent's potential there, where approximately 1.3 million cataract procedures are performed annually. Japan will serve as the cornerstone of our commercial campaign in the Asia-Pacific region, where we also recently received regulatory approval in Australia for the iStent Inject, to be used in combination with cataract surgery.

Finally, we're implementing a focused commercialization effort in Latin America, working through distributors. We've entered Chile, and the very first iStent procedures were performed there in the second quarter. We also just received regulatory approval for the iStent in Mexico and Costa Rica, and are currently pursuing approvals in Colombia, Argentina, and Brazil.

The European Society of Cataract and Refractive Surgeons meeting kicks off in Barcelona in early September, and Glaukos technology will be well represented on the podium. The ESCRS program includes 9 presentations and posters about the iStent platform, highlighting surgeons' experience implanting 1, 2, and 3 micro-bypass stents to effectively manage IOP and to reduce topical medication use in treated patients.

Overall, I believe 2015 is shaping up to be another year of solid performance and execution for our global team as we make good progress on each of our strategic growth initiatives. With that, I'll pass the call to Rich for a review of our financial performance in the quarter. Rich?

Thanks, Tom. Good afternoon, everybody.

As Tom said at the top of the call, our net sales rose 60% to $17.8 million, versus $11.1 million in the same quarter a year ago. This performance was driven by growth primarily in US sales, which was responsible for 92% of the year-over-year increase. Also, US sales represented 94% of total net sales in the quarter. Increased unit volume worldwide was primarily responsible for the rise in second-quarter net sales as we grew our surgeon customer base and increased overall iStent utilization.

Our gross margin performance was very strong, increasing to approximately 82% of sales in the second quarter this year, versus 79% of sales in the same quarter last year. Strong top-line growth relative to fixed manufacturing and amortization costs was largely responsible for the approximately 3 percentage point lift in the gross margin.

As we expected, our SG&A expense nearly doubled to $12.5 million in the second quarter of 2015, versus $6.6 million in the year-ago period. Almost half of that $6.6 million increase resulted from a $2.8 million charge for cumulative stock-based compensation expense associated with options that we granted in July of 2014. These options contain a performance condition that was satisfied during the period with the completion of our IPO. Therefore, we were required under the accounting rules to record this catch-up charge. About $1.1 million of the increase in SG&A expense came from higher personnel, travel, and other costs related to the continuing build-out of our expanding US sales organization, and the remainder of the increase resulted primarily from personnel costs associated with our public Company infrastructure, additional marketing personnel, and also increased legal fees.

Turning now to R&D spending, the spending for the quarter was $7.3 million in the second quarter this year, versus $4.4 million in the same quarter last year, a 66% increase, most of which came from higher clinical study costs and related expenses for materials, supplies, and travel. We also had $900,000 of the increase that resulted from the similar catch-up charge for cumulative stock-based compensation expense that I described during the SG&A discussion.

Our operating loss for the second quarter of 2015 increased to $5.4 million versus $2.2 million in the year-ago quarter. We had other expense of $27.1 million in the second quarter this year that was primarily the result of a charge associated with completion of the DOSE Medical asset purchase. For your background, we had entered into an agreement with DOSE a year ago to purchase the iDOSE targeted drug delivery implant product line and related assets, but closing of this transaction was contingent upon completion of the IPO. On June 30, when we completed the IPO, we then completed the DOSE transaction, paying DOSE $15 million in cash and canceling the total debt owed to us by DOSE of nearly $11 million. The P&L impact of this transaction was a $25.7 million charge. That was in the other expense category.

What we also had in other expense was a $1.2 million charge related to a change in the fair value of our stock warrants. We no longer have any warrants outstanding to purchase preferred stock, but we still have some warrants outstanding to purchase about 11,000 shares of common stock, and we'll be required to revalue them at the end of each reporting period and record the related other expense or income.

We finished the second quarter of 2015 with a net loss attributable to common shareholders of $31.9 million, or $10.96 per diluted share on a GAAP basis, which compares to a net loss of $2.1 million, or $0.90 per diluted share in the second quarter of 2014. To help our readers out, because we closed our IPO in the last day of the second quarter, the weighted average number of shares outstanding used for the calculation of net loss per diluted share on a GAAP basis for the periods ended June 30 was significantly lower than the actual number of common shares that were outstanding on June 30, 2015, resulting from the conversion of the preferred stock in the issuance of the new shares in the IPO.

In today's press release, we also reported non-GAAP financial measure of pro forma net loss per diluted share for 2015 periods, to give effect to the automatic conversion of our preferred stock into common stock as if it had occurred as of the beginning of the year. We think this pro forma information may be useful to you when comparing our net loss per diluted share to the pro forma net losses per diluted share that we showed in our prospectus filed with the SEC. On this pro forma basis, net loss per share for the second quarter was $1.30.

For the remaining quarters of 2015, we expect our weighted average number of shares outstanding to be in the range of about 32 million. Keep in mind that the weighted average number of shares outstanding for the year-to-date periods -- we are talking about year-to-date September, and then the full year 2015 -- will reflect a blend of the roughly 2.7 million shares outstanding during the first half of 2015, along with the higher number for the second half; so a weighted average of those numbers.

At the end of the second quarter, we had cash of $104.1 million, compared to $2.3 million at year end 2014. After quarter's end, we put $7 million of cash to good use by paying off and terminating our bank loan facility and the compliance burden associated with it on July 31. There were no prepayment penalties associated with this transaction.

Finally, I'd like to remind you about the traditional seasonality of cataract sales, which are typically softer in the first and third quarter, stronger in the second and fourth quarters. Since our iStent is currently approved for implantation in conjunction with cataract surgery, our future net sales may be affected by this seasonal pattern. I would ask you to consider this as you model our business on a go-forward basis.

Now, I'd like to turn the call back to Tom.

Okay. Thanks, Rich.

To summarize, I would say that we believe that our transformational platform of micro-scale therapies offers significant benefits for patients, for surgeons, and for payers, a powerful combination that sets us apart in this $4.9 billion global glaucoma market, and creates tremendous competitive advantages. We are excited about our future, and we are confident in the ability of our team and strategy to deliver sustained growth over both the near and longer term. We look forward to reporting our progress in the months and years ahead; and with that, I'll open the call to questions. Operator?

(Operator Instructions)

Mike Weinstein of JPMorgan.

Congratulations on a nice start as a public Company. Tom, I wanted to cover a couple of items on this call. I thought just from the conversations I've had over the last month-and-a-half that it would be helpful to discuss, number one, the data today on iStent and iStent procedures in patients, as a standalone, and phakic and non-phakic patients as a standalone procedure separate from cataract surgery. If you could talk a little bit about the data that's being generated to date from a number of different centers, I think that would be helpful.

Second, I thought it would be worthwhile to spend a few minutes on DOSE, and talk a little bit about DOSE in terms of what you know so far, what you know that you can do, and what you need to do at this point before moving into a clinical trial in 2016. Thanks.

Michael, thanks very much. First of all, just to address your first question, which is on the iStent inject, and the use of this product in phakic and pseudophakic glaucomatous patients, and we have conducted multiple studies in both Europe and in Armenia, which evaluate the iStent inject in largely mild to moderate phakic and pseudophakic patients as a standalone procedure. We're looking at evaluating the safety and efficacy of iStent inject, really all the way from naive glaucomatous patients to more advanced patients, in these phakic and pseudophakic eyes.

We have published data that has been presented and is available in pan-European studies and our second line study and our synergy study. We have multiple studies that have demonstrated the safety and efficacy of the iStent inject as standalone procedures, which have been presented at the AGS meeting, at the ECSRS meeting, and at the ASCRS meetings. The data is prolific. The data shows sustained and marked pressure drops, depending upon the study.

We can look at pressure drops that go into the 14- to 16-millimeter range depending upon what patient class we have chosen to study, what the disease stage severity is, and whether or not there is a accompanying medications. We are very, very delighted with the data that we've been able to generate and generate the safety and efficacy looking at the iStent inject. We think this will be the basis for the rapid acceptance of this product in the US when we receive commercial approval.

With regards to your question on DOSE, so DOSE we clearly have a resonating product with the investment community. We're really pleased with what we've been able to accomplish with DOSE. We're enthusiastic that our preliminary proof of concept clinical trials suggest that we may be able to deliver prostaglandin therapy with a single injection into the eye for a period of maybe one-plus years. We've met our initial target for that product, and we think even today, we have a product that may provide durable and longer-lasting therapy than some competitive drug delivery designs that are in development.

Beyond that, we need to better understand the in vitro behavior of the implant. We need to look at stability. We need to look at long-term elution kinetics to really try to understand how we can expand and whether we can expand their durability of this eye dose procedure and the durability of the prostaglandin in managing glaucoma over the longer term. What I would tell you is that we are actively engaged in preparing the pre-clinical work necessary, PK, tox, stability, that we'll need to be able to file our IND in 2016.

We're delighted with our progress. We're delighted with the clinical results we received. We're delighted with the reception of the investment community. We think that this may be a platform that, if we're successful with this initial product, we'll be able to build upon an already robust product pipeline.

That was helpful. Can you talk about the idea of titrating therapy that what we I think learned in the last couple of years is that (inaudible) put in one iStent, you get a benefit; if you put in a second iStent, you are getting a secondary benefit? There may be an additional benefit from putting in Supra on top of that?

Can you talk a little bit about how you see the therapy evolving, in terms of what you're trying to do? What does that mean for data expectations? As you talk to the naysayers that may still not be doing it yet, their pushback is typically on the efficacy, and is there enough efficacy with just one iStent? Can you talk about what the data is showing to date, and how you think the therapy evolves as you go from just one iStent to deliver multiple iStents with iStent inject and ultimately maybe Supra.

Yes, I'd be happy to. First, let's address the data to date. I would really like to present and talk about how iStent itself is providing marked reductions in IOPs, as well as safe results. We are all aware of the updated pivotal trial which was the initial trial that was done in support of iStent's commercialization in the US. I think what you'll hear from many surgeons is that as they become acclimated with the procedure, they are anecdotally representing to me that they're getting better results than we even saw in our iStent US pivotal trial.

I would ask you to refer to an upcoming presentation that's going to be given by Tobias Neuhann at the ESCRS meeting, where he shows three years' data using a single iStent in combination with cataract surgery with really marked and durable safe and effective results over that three-year period. That's what I would say, first of all.

Secondly, we are encouraged that there appears to be a titratability concept within Schlemm's canal, and we think, as well, with using dual physiologic outflow pathways. We've done extensive in vitro profusion analysis both at the Mayo Clinic and the University of Colorado, which is published and strongly suggests, in fact demonstrates, that by placing additional stents into this in vitro profusion model, where you can actually be able to establish a pre-treatment baseline, place stents in and look for postoperative baseline reductions in pressure and increases in facility of outflow, that the addition of a second stent and up to four stents can provide significant additional reductions in intraocular pressure and increases in facility of outflow.

We've actually seen that as we've gone into the clinic. We've seen it empirically with the data from [ICAMed] that you've seen, where he uses two and three stents in conjunction with cataract surgery. We have a study that we have in current abstract form where we've actually taken patients who failed on medication therapy. We've randomized them to either one iStent, two iStents, or three iStents, and these are patients who are phakic and pseudophakic patients in standalone procedures, so there's no confounding effect of cataract surgery, and we are able to show demonstrable changes in and incremental changes in benefit by adding two stents and three stents in this randomized series.

To me, that suggest that much as surgeons today like to be able to titrate pressures, target pressures based on disease stage severity, we have an answer for them. We have the ability for them to serially be able to approach these stents and use them either alone or in combination with medications to reach a variety of target pressures, based on disease stage severity.

Lastly, I talk about the ability to take the iStent Supra and combine it with a conventional outflow that we were able to get with our trabecular bypass stents. We've conducted a study, of which we have an abstract form published data, which suggests that even in patients with very, very severe glaucoma, patients who failed on trabeculectomy, that the implantation of two G1 stents and an iStent supra, in combination with just a single prostaglandin -- these are patients that were on two to three medications to begin with -- is reducing pressures to below 15 millimeters, which as you know, is the surrogate marker established by the ages trial for patients with more severe glaucoma, which tends to suggest that if you reach those levels, you can thwart further glaucomatous progression.

Just to reiterate, the data we have now with the single stent is prolific and getting better, as surgeons become acclimated. Two, we have substantiated titratability within the canal which gives the surgeons to place stents based upon what target pressure that they intend to be able to achieve in patients, based upon disease stage severity; and three, we have a study that suggests that the use of the dual physiologic outflow channels may be able to reduce pressures to invariably low pressures in patients who have very, very severe glaucoma. We're excited about combinatorial approaches. We're excited about titratability. We intend to make that a key cornerstone of how we move forward in the marketplace.

That's helpful.

Robert Hopkins from Bank of America Merrill Lynch.

Hi, this is Travis Steed on for Bob. Congrats on the great quarter. I just wanted to follow up a bit on some of Mike's data questions. When it comes to both iDOSE and iStent inject, what data might we see between now and 2016? What are the key milestones we should look for in terms of clinical evidence?

As I suggested before, Travis, we have a variety of studies that we are currently conducting, both pan-European studies and Armenian studies, which are evaluating the safety and efficacy of iStent inject in multiple, a variety of patient severity and disease stages in glaucoma in phakic and pseudophakic eyes and standalone procedures. All of those studies are being filed as we speak in manuscript form. Many are already available in abstract forms at the meetings that I suggested earlier. I would expect you would see a variety of serial, published data which continues to demonstrate the safety and marked efficacy of the iStent inject product as well as our iStent Supra product.

Okay. One more, can you provide a little more color on your expectations for revenue for the full year? Looks like halfway through the year, you're already around 50% of meeting consensus and expect the second half to be a little stronger than the first half. Any color there would be helpful.

Travis, this is Rich. We are just coming out of the gate here, with our first reported quarter, so we're not planning to issue any revenue guidance for 2016.

Okay. Thanks a lot.

David Roman from Goldman Sachs.

This is actually Kyle filling in for David. Good afternoon, and thanks for taking the questions. Just to piggyback on one of Mike's earlier questions on titrating therapy, does the potential for using dual physiological outflow pathways allay any concerns around the long-term competitive dynamics that might affect the market, i.e., is the MIGS market not really a winner-take-all, or zero-sum market?

As I best understand your question, what I would tell you is that any marketplace that we're developing, and what I would expect, is that we have some competitive MIGS companies that will follow us into the space. If approved, and I expect they will be able to garner some participation within the framework of the treatment of glaucoma, I would never characterize anything as a zero-sum or a domineering position. I think we welcome new people who will come in and will expand the marketplace. I think the marketplace is embryonic.

We're in the very early stages of penetration. We expect that within the current addressable market that we have plenty of opportunity, both in bringing new surgeons on into adoption, as well as being able to drive penetration within existing practices and increase same-store sales that we will have the ability to really be able to produce continued robust growth over the near and longer term. We encourage competition. We're supremely confident in our competitive position, both now and in the future. If you look at our pipeline of products, I would hope that it would be hard to not become a believer in what we can accomplish in building this overall marketplace.

Thanks very much. That's helpful. Could you provide us with perhaps some rough estimates of where penetration stands in terms of cataract surgeons trained in the US? Perhaps maybe if you have any anecdotal feedback from surgeons on what percentage of patients with open-angle glaucoma they are treating with MIGS right now? That would be very helpful as well.

Kyle, this is Chris. Thank you for your question. We internally track that information. That's not something that we are willing to disclose in terms of penetration rates at this time, but I can tell you that we're meeting our expectations from a physician training standpoint. We have initiatives to increase same-store sales growth and again we're meeting those objectives.

Thanks very much.

Brian Weinstein of William Blair.

Sorry for any background noise here. Can you comment a little bit about utilization from more recent surgeon adds versus earlier users? Is there a difference in utilization now? How should we think about utilization longer-term as you go further up the tree away from the low-hanging fruit? Along that line, to more recent docs, are they ramping to steady state as quickly? Does that change over time as well? Thanks.

Brian, Chris again. Right now, we are meeting or exceeding our utilization goals, primarily by, one, adding new reps; two, adding new physicians; and, three, getting greater utilization from those physicians who have been trained. It's a combination of those three factors that has given us the sales that we have currently.

It's difficult to measure exactly where those are coming from specifically because our sales go into hospitals and into ASC facilities where there are a number of physicians working there. It's hard to track which physicians are increasing their volumes and so forth. What we are comfortable with, is that we're seeing an increase of facilities who are purchasing iStent, and we are seeing an increase in surgeons who are utilizing the product.

Okay. On the sales force, specifically, I want to make sure I understood the comment. I think it was Tom that made the comment about the number of reps in the field. Did you say that was an average number or an absolute number? What did you guys end the quarter at in terms of number of reps?

We ended the quarter at 45 reps, and those are direct reps. I also referred to what I called sales professionals, which include not only the direct reps, but the Management team, the reimbursement folks, the clinical folks, and those -- obviously that number is higher than the 45 direct reps.

Okay. Given that you guys raised more capital on the IPO than what was originally expected, how should we think about the use of that additional capital? Should we look for you to do more aggressive sales force expansion? Should we look for just increased marketing activities, additional R&D trials? How does that additional capital get utilized?

Brian, this is Rich. I think how I would comment on that in general is that we have plans in place, and we discussed what those plans are. We are not necessarily going to, out of the gate, take the additional money that we got from the IPO and start changing our plans. We did make the decision, as you heard me mention, to spend $7 million on paying off debt.

We've always been about responsible growth in our sales business and with our sales reps. We're not going to just automatically take the additional money and just immediately hire additional reps beyond what we had already planned. We already have a plan to add quite a few reps, and we'll grow that as quickly as we think makes sense for the business to grow our business responsibly. We have no material changes in our use of proceeds to talk about.

Okay. My last question, you mentioned seasonality. Of course, I think we're all thinking about that. Is there any kind of framework that you can help provide us as to what seasonality particularly could be for you guys? What it was last year, talk a little bit about that, how it's different this year? Anything you are seeing that could help give us any kind of insight into how we should be thinking about, in particular, the third quarter? Thanks.

I probably won't talk specifically about third quarter, but I will talk a little bit historically. If you look, we've had eight consecutive quarters of growth. Not only year-over-year, but we've had sequential growth. We know that's going to be a very difficult thing to maintain in the future because there is an underlying seasonality in the cataract business.

So long as our approval for the iStent is in combination with cataract surgery, we know there are going to be some influences beneath that that are going to cause us to, we think, expect to see some of our greatest quarters in Q4, and some of our second greatest quarters in Q2. Our comment there was really just to make sure everybody is aware that cataract surgery has that seasonality, and we may be affected by that in the future.

Okay. Thanks, guys.

Caroline Corner from Cantor Fitzgerald.

Thanks for all of the updates. Following up on that seasonality question first, as you look at more procedures further out that don't involve concurrent cataract surgery, standalone and perhaps ambulatory surgical centers, would we still expect the same kind of seasonality out there? Do you have any thoughts there?

I don't think so. It is a ways off, of course. No. I don't think so. The tie now is because the approved indications for the iStent is in combination with cataract surgery. I don't want to call it a barrier, but once that connection is no longer what drives the sales and we have approval with an iStent inject to go into standalone procedures, I would not think that would be the case.

Okay. Super. Thank you. Your gross margin this quarter came in at 82%. Given your direct sales force and your sales force in other countries, do yous think that 82% is sustainable and something we should use going forward in our modeling?

We've been pretty consistently saying that we believe that the low 80 percentile range for gross margin is sustainable, and longer-term, there are opportunities for growth there with iDOSE, which will probably command a higher selling price than current device products. There is some leverage in cost of goods sold because we have some fixed cost there, but I think the safest thing to do is assume we are able to maintain the low 80%s.

Okay. Thank you. That's helpful. Then looking at your product offerings or future product offerings as standalone devices, we know that from the data and continuing data you are collecting, that the stents are efficacious, they are safe, but we're also in an environment with glaucoma specialists who are known for being conservative, traditionally prescribing eye drops.

Can you talk a little bit about the conversations you've had with glaucoma thought leaders and glaucoma specialists about when they are defining their patient population, how much of a pressure reduction would be needed for them to start warranting doing an injection versus just treating with eye drops?

That's a good question, Caroline. What I would say there is that when we are looking at glaucoma specialists, they are a little bit of a different breed. We consider them the high priests within this category. They certainly control the mind share of the direction and avocation for therapy. The patients they see typically are late-stage tertiary referral patients. They're seeing patients typically that have already failed on medication therapy, already failed on laser, already failed on those alternatives. Typically, they refer to them to conduct trabeculectomies or [aqueous] shunt implantations.

Their expectations for reduction in pressures, they typically want to achieve pressure reductions in the low 12- to, let's say, 14-millimeter range, which is a range which has been now sanctioned by ages as a target range for thwarting future glaucomatous pressure or further glaucomatous progression in advanced patients. Their expectations are high. I would expect that these glaucoma specialists will continue to utilize trabeculectomies and aqueous shunts in the future.

What I would say that they do see some patients, and the vast majority of patients with mild to moderate glaucoma or moderately advanced glaucoma are seen by general ophthalmic clinicians. Those clinicians will have less expectations because the pressure reductions and target pressures they need to reach for those patients with less severe glaucoma are typically below 18 for a very mild patient, and for a more moderate patient, below anywhere from 16 to 15 range for moderately to moderately advanced patients. This is where the concept of our titration comes in, where we're actually able to customize therapy based upon what these glaucoma and ophthalmic clinicians, the pressure reductions and target pressures they want to achieve in their patient groups.

Getting back to the substance of your question, I think that I've seen a [sea] change in how glaucoma clinicians and specialists view our trabecular bypass device. I think that the advocacy is far higher. It's the highest it's been today. We began with initial skepticism, and I think we've earned the right to have them validate our technology for its appropriate group, which is the mild to moderate to moderately advanced glaucoma patient.

Thank you for that color. That's really helpful. Finally, could you talk a little bit about your commercialization plans for Canada? Since you are approved there, both in conjunction with cataract surgery and the standalone, can you talk a little bit how you are approaching that market?

We currently work through a distributor there, and we do plan on launching the iStent inject, hopefully, sometime later this year. We expect to get a premium over the iStent there, and we'll have a very coordinated launch, similar to what we've done in Germany. We'll go out to the glaucoma specialists first, and then work our way to the cataract surgeons once we've done that.

Great. Thank you very much, guys.

There are no further questions at this time. I'll turn the call back over to Mr. Burns.

I want to thank you. Thank everyone for joining us today, and certainly for your continued interest in Glaukos. Thanks very much. Good-bye.

This concludes today's conference call. You may now disconnect.