Glaukos Corp (GKOS) 2015 Q3 法說會逐字稿

Welcome to Glaukos Corporation's third-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 an archived replay will be available online in the Investors section at www.Glaukos.com. I will now turn the call over to Sheree Aronson, Vice President of Investor Relations.

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 plans, objectives, strategies, and prospects regarding, among other things, our iStent product, our pipeline technologies, our US and international commercialization efforts, the efficacy of our current and future products, and are 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 information about these risks. 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 everyone who took the time to join us on the call today. I'm pleased to report another quarter of record performance. In the third quarter of 2015, we delivered net sales of $19 million, up 57% versus the year-ago period, representing our ninth consecutive quarter of at least double-digit year-over-year growth.

Rising sales also helped us leverage fixed manufacturing cost, and expand our gross margin to 83%. These results reflect the strong momentum that continues to build behind our iStent trabecular micro-bypass stents, which is our flagship product in a series of proprietary market-expanding glaucoma technologies we are preparing to introduce in the coming years.

Glaucoma, as you know, is a chronic, largely asymptomatic disease that causes optic nerve damage, and results in progressive, irreversible vision loss. Reducing intraocular pressure, or IOP, is the only current proven treatment. To control intraocular pressure, physicians typically prescribe one or more topical medications for patients to administer several times a day for the rest of their lives. High non-compliance rates, cumulative chronic and local side effects, [brazerda] toxicities and other factors often render these therapies ineffective or intolerable to many glaucoma patients.

When medications fail, physicians sometimes use laser procedures to attempt to improve out-flow, but these procedures yield high failure rates over time. Invasive surgical options exist, but long recovery times, complications during and after surgery, and high failure rates relegate them to treatments of last resort for a small percentage of patients with advanced refractory glaucoma.

Glaukos pioneered micro-invasive glaucoma surgery, or MIGS, to provide better treatment alternatives for managing IOP. iStent is the market's first MIGS device, and we're developing what we believe will be an unrivaled series of flow and drug delivery platform implants that create a titradable treatment algorithm designed to achieve target pressures, and optimize the patient benefit to risk ratio at each stage of glaucoma, from naive glaucoma to refractory glaucoma.

We believe these therapies, used in combination or as standalone procedures, will form a new treatment class to address the needs of an increasingly larger segment of the total glaucoma population, which includes 4.3 million people in the US, and 80 million worldwide. We're moving aggressively to drive this new treatment class forward, and solidify a formidable and enduring leadership position for Glaukos in this growing $5.1-billion global glaucoma market place.

To accomplish this, we're pursuing four key growth objectives. First, we are expanding our US sales organization. Secondly, we're driving US iStent adoption by increasing the number of trained doctors, and growing same-store sales, or penetration within practices.

Thirdly, we're building the global market with the phased release of our synergistic pipeline of late-stage technologies that carry expanded indications, and serve more patients. Finally, we're extending our presence in select international markets that hold attractive growth and reimbursement potential.

Let me touch briefly on each objective, beginning with the US sales force expansion. The average number of US glaucoma sales representatives rose 22% in the third quarter to 45, versus 37 in the year-ago quarter. Note that these totals exclude other field sales personnel, such as sales directors, reimbursement specialists, and clinical relations managers.

Our sales representatives average 15-plus years of relevant ophthalmic medical technology or pharmaceutical sales experience. We have been fortunate to attract some of the most highly regarded professionals in our industry, and we remain very selective in our hiring processes. As a result, we have experienced minimal turnover.

The principal responsibilities of our sales organization are to train surgeons on the iStent procedure, and to increase procedural and implant adoption. Our third-quarter top-line growth confirms the team's ongoing success.

Under-pinning these results were positive trends in key internal metrics we use to track progress. As of the end of the third quarter, the total cumulative number of US physicians who had implanted iStent, and the total cumulative number of US physicians fully trained on the iStent procedure, both rose by more than 40% compared to the end of the third quarter of 2014.

Over this same period, the cumulative number of US accounts purchasing the iStent also rose more than 40%, with strength coming from both new hospital outpatient and ASE customers. In year over year, the cumulative number of US accounts that have purchased more than 100 iStent has more than doubled. These trends reflect our constant focus on methodical training of new surgeons, and continued close coordination with the practice staffs. They also assure progress in establishing a foundation to build the global MIGS market, and continually extend Glaukos' leadership position.

Today iStent maintains a substantial first-mover advantage over potential future MIGS players in the combination cataract market segment. Nevertheless, we believe iStent is just the beginning of our ultimate market opportunity. Our next-generation technologies are designed to position us to maintain our first-mover advantage in not only the combo cataract segment, but also on much larger phakic, pseudo-phakic, and intra-ocular drug delivery glaucoma market segments.

Additionally, the technologies that make up our injectable microscale platform are complementary, rather than cannibalistic, and are capable of delivering significant market expansion well into the next decade. Our fundamental approach is to provide surgeons a MIGS treatment algorithm that allows them to achieve target IOP levels in a manner that maximizes patient safety. The iStent procedure provides an excellent safety profile, effective IOP control, rapid recovery, and minimal post-operative care.

We are encouraged by the many reports we receive regarding iStent's performance in the hands of today's trained iStent surgeons, who are consistently producing results far superior to those reported in our 2008 FDA pivotal trial, which was the first-ever prospective randomized control MIGS trial.

For example, in an independent study presented at ESJRS in September, Dr. Tobias Neuhann reported iStent in combination with cataract outcomes in 39 eyes. At three years, patients mean IOP was 14.9 millimeters, versus a mean pre-operative IOP of 24.1 millimeters of mercury, with no stent-related adverse events. Over the same period, patients' mean medication use fell to 0.3 meds, versus a pre-operative mean of 1.9 meds. This was with a single stent in combination with cataract surgery.

Data we've received from US iStent surgeons shows similar results. In an analysis of retrospective case series data, five US surgeons performing more than 160 combined cataract and iStent procedures, with a single stent reported mean IOP of 14.6 millimeters of mercury at their 12-month post-operative visit, versus a pre-operative mean IOP of 18.2 millimeters of mercury. In this same analysis the mean number of glaucoma medications fell to 0.8 at 12 months, versus 1.5 pre-operatively.

We believe results with a single iStent combined cataract surgery both have and will continue to improve as more surgeons become acclimated to the procedure, and as we better understand targeted placement of a stent that may further optimize flow dynamics and efficacy. We then expect our next series of microscale products to create a market defined by injectable therapy. iStent Inject relies on the same fluidic method of action, has a similar safety profile, and is roughly one-third the size of iStent. Using a straightforward click and release motion, a surgeon can place two iStent inject stents into the trabecular meshwork through a single corneal entry point, with the goal of even greater levels of sustained IOP reduction.

During the third quarter, we completed enrollment in the US pivotal IDE trial to evaluate the iStent Inject in conjunction with cataract surgery. The two-year clinical trial follow-up period is now under way. Once follow-up is completed, we'll prepare a PMA submission for FDA review. We expect iStent Inject's IOP-lowering capability and improved surgeon ease of use to be compelling advantages that will differentiate it from all other glaucoma treatment options, and will fuel new growth.

During the quarter we also continue to enroll patients in the US initial IDE trial for the second version of the iStent Inject, which is designed for use in a standalone procedure in phakic and pseudo-phakic glaucomatous eyes. This product has the potential to dramatically expand our addressable market, because it will be a viable option for many of the 3.5 million US open-angle glaucoma patients. We're not aware of any other Company that is currently seeking FDA approval for a mild to moderate phakic, pseudo-phakic MIGS indication, or for an injectable MIGS solution. This again positions us for another significant first-mover advantage as we continue to extend our MIGS leadership.

In the US, iStent Inject is undergoing clinical evaluation and IDE trials. However, in Europe, where iStent Inject is approved for broad indications, clinical results show its potential benefits in a wide range of open-angle glaucoma patients. For example, in a pan-European multi-center prospective trial of iStent Inject published in 2014, 99 patients underwent implantation of two iStent Inject stents in a standalone procedure.

At 12 months, mean baseline washout IOP values decreased by 10.2 millimeters of mercury, or approximately 40%, from 26.3 millimeters of mercury, to 15.7 millimeters of mercury. In addition, reduction for pre-operative medication burden was achieved in 87% of patients. Post-operative complications occurred at a very low rate, and resolved without persistent efforts.

In another international study published last week in Clinical Ophthalmology, researchers showed that two iStents implanted in a standalone procedure in 39 phakic and pseudo-phakic open-angle glaucoma patients, provided a statistically significant and sustained reduction in IOP to less than or equal to 15 millimeters at three years. The mean IOP achieved in the study represented a 37% reduction from un-medicated, pre-op IOP baseline, and 90% of the patients were medication free three years post-op.

We believe that these real-world clinical outcomes validate the wisdom of using trabecular meshwork stents as foundational glaucoma therapy. These stents bypass the site of greatest resistance in glaucomanous eyes, and restore the conventional outflow pathway, while minimizing some of the adverse events associated with devices that access either the suprachoroidal or subconjuctival spaces.

In bypassing trabecular meshwork, the [episco] of venous back pressure acts as a safety valve to virtually eliminate hypotony risk, and encapsulation in the trabecular meshwork is minimal. The result is sustained efficacy, and we believe the lowest potential risk for patients. Moreover, the trabecular meshwork stents allow surgeons to use them as titratable therapy, customizing treatment based upon each patient's target IOP levels.

Clinical results also show that our suprachoroidal stent can lower IOP and can be implants in a fairly straightforward surgical procedure. However, the higher risk associated with the device placed in this vascular suprachoroidal space include encapsulation and restenosis, intraoperative pressure spikes, and cyclodialysis clefts, hyphema, a risk of secondary surgical procedures, and suprachoroidal hemorrhage. For these reasons, we believe comprehensive ophthalmologists will routinely use trabecular bypass stents as first-line therapy, and will choose to implant suprachoroidal stents, including ours, as second-line therapy to treat progressive open-angle glaucoma once conventional out-flow has been restored.

In a Glaukos-sponsored clinical study of refractory open-angle glaucoma patients receiving dual physiologic out-flow therapy -- that is, two iStents, one iStent Supra, and we kept the patient on one medication, down from three pre-operatively, mean post treatment based line IOP of 49 subjects followed through 12 months was 13.4 millimeters of mercury, versus unmedicated baseline IOPs of 26.4 millimeters of mercury. Patients also reduced their medication burden from three mean medications preoperatively to one mean medication after treatment. These results underscore the potential value of combined out-flow therapy in progressive to advanced glaucoma patients.

Our iStent Supra, which is currently being evaluated in a US pivotal IDE trial, is engineered to be the least-invasive flow device possible for implantation into the suprachoroidal space. It's curved to follow the ocular anatomy. It's sized at just 4 millimeters in length. It has a precise lumen diameter to optimize flow and minimize trauma.

As we seek to create a dynamic enterprising and hybrid biopharmaceutical device Company serving the glaucoma community as its core, we're delighted to report on our progress with the IDOSE delivery system.

The IDOSE is designed to release a [prostaglanna] directly into the anterior chamber for sustained 24/7 medication therapy, and when depleted, is simply removed and replaced. The IDOSE platform is integral to our strategy to transform glaucoma treatment, and we expect surgeons to use this platform, either alone or as combination therapy with iStent flow devices, to manage the full range of glaucomanous progression.

To position Glaukos to take full advantage of our iStent and IDOSE platforms, our international expansion efforts are in full swing. Our technologies are now approved for use in more than 20 countries, served primarily by strategic partnerships with leading ophthalmic distributors. With the third quarter approval of the iStent Inject in Australia, we've established a subsidiary there, we've hired a general manager, we'll officially transition to a direct selling model in January of 2016.

Still more efforts are under way in Canada, where we also plan to go direct to the beginning of 2016. Both of these markets have favorable market dynamics, and have established reimbursement for the iStent and iStent Inject procedure.

We also believe we are moving closer to regulatory approval for the iStent in combination with cataract surgery in Japan. We've established a Japanese subsidiary, we've trained our sales force, and we're preparing to launch our commercial campaign. We are enthusiastic about the opportunity each of the markets, especially in Japan, where 1.5 million cataract procedures are performed annually, and approximately 3 million people are affected by glaucoma.

I'll turn now to a brief litigation update. Last month we announced the settlement of our patent dispute with Transcend Medical. Under the settlement, we granted Transcend a covenant not to sue for patent infringement in connection with their CyPass devices, which access the suprachoroidal space. In exchange, Transcend granted Glaukos a covenant not to challenge the enforceability of any of our patents, and agreed to make quarterly payments to us through April 2022 that are based on a percent of their future sales, and subject to a cap of $6 million.

The agreement has no impact on our plans to commercialize our iStent Supra device. We are pleased with this efficient and reasonable resolution that allows us to put the matter to rest, and to fully focus our full attention and resources on executing our prolific growth strategy.

Finally, I'll sum up by reminding everyone that the American Academy of Ophthalmology meeting gets under way later this week in Las Vegas. Glaukos Technology will be featured in several presentations and surgeon roundtables, and we are sponsoring a MIGS symposium on Saturday evening for cataract glaucoma and comprehensive ophthalmic surgeons. If you're planning to attend, we'll certainly look forward to seeing you there.

With that, I'll pass the call off to Rich for a brief review of our financial performance. Thank you very much. Rich?

Thanks, Tom. Good afternoon, everybody. As Tom said at the top of the call, net sales rose 57% to $19 million, versus $12.1 million in the same quarter of 2014. This performance reflects strong growth in US sales, which were responsible for 98% of the year-over-year increase. US sales represented 95% of total net sales in the quarter.

Increased unit volume worldwide was primarily responsible for the rise in third quarter net sales, as we grew our surging customer base and increased overall iStent utilization. Our gross margin expanded during the third quarter, increasing to 83% of sales, versus 81% in the year-ago period. Strong top-line growth relative to fixed manufacturing and amortization cost was largely responsible for the improvement.

Turning now to operating expenses, SG&A expense rose 68% to $11.2 million in the third quarter of 2015, versus $6.7 million in the third quarter of 2014. Higher legal expenses associated with our recently settled patent litigation were responsible for $1 million of the increase in SG&A in the third quarter. The remainder of the increase reflects primarily higher personnel, travel, and other costs related to our ongoing efforts to build a global infrastructure and sales organization that can continue to drive and support our growth.

Keep in mind that as we transition from distributor to direct sales models in selected international markets, as Tom described, we'll see the benefit of reporting revenues at end-user pricing in these markets, rather than discounted distributor pricing; but we'll also be incurring the operating expenses attributable to these subsidiaries. R&D spending rose 21% to $6.2 million in the third quarter of 2015, versus $5.1 million in the year-ago period. The rise reflects primarily the cost of additional clinical affairs personnel required to manage the increased number of clinical studies and associated investigational sites and study investigators.

The third quarter operating loss narrowed by 8% to $1.7 million, compared with $1.9 million in the year-ago quarter. We finished the third quarter of 2015 with a not loss attributable to common shareholders of $2.1 million, or $0.07 per diluted share, which compares to a net loss of $1.5 million, or $0.64 per diluted share, in the third quarter of 2014. The year-over-year reduction in the per-share loss reflects the increase in weighted average shares that resulted from completion of our IPO in June.

Turning to the balance sheet, at the end of the third quarter we had a cash balance of $93.3 million, compared to $2.3 million at the end of 2014. This underscores our strong financial footing for implementing our global growth strategy.

Finally, we want to provide investors an indication of where we think we will finish the year in terms of net sales, given our continued strong performance. In our press release today, we announced that our expectation for full-year 2015 net sales is to be in the range of $70.5 million to $71.5 million. When you consider our reported year-to-date revenues of $51.4 million through September 30, this translates to a fourth-quarter expectation for net sales to be in the range of $19.1 million to $20.1 million. We plan to provide an outlook for 2016 some time during the first quarter.

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

Okay. Thank you, Rich. To recap, Glaukos delivered solid third-quarter financial results, fueled by continued iStent adoption among a growing number of surgeons. We're extending our global footprint through a combination of direct operations in select markets and strategic distributor partnerships. We are advancing our robust and differentiated pipeline to build this global MIGS market, and seize the leadership position in the $5.1-billion glaucoma market.

With that summary, I will open up to questions. Operator?

(Operator Instructions)

Mike Weinstein, JPMorgan.

Congratulations, guys. Obviously a very strong quarter. Tom, let's start with the depth part of the equation. You gave in your prepared remarks a few metrics for tracking the number of physicians that have implanted, the number of accounts that you guys are in. Help us with the depth picture. Give us a sense of where you are, you think, overall on penetration of those accounts? There's still a lot more accounts for you guys to get in, but really it seems like the bigger opportunity is going to increasingly be the depth and the percentage of those cataract procedures in glaucoma patients that you can take on?

I would be happy to. In fact, I'm actually going to turn this -- what I would tell you, Mike, is that we are really at the embryonic stage of penetration within these various accounts, where we've worked hard to be able to train them. We've created a sales force that we call a SEALS force that is dedicated to going in and training these surgeons on how to identify patients in their practice who are undergoing combined cataract procedures, and being able to pre-sell them from the time they come in the practice all the way through the time that they would be candidates for combined cataract glaucoma procedures. We are very, very focused on going from what I would call top-soil pulling of oil to fracking and going deep within the practices.

But let me turn it to Chris to give you some further analysis.

Hi, Mike, how you doing? As you know, it's difficult to get to the penetration percentage for each individual doctor, because our purchasing entities are both hospitals and ASCs. But we're very happy with the growth that we've gotten within those facilities. We continue to add doctors, and we continue to go deeper with those docs in terms of getting a higher percentage of their cataract procedures. As Tom mentioned, we have this SEAL team that are working with the individual practices to get better penetration, and we're quite happy with where we are at this point.

Tom, one of the talking points from your prepared remarks is really on this discussion of how much better the data has been getting over the last couple of years, going all the way back to the original US trial. My question to you is in your perspective -- and, Chris, jump in here as well -- how much do the docs appreciate that, the cataract surgeons, the glaucoma specialists? How much do they at this point appreciate the stream of data that continues to roll out here, and showing obviously much better results than we saw initially from the US pivotal?

Let me answer that, Mike, by telling you that it's not well appreciated. We continue to cull data and to see this take place right in front of our eyes. It's become quite an extraordinary delight to see the data that we are able to, or that surgeons are able to produce today with a single iStent in combined cataract surgery, versus what we got or what was achieved in a clinical US pivotal trial, which was conducted -- really started over a decade ago to begin enrollment, and published its first data, or submitted its first data at the end of 2008.

Let's review why that might be the case. Well, if you look at the US pivotal trial that we conducted in the late 2000s, we had 29 investigative sites. Of those sites, more than half of those surgeons did less than five cases. There were no training cases. All cases were enrolled in the study from the very first time point. Many of those surgeons didn't do cases or spent several months between cases before they did their next iStent. When you've been to some of the lectures, you'll hear from Ike and from others that in the early phases there is a tendency to do superficial placement of the stent, sometimes within the juxtacanalicular matrix of the trabecular meshwork, and that may indeed impede flow.

What we do know that is it takes us about 15 to 20 cases in surgical training for surgeons to truly get their sea legs and become acclimated to the placement of the device. Thus, somewhere on the orders of 75% or more of the surgeons in the initial investigational study we did never had that training, and implemented the iStents as part of the study. We love the study. We're the first ones to have conducted a prospective comparative control study ever in glaucoma, much less MIGS. But that accounts for the results that we saw at the time.

Now, when you see the data come out from people like Tobias Neuhann with a single iStent in combined cataract surgery reaching pressures of 14.9 millimeters, with dramatic reduction in mean meds, that's pretty extraordinary. That's again a single stent. Then when we see now a study, a post-market analysis of some of this data we're seeing, now in a collection of five different surgeons in the US, which I stated, those pressures are getting down below 15 millimeters with a single stent.

All of that leads us to believe that these -- we've already gone an evolution in the progression and in the optimization of results we see. It can only get better as we figure out how to place a single stent in a targeted way in the future. Now we become even more enthusiastic when we look at the two-stent data, which you just saw published in Clinical Ophthalmology, where we're seeing really precipitous drops in IOP, 37% in phakic and pseudo-phakic patients, so there is no confounding of cataract surgery that any critics can claim. These are standalone glaucoma patients where we placed trabecular bypass stents, and are achieving pretty extraordinary results. That's how I would answer your question.

Then let me -- last question and I'll let some others jump in here. The --

Mike, one other thing. We are going to present this data as part of our symposia, and start to make clinicians, as well as analysts and investors, aware just how good the single-stent data is getting, and make them quite sanguine about us maintaining our leadership position.

That's part of what I want to get to. I thought you made some, I thought, appropriate comments, just talking about the iStent approach and going through the trabecular meshwork, versus going into the suprachoroidal space, and the trade-offs of one versus the other.

Obviously you've got a suprachoroidal program, but your view is that -- and I've heard this from certainly a number of the clinicians we have spoken to -- your view is that the suprachoroidal approach is just inherently a riskier approach because of the risk of hypotony, because of the risk of encapsulation or re-growth. Those of us who have covered stents for a while think of it as restenosis, because of the risk of having a hemorrhage. Is that captured well in terms of the trade-off of between the two approaches that you probably get comparable efficacy, but there's a higher risk approach in going in through suprachoroidal?

I think it does. I think it really speaks to, one, the fact we're getting such great pressure reductions within the trabecular bypass based by restoring conventional outflow. There's really, in our mind, no need to subject patients to the sequelae associated and the adverse events of going into the suprachoroidal space as first-line therapy.

Having stated that, we believe in the space. We're actually producing, as you know, developing a product for the suprachoroidal space. But we believe in that space in its right context. That is from a benefit-to-risk standpoint, we believe that the suprachoroidal space should be reserved as second-line therapy -- as do most of the colleagues that you will talk to in the field -- should be reserved for second-line therapy, in order to provide a synergistic, dual-physiologic approach to achieve ever-lower target pressures in patients with progressive glaucoma.

That's how our SAB has asked us to position it. We are doing so, and I think it's beginning to resonate within the community.

Perfect. I'll let some others jump in. Thank you, guys.

Thanks, Michael.

Bob Hopkins, Bank of America.

Hi, thanks. Can you hear me okay?

Yes, Bob. How are you?

Great, good afternoon. Just to really follow up on that competition, or on that question, because it gets to an issue that a lot of investors are talking about over the last couple of months, given some of the announcements that have been made is really the competitive landscape. You guys did a great job outlining your portfolio of products. But I was curious if you could give us your view on when you expect competition to enter the marketplace? You've commented a little bit already, but just some general thoughts on that competition? Thank you.

Yes, I'll be happy to, Bob. One, we respect all of our competitors. That being said, if -- again I'm making an educated and presumptive guess on when these products will be available. I think you have your own thoughts, but I would tell you that it would not surprise me if Aqausys was commercially available before the end of 2016. It would not surprise me that Transcend Medical would not have an approved approvable product in the first half of 2017. It would not surprise me that Avantis would have a product available in the 2018 to 2019 period. That gives you an idea of somewhat of the spread.

Now, when we start to cut through what really is competitive with what we're doing -- and again, this is a partisan view, but one that I hold firmly. The Aquasys is really a compelling alternative for patients who have refractory glaucoma disease. That's its indication. That's where they're headed to get a 510-K approval for patients with refractory glaucoma. If you think about it, it makes sense that doing this procedure you need to use mitomycin.

In most cases you establish a bleb. All the issues that are associated with the trabeculectomy will be associated we hope to a lesser degree with this procedure, and we think it can be a compelling alternative to trabeculectomy or to aqueous shunts. We think that that procedure will resonate somewhat within the glaucoma community as an alternative for this more niche end-stage market.

We've already talked about suprachoroidal stents. Again, I'll take the road of saying that our suprachoroidal stent, we believe, is the least invasive device that has been developed for that space. But even saying that, again, we would take the informed position that this product should be reserved, due to its sequelae and its risk -- and particularly for comprehensive ophthalmologists and cataract surgeons who really do not want to introduce any sequelae or risk into their normal practices when they are doing literally hundreds to thousands of cataract procedures per year. Again, recognize that this is a different community than the glaucoma surgeon, who is used to sequelae and putting holes in the eye in order to get reduced IOP.

We really do believe that the suprachoroidal stent, ours included, will be relegated more to a second-line position. If you look at some of the trials that have been reported with suprachoroidal stents -- let's take COMPASS, for instance. They had a 15.4% rate of hypotony, 11% rate of required secondary incisional glaucoma procedure, and almost 9% reported stent obstruction due to tissue overgrowth. We think that there's a better way. We think particularly with the dramatic improvement in results we're seeing with both single and multiple stents in the trabecular bypass state, that it will be inexorable that the suprachoroidal stent will be a worthwhile space, but one that will be relegated to a second-line therapy.

Finally, Avantis will be introducing -- again, my presumption -- in the 2018 to 2019 period, if approvable, and we like that product as well. It goes into the trabecular bypass space, and it should provide access to a number of collector channels in the eye. But when you look at the results of what we're seeing with our iStent Inject, I haven't seen no data, and expect to see no data that really surpasses what we're able to achieve, and our own access to collected channels by introducing two microplate stents in the eye.

I believe that just how facile the iStent Inject will be will put it in a superior position to really any competitor that would follow us into the trabecular meshwork space. Again, a partisan but I think informed approach of where we see our products, and why we are so confident that we will create and keep our durable competitive position well into the next decade.

Great, thanks for that. Just as a follow-up, the time lines that you guys have laid out for your pipeline work under the assumption that two-year follow-up will be required. Can you talk about the potential for that time frame, that follow-up time frame to be potentially reduced? Then I also just wanted to make sure I heard you right on the number of sales people that you had exiting the quarter?

Yes, I'd be happy to. Let's first take -- you brought up something where earlier this year, as you know, Bob, the FDA issued draft guidance for pre-market MIGS studies, recommending that all subjects be followed for a minimum of 12 months, and that MIGS companies provide justification based on the benefit-risk analysis for any follow-up that's less than 24 months. And so we think that we have a reasonable opportunity to approach the FDA. We need to surmise what the FDA wants in terms of criteria to establish a benefit-to-risk ratio that could potentially reduce our follow-up time, particularly with our second-generation iStent Inject, to one year versus two years.

We're currently evaluating that. If you think about it, we enrolled our last patient in July. I would expect you will be hearing from us by mid-next year so whether, one, we contemplated and took action on this; and two, whether or not the FDA granted us the ability to reduce our follow-up to one year.

Now as you know, one of the things that we'll need to contemplate in those discussions are really what statistical penalty, if any, we will need to pay going from a two-year trial to a one-year trial. We'll also need to sort out whether some of the competitive as well as coverage advantages of following patients for two years. But I would tell you that it certainly is on my mind, and I will tell you that we are undergoing an evaluation, and that we would expect to engage with the FDA over the next several months to look at that as an alternative.

Bob, this is Chris. I wanted to address your question about sales reps. We exited the quarter with a weighted average of 45 representatives, which is flat to what we had in the second quarter. But that's a bit misleading, in that we had a few representatives who were promoted into sales director positions, and filled them late into the quarter. I can tell you that in October we had a training class where we had a number of sales representatives, bringing our total up to 50.

Great. Thanks very much for the color.

Thanks, Bob.

David Roman, Goldman Sachs.

Thank you, and good afternoon, everybody.

Good afternoon, David.

I wanted to start, just as a follow-up on the clinical side, Tom. One of the things you talked about in your prepared remarks is your view that the outcomes continue to improve as physicians either gain experience or as your training protocols continue to evolve. Are you going to present data, or do you have data if you look at a subset of any of your clinical studies that compares -- call it like the first 50% of the patient implants versus the second 50% of the patients implanted in any one clinical trial, just to quantitatively prove out what you're observing in practice?

I think what I do have is what I mentioned in the prepared remarks, David, and that's a list of doctors that we've been following now with retrospective data. We actually have six -- forgive me, five surgeons that reached 160 eyes. With this data, we're driving pressures down to 14.6-millimeter means, with a substantial reduction in medication.

What I would probably point you to are those very, very compelling results versus the results we achieved again in a ten-year-old US pivotal trial. I would use that as your base of comparison. I'm not aware that we have data with each of these surgeons through their first 20 cases. We can go back and check, but I think we can be able to look at some of the data that came out of that early pivotal study, and see it's quite compelling how much better the results have gotten across the board.

Okay, that is helpful perspective. Then on the commercial side, as you look at the account growth, I think you've quoted over 40% growth in the number of accounts, as well as 40% growth in the number of trained physicians in the quarter. What type of accounts are you penetrating right now? How would you characterize the physician who is picking up iStent. Is it now still -- are we talking about relatively high-volume academic-type users, community users? Maybe give us some sense of the dispersion within the installed base of implanting physicians?

It's still a mix of all types of ophthalmologists. It's more heavily weighted on the comprehensive ophthalmology side than the glaucoma physician side, just because there's fewer glaucoma physicians than there are comprehensive ophthalmologists. I would say we're still in the early adopter group, and it's a mix of high-volume, medium-volume guys.

Okay, and then my last question, from a utilization perspective, as you look across the -- your current physician base, is there a fairly wide difference between your highest volume users and your lowest volume users, or are you seeing early adopters being able to pick up the procedure relatively easily once they get through your training programs?

There's definitely -- as a general rule, physicians' adoption rates get higher the more comfortable they get with the procedure. They tend to go a little slower, get their sea legs. Part of that's by design in terms of the way that we train these physicians. Then as they get more comfortable with the procedure over time, their utilization typically goes up.

Okay, and sorry, just one more for Rich. In your prepared remarks, you talked about the vast majority of the 95 -- sorry, the US sales growth coming from unit volumes. Can you maybe give us a sense of what's happening on the pricing side? I think at the time of the IPO you had thought that it was reasonable that pricing would decline over time. How are you feeling about that assumption relative to what you're seeing thus far in the rollout?

I would say that was a conservative assumption, and selling prices are holding. I think we saw a slight improvement in average selling price during the quarter, but completely outweighed by the growth in unit volume. That's where the vast majority of our growth came from.

Got it. Okay, thank you very much.

Thank you, David.

Brian Weinstein, William Blair.

Hi, good afternoon. Thanks for taking the questions. Maybe talking a little bit about the guidance that you provided for the fourth quarter, it looks like on the low end it would be flat sequentially, a little bit lower than the growth rates obviously we've seen sequentially from you guys in the past. Can you just talk about how you came up with your guidance and what the thought process is? Is there some seasonality there? Is there any kind of an impact from going direct in certain countries, as opposed to distribution that would impact the top line? Just some color would be helpful. Thanks.

Thanks, Brian. I think we really took a look at comps. We looked at what our original projections were for the quarters, and how we performed against those projections by quarter. Then we looked at what kind of a comparison we had to achieve growth on from a year ago. The guidance we came up with would have us somewhere in the range of 35% on the low end to 42% on the high-end growth for the quarter, which as the revenues go up and the comps get tougher, there was an expectation from the very beginning that the growth rates would start to come down a little bit.

But we still think that's a very healthy growth rate. While we didn't feel strongly enough about it to want to move the guidance range up above what we gave, we certainly have some -- we believe there's plenty of opportunity for us to go above that. We just did not want to guide the Street to that at this point. We still have a lot of time left between now and the end of the quarter.

Got it. Okay, thanks for that. Then a question on reimbursement. How do you guys think about as people may be using multiple iStent products here, how do you think about reimbursement for multiple stents? Incremental data that's needed, or time line to maybe get some incremental reimbursement for those people that are using multiple stents today? Is that even a possibility, or is that something you really have to wait for FDA approval of other products, and then move on from there?

Brian, this is Tom. What I would tell you is that right now there are some clinicians that are using multiple stents and are getting reimbursed. We suspect that those are probably going under the grid at some of the payers that are paying for these stents. There is no current provision in place for the reimbursement of multiple stents.

As we go forth, I think that the latter part of your question, yes, we're going to be working hard at figuring out either how to optimize an APC that will pay for multiple stents in the future. By doing so, we'll need to create either compelling clinical data going into a commercially available iStent Inject, and/or use some physician-sponsored IDE trials to start creating charges today with multiple stents that will create a charge history that we could present to CMS in order to be able to advance the cause for a more prolific APC in the future.

Now having said that, both of those are Herculean, but it is not anything that our ambition has kept us away from before. We will be working hard to try to optimize payment schemes for multiple stents over the next couple years prior to the commercial introduction of iStent Inject.

Okay, great. Thanks, guys.

Okay.

That concludes the Q&A portion. I'll now turn the call back to Mr. Burns.

Okay. I want to say thank you very much. Thank you for joining us, thank you for your continued support. Look forward to our next earnings call. Have a great day.

Thanks, everybody.

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