Glaukos Corp (GKOS) 2015 Q4 法說會逐字稿

Welcome to Glaukos Corporation's fourth-quarter and full-year 2015 financial results conference call. A copy of the Company's press release, issued after the market close today, is available at www.glaukos.com.

(Operator Instructions)

This call is being recorded and archived, 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.

Hello, everyone. 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 fact, 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 technology, our US and international commercialization efforts, the efficacy of our current and future products, and our competitive market position, financial position and results of operations. These statements are based on current expectations about future events affecting us, and are subject to risk, 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 SEC filings, for more information about these risk factors. You will find these documents in the investors section of our website at www.glaukos.com.

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

Good afternoon everybody, and thank you for being with us today.

Our fourth-quarter net sales were $20.3 million, up 44% versus the year-ago period. And this solid performance drove our full-year 2015 net sales to $71.7 million, representing a 57% percent growth versus 2014. And our 2015 gross margin rose to 82%, from 75% in 2014.

As we enter 2016, we began our fourth full year of commercialization of our iStent Trabecular Micro-Bypass Stent, the ophthalmic market's first ever in flagship micro-invasive glaucoma, surgery or MIGS device. We are in the early stages of forging an entirely new treatment class for glaucoma, and we're pleased with progress to date, in terms of surgeon adoption and utilization, enduring clinical performance, and the advancement of our comprehensive and unique MIGS product pipeline.

So we're building a firm foundation for sustained growth, with performance that is tracking exactly to our game plan, and to internal expectations. Consistent with this plan, we're moving aggressively in 2016 to achieve four key objectives designed to extend our MIGS leadership in the $5.1 billion global glaucoma marketplace.

And these include the following: first, leveraging our seasoned sales team and compelling clinical evidence to drive US iStent adoption, in combination with cataract surgery. Second, to fortify our leadership position and market expanding potential, with next generation iStent flow devices for combination cataract and standalone procedures. Third, to advance our novel iDose injectable drug delivery platform, designed to overcome the long-standing challenge of patient noncompliance with topical medications. And finally, to grow our global sales through targeted entry and/or expansion into high-value international markets.

So let me speak briefly about each of these objectives, beginning with the driving iStent -- US iStent adoption. We made a number of new rep hires in 2015, and while a few more reps may be added in 2016, we are confident that we currently have the optimal scale and coverage to effectively reach our target universe of roughly 5,500 ophthalmic surgeons.

In the fourth quarter, the average number of US Glaukos sales representatives was 49, an increase of 26% over the same year-ago period. Remember that this figure excludes additional field sales personnel such as sales manager, reimbursement specialists, and clinical relations managers.

A primary focus for the US sales team is to train new surgeons on the iStent procedure, and increase utilization rates and practices with fully trained iStent surgeons. So at the end of 2015, the team had trained more than 1,600 US surgeons, representing an increase of more than 40% versus year end 2014. We expect an even greater rate of growth in the number iStent trained surgeons for 2016, with a heightened focus on higher volume cataract practices.

With iStent's three-year track record of successful commercialization, these high volume cataract surgeons are increasingly ready to complete training, and to begin incorporating iStent into their treatment plans. To engage and inform the target surgeons, we're initiating a number of investments in 2016 that are designed to build over time, and continually reinforce our market position as the MIGS pioneer and enduring leader.

These include introduction of a new iStent professional marketing campaign, a stepped-up presence at major ophthalmic scientific meetings, new web-based marketing assets and initiatives, and iStent educational outreach programs to target optometrists, a primary patient referral source for cataract surgeons. So in addition, we are inaugurating a MIGS fellowship course to arm glaucoma fellows with the knowledge, surgical techniques and skills necessary to provide MIGS solutions to patients in the future. This program will include doctor-led didactic sessions, video presentations and hands-on wet lab training.

Our 2016 plans also include highly targeted patient awareness DTC programs, designed to connect prospective patients with iStent surgeons, and help practice staffs explain iStent's benefits to patients and their families. The cornerstone of glaucoma therapy is providing treatment that maximizes clinical benefit while minimizing risk. Our commercial success is, and will continue to be, rooted in iStent's excellent clinical results and highly favorable safety profile. We are beginning to use all avenues available to communicate this validating performance data to the glaucoma marketplace.

Especially compelling is the emerging body of real-world data that demonstrate the enduring IOP lowering power of iStent. For example, in a study conducted in Germany by Dr. Tobias Neuhann, and just published in the Journal of Cataract and Refractive Surgery, 39 patients receiving iStent with concomitant cataract surgery achieved mean IOP below 15 mm, through three years postoperative results. This represents a 36% reduction at 36 months, and mean IOP for a medicated baseline IOP. And, at 36 months, patients also achieved an 86% reduction in the mean number of topical medications used.

Another interventional case series study of 19 subjects, published in the British Journal of Ophthalmology by Dr. [Arau Villalobez] further underscores iStent's long-term performance. Study subjects receiving iStent in combination with cataract surgery achieved mean IOP of 16.1 mmHg at five years postoperatively, with 42% of subjects requiring no hypotensive medication by the end of the follow-up period. And in a study by Dr. Katz, published in the December issue of Clinical Ophthalmology, 119 glaucoma subjects received either one, two or three iStents in a standalone procedure.

At 12 months post-operatively, 65% of the one-stent cohort achieved mean un-medicated IOP less than 15 mmHg. That was roughly a 40% drop for mean pre-operative un-medicated IOP. And of particular note is the fact that IOP reduction in these patients was accomplished without a concomitant cataract procedure, showing that the efficacy of iStent is significant and separate from the IOP reduction typically associated with the surgical procedure to remove a patient's natural lens.

So in all these studies, the safety profile of the iStent continues to confirm and highlight the extraordinary benefit to risk profile that the implant offers ophthalmic sturgeons and patients worldwide. So importantly, these favorable trends and improved iStent clinical outcomes since our 2008 [ID] pivotal trial submissions suggest that as surgeons become more proficient iStent implanters, their procedural efficacy shows continued marked improvement. These results confirm iStent's efficacy and very favorable safety profile, establishing it as a benefit to risk MIGS leader, and a surgeon's go-to MIGS first line solution well into the future.

So later this week, we head to the American Glaucoma Society annual meeting in Fort Lauderdale, where our current and pipeline iStent technologies will be featured in numerous posters and presentations. And data to presented include outcomes from various studies, evaluating the performance of one or multiple Trabecular Micro-Bypass Stents, in combined cataract surgery or in standalone procedures. As well as Trabecular Micro-Bypass and super-coronal Stents, used in combination in refractory or advanced glaucoma patients.

The broad array of studies illustrate the robust market expanding potential of the iStent platform we're creating, with our pipeline of late stage technologies designed for use serially or in combination. Our goal is to provide clinicians a full complement of titratable and combinatorial treatment approaches they can use, to achieve the highest efficacy with minimal patient risk. So for example, Dr. Rick Louis will present data at this meeting from an international iStent Inject study, showing that 57 subjects undergoing standalone procedures achieved mean un-medicated IOP of 14.4 mmHg at 18 months post-operatively, down approximately 40% for a mean un-medicated baseline IOP.

Like the flagship iStent, our next generation iStent Inject is designed to restore the natural physiologic outflow of fluid through the trabecular meshwork into Schlemm's canal. However the iStent Inject is pre-loaded with two micro-scale stents that the surgeon places, via a click and release motion, into multiple trabecular meshwork locations, further enhancing the IOP reduction potential of the product.

We're conducting -- we are currently conducting US IDE clinical trials to evaluate the safety and efficacy of two versions of the iStent Inject. We expect each version to deliver potent competitive advantages for Glaukos.

The first is being evaluated in a pivotal trial concurring iStent Inject, in combination with cataract surgery, versus cataract surgery alone. With enrollment completed in mid 2015, we are now in the midst of a two-year follow-up period. We believe its IOP lowering capability, favorable safety profile, and improved ease-of-use will appeal to a broad spectrum of comprehensive ophthalmic surgeons, and fueled new growth for Glaukos.

The second iStent Inject is an injectable version, capable of making its own self sealing needle penetration, for use as a standalone procedure in eyes not undergoing concurrent cataract surgery. Enrollment continues in the initial clinical trial, which compares iStent Inject to a SLT laser procedure. This product has the potential to substantially expand our addressable market, by offering a viable MIGS solution to as many as 3.5 million US open angle glaucoma patients who either don't need, or have already had, cataract surgery. We believe we are the only company currently seeking FDA approval for standalone indication for an injectable MIGS solution.

So our pipeline also includes the iStent Super, which is 4 mm long, curved to follow the ocular anatomy, and designed to access a secondary fluid outflow pathway in the super-coronal space. Enrollment continues in our US IDE pivotal trial. We're pleased with the results from international iStent Super studies, which shows its ability to significantly lower IOP in a straightforward procedure. We also know, based on public published literature, that there are higher risks associated with devices placed in the vascular super-coronal space.

Sequelae included inter-ocular pressure spikes, transient hypotony, hyphema, the need for secondary surgical procedures, and stent occlusion, among others. In light of this, we believe that super-coronal MIGS devices are best deployed as enhancements to trabecular meshwork stents in patients with more progressive glaucoma. More podium presentations are professing the benefits of this approach. For example, the latest data from an ongoing study, which is being presented at AHES later this week, by Dr. Jonathan Meyers, will show that refractory open angle glaucoma patients who received two iStents, an iStent Supra, and a single post-operative medication, topical Travoprost, achieve mean IOPs of 13.7 mm, through three years postoperatively, as well as reduced pre-treatment drug burden.

So turning now to iDose, we accomplished a major pipeline milestone in early 2016, with news that the FDA has allowed our phase 2 trial on the iDose Travoprost intraocular implant to move forward. And we believe our team deserves considerable credit for submitting a thorough IND application that generated no significant follow-up questions or delays from the agency, and has put us well ahead of our initial timeline.

Since receiving this news, we have worked swiftly to identify investigators and put the necessary pieces in place to initiate this phase 2 clinical trial. We expect enrollment to commence very soon. Injected through a corneal incision and secured in the anterior chamber, the iDose is a micro-scale implant designed to elute therapeutic levels of a special formulation of Travoprost from within the eye for extended periods of time.

When depleted, the iDose can be removed and replaced in a subsequent procedure. We believe iDose, if approved, has the potential to dramatically change the glaucoma treatment paradigm, because it offers an alternative to chronic daily prescription eye drop treatments, which are subject to high rates of noncompliance, carry troubling side effects, and may cause long-term ocular surface damage.

Initial iDose clinical results are very promising. In an early international study, 69 patients were randomized into three cohorts. The first two cohorts received iDose with one of two different elution rates, and the third cohort received topical Travoprost.

At 12 months, both iDose cohorts achieved mean IOP levels below the topical Travoprost cohort. The iDose platform is integral to our strategy to transform glaucoma treatment, and we expect surgeons to use it alone, or as customized combinatorial therapy with iStent flow devices, to manage target pressures based on each patient's individual disease state and progression, all the way from naive glaucoma to refractory glaucoma.

So touching briefly on our progress outside the United States, we've announced, in recent weeks, the establishment of a direct sales organizations in Canada and Australia, along with the commercial launch of the iStent Inject in both of these markets. In addition, we are very pleased with the first full-year performance of our direct sales organization in Germany, which began operations and launched iStent Inject in mid 2014.

We are also in active dialogue with Japan regulatory authorities, and are awaiting word regarding approval of iStent in combination with cataract surgery. We're excited about the potential this opportunity, where roughly 3 million patients are estimated to have glaucoma, and approximately 1.5 million cataract procedures are performed annually.

We've already created a direct sales organization for Japan that's fully trained and ready to launch iStent, once approval comes. So overall, we remain highly targeted and disciplined in our approach to international expansion. Our products are now approved in 27 countries, most of which are served through partnerships with ophthalmic distributors. And we will continue to evaluate possible conversion to direct selling models in select countries, where favorable reimbursement and market dynamics exist, or that we can create.

With that, I will pass the call the call to Rich, for a summary of our fourth-quarter and of our full-year financial performance. Rich?

Thanks, Tom. Good afternoon, everybody.

As Tom said at the top of the call, fourth-quarter net sales rose 44%, to $20.3 million, versus $14.1 million in the same quarter a year ago. This post year-end closing amount was about $200,000 higher than the Q4 net sales estimate we provided in our January pre-announcement. US sales were responsible for 99% of the year-over-year increase, and represented 95% of total sales in the quarter. For the year, we finished 2015 with net sales of $71.7 million, representing a 57% increase over 2014, again, about $200,000 higher than our mid January pre-announcement of $71.5 million.

For the year, US sales were responsible for 95% of the increase, and represented 94% of total sales for the year. In both the fourth quarter and the full year, increased unit volume worldwide was primarily responsible for the increase in net sales, as we grew our surging customer base and increased overall iStent utilization.

Turning now to the gross margin for the fourth quarter of 2015, our gross margin was 82% of sales, versus 65% of sales in the same period of 2014. The 2014 period included a $2.6 million charge associated with an agreement with the Regents of the University of California, and it had the effect of reducing our Q4 2014 gross margin by approximately 18 percentage points. For the full year of 2015, our gross margin was 82% of sales also, versus 75% of sales in 2014, which increase reflects the same $2.6 million charge we incurred in 2014.

Turning now to operating expenses, in the fourth quarter of 2015, SG&A expenses rose 39% versus the fourth quarter of 2014, and the increase was 56% for full year 2015, versus 2014. These increases reflect 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 models to direct sales models in certain international territories, we will see the benefit of reporting revenues at end-user pricing in these markets, rather than the discounted distributor pricing. We will also be incurring the operating expenses attributable to these subsidiaries.

In the fourth quarter of 2015, R&D expenses rose 19% versus the fourth quarter of 2014, and the increase was 30% for full year 2015, over 2014. The rise primarily reflects the cost of additional clinical affairs personnel required to manage the increased number of clinical studies, and the associated investigational sites and study investigators. Our operating loss in the fourth quarter of 2015 dropped to $2 million, compared to a $5 million operating loss in the fourth quarter of 2014.

For full year 2015, the operating loss was $10.3 million, down from $13.2 million in 2014. These improvements show that the benefits of our sales growth, and our gross margin enhancement, exceed our growth and operating expenses.

We finished the fourth quarter of 2015 with a net loss attributable to common shareholders of $2.3 million, or $0.07 per diluted share, compared to $4.6 million, or $1.94 per diluted share, in the fourth quarter of 2014. This reduction in per-share loss primarily reflects the increase in weighted average shares that resulted from the completion of our IPO in June 2015.

For full year 2015, our net loss attributable to common shareholders was $37.2 million, or $2.13 per diluted share, versus $12.1 million, or $5.29 per diluted share, in 2014. In arriving at the reduced diluted loss per share for 2015, the effect of the higher total net loss that resulted from the recording of a $25.7 million charge associated with the de-consolidation of DOSE Medical was more than offset by the increase in weighted average shares resulting from completion of our IPO in June. And thus, we saw the reduction in the diluted loss per share.

On the balance sheet, at the end of 2015, our combined cash, cash equivalents and short-term investments stood at $91.1 million, compared to $2.3 million at year end 2014. This provides a solid financial foundation for execution of our global growth plans, as we move forward. And as we announced in January, we expect our 2016 net sales to be in the range of $90 million to $93 million, representing growth over 2015 net sales in the range of 26% to 30%.

And we would like to reiterate that we expect 2016 net sales to reflect seasonality patterns generally consistent with US cataract procedure volumes, which are typically softer in the first quarter and stronger in the fourth quarter of a given year. We are extremely pleased with the sales growth we achieved in 2015, and the growth we expect in 2016, which closely aligns with our pre-IPO models.

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

Okay, thank you, Rich, and so I'm just going to recap.

We are pleased with the 2015 results, and we're confident in our ability to meet or exceed our 2016 goals. Our global growth strategy is right on track, and moving ahead as planned. Our US sales team is largely in place, and fully focused on training new surgeons, while driving continued iStent adoptions. To augment their efforts, we are rolling out an array of programs to acquaint, inform, and educate physicians and patients on the benefits of our glaucoma solutions.

Our international presence continues to expand, as we enter new markets with discipline and focus, and a growing body of clinical evidence makes clear that a single iStent can deliver sustained IOP reduction, in a procedure that provides what we believe is an optimal risk to reward profile for patients and doctors, and puts Glaukos in a strong, enduring, competitive position. To extend and broaden our leadership over the long term, we are developing an unrivaled pipeline of true micro-scale and injectable flow and drug delivery implants, to advance patient care and to transform glaucoma therapy.

And so with that, I will open it up to questions.

(Operator Instructions)

Mike Weinstein, JPMorgan.

Good afternoon, guys. And first off, can you hear me okay? I apologize for calling in (multiple speakers).

Yes, we can hear you, thanks, Mike.

Okay. So Tom, there was a lot that you covered in your remarks that I thought was interesting and new. Let me just try and get to a few of them here. So one of the things I thought was very interesting is, you talked about your training for 2016, and you grew the number of trained surgeons 40% in 2015. You talked about growing that, potentially, at an even higher rate in 2016. Could you expand upon that?

I sure can. I'm going to turn to Chris for this one, Mike.

Mike, it is Chris. How are you?

Very good.

Good. So yes, we did increase the number of trained surgeons by 40%. It's something that we track, and we are looking to continue to do that, or exceed that number. We train about three surgeons per quarter, per rep, but we are looking to increase that while, at the same time, making sure that we still have the quality training program that we have been so proud of in the past few years.

Great. And can you just -- let's reconcile, if we look at the 40% growth in your surgeon base, in trained surgeons, in 2015, with the -- was it 57% revenue growth for the year. Help us reconcile the -- obviously, you are getting greater -- deeper penetration into accounts, you're training more surgeons. Your 2016 outlook calls for a very high rate of growth in trained surgeons, but your revenue guidance is a bit more conservative. So maybe just want to spend a minute reconciling that for people?

Yes. We feel good about our revenue growth for 2016, at the 26% to 30% growth rate. We still feel that this is a very successful launch of a new category device. We still have opportunity, with adding additional surgeons, as well as going deeper with into accounts, and these guys will be focused on doing both of those. I would also add that, since we have added roughly about 10 reps toward the second half of the year, those guys are getting up to speed, and they will be able to bring in additional doctors, and be able to bring in additional penetration within those existing accounts.

Chris, I was also very interested in some of what Tom was talking about, in terms of the marketing plans for 2016. And you talked about a new iStent professional marketing campaign. You talked about stepping up the presence at some of the major meetings, a web-based marketing initiative. Could you just spend a few more minutes on that? Just walking us through what's new, and what you guys will be doing in 2016 that you haven't done before?

Yes, I am glad you asked that question, Mike. We have a lot of activity in all of those areas. I expect to introduce a new patient-based campaign within the next couple of months, as well as a professional marketing campaign. In terms of education, we have a MIGS course that we are doing in conjunction with the ASCRS, in May. We're also hosting our first ever Fellowship program in the April timeframe, where Dr.'s Samuelson and Lewis will be the Co-Directors of that program.

We've invited every glaucoma fellow out there to come out to California, over a two-day period of time, to learn more about MIGS. We stepped up our efforts with the optometrists. As you know, that community, the OD community, is responsible for many of the referral patterns into the ophthalmologists. And another example of our scientific presence at these meetings would be the AGS, which Tom and I leave for tomorrow, where we have eight posters, and we are stepping up efforts in all different categories. So it's a full coordinated commercial plan, to continue to increase the overall knowledge and acceptance of [both] iStent and the MIGS category.

Perfect. And then Tom, I wanted to take the opportunity just to ask you about Alcon's acquisition of Transcend. We'd seen the headline data from the efficacy side. We haven't seen the safety of Transcend. I thought the efficacy data was, at least from their standpoint, a bit disappointing. I though it might be better than what it showed up, and we haven't seen the safety side, which is really the question. So could you just talk about how you think the Transcend products fits into the glaucoma treatment paradigm, assuming it actually gets approved in the US?

Yes, I would be happy to address it. First of all, we see Alcon entering the marketplace as -- how could we not -- as a full validation of the category that we've created, over the last decade plus. By coming into the market, we think that they will, with the resources, will be able to help us drive and generate MIGS even more thoroughly into everyday practice. And so we consider it a validation of the efforts that we have been pursuing over the past decade plus. Now, with regards to the data as we understand it, that's been submitted in abstract form, I think we look at it, and we gain a quiet confidence, once we review it and understand it.

So in that data set -- and again, it's important to understand what's really different about the clinical trials that we've conducted, our initial PMA trial in the past, versus the trial they conducted. And the two principal differences are that one, we were powered for one year, and not two year, with a total of 240 patients versus over 500 in their clinical trial. And more importantly, we did not have a terminal washout. So when you think about it, any attempt to compare those studies, based upon the look at the proportional analysis and the primary efficacy and secondary efficacy endpoints, would really be entirely misleading.

As we look at it, the only principle area of comparison -- and again, I hesitate to do it, because we've already moved the clinical dial markers substantially, as you can see from the Neuhann data, and from the Katz data, as people gain facility with the use of the iStent. But even so, if you look at the point of comparison with the side pass clinical trial, you will see that at one year, iStent plus cataract surgery reduced IOP 33.1%, from a mean IOP, or an un-medicated baseline, of 25.4 to 17, with a mean of 2 [meds]. And the side pass plus cataract surgery reduced 31.7%, from an un-medicated baseline of 24.4, which equates to a 16.7 mmHg at 12 months, and a mean of the same [0.2] medications.

And so, at best, you would say that data may be comparable, and as I've explained before to the analysts and to the community, our initial trial was done with 29 investigators, 70% of which did five or less cases. So we are delighted with the data that we see. And even more so, we are delighted with the data that we are generating day to day. The Neuhann data, which shows a 14.9 mm mean un-medicated base -- or largely un-medicated baseline, at three years. The Katz data, which shows 65% of patients at or below 15 mm at 18 months, with a single stent, un-confounded by cataract surgery.

And then Mike, as we've talked about before, the plethora of retrospective data that we're seeing from registry data, where we look at 160 patients from five different surgeons, and using a single iStent in combination with cataract surgery, that reduced pressures from 18.5 mm on a pre-medicated baseline, down to 14.5 mm, with a significant reduction in drug burden. So when I see all that, I become more sanguine. I become more confident. I like our position.

But most importantly, I think we offer the highest benefit risk ratio of any potential MIGS device in the market. So you mentioned that safety, we haven't seen the data yet. And we are unlikely to see the day at the ASCRS, as well. I think when we will see safety data is typically at the panel meeting. And that's when you're required to show exactly what happened in the clinical trial. And I think when we see that, the analysts and the community will be further convinced, as I am, that the iStent will become -- really be validated as first-line therapy, and an enduring competitive presence for many years ahead.

So just to follow that up. So you don't think they're going to show their safety data at ASCRS?

I think they will, but I think it will be more topical, and I think it will be a summary form. I think what happens, Mike, and it's been our experience, as well, when you get to panel, that's when they really dig deep, and that's when you will see the full extent of adverse events and any potential SAEs.

Understand. I will let someone just jump in. Thank you, guys.

Thanks, Mike.

Bob Hopkins, Bank of America.

Thanks, and good afternoon, and thanks for taking the question. So just to follow up on Mike's question there, just on Transcend and Alcon. When you guys provide this 2016 guidance, are you assuming that they -- that you have a competitor on the marketplace in 2016? Or do you think it's going to take them, after they get approval, maybe another 9, 12 months to get reimbursement? And then it's really more like a late 2017 kind of competitive situation?

Yes, so what I would I would say to that, Bob, is, the short answer is no. We don't believe -- we don't assume that we will seen a competitive entry from an Alcon side pass by year end. I think, as I have said before, my expectation would be somewhere in the first half of 2017, I think would be -- based on history and precedent, and closely following FDA's patterns over the years, that would seem to me to be the most reliable estimate of one (inaudible) to the market. But you raised a good point.

When they do enter the marketplace, one of the things that we did establish was a separate code. We, Glaukos, established a separate code, 0253-T, for super-coronal stents. And we did so, so that in the future, when surgeons chose to use the trabecular bypass in combination with super-coronal stents, they would have two codes, resident codes, to be able to click. So they would get 100% of the first procedure, and by the Medicare reduction [rule], 50% of the second procedure.

And by doing so, we saw we would be driving the best and most [ethical] therapy, with an incentive that would reward the surgeon for placing both of these devices in more progressive patients. But one of the issues associated with that is that by creating that new code, a competitor will have to use that code when they enter. So I think you're exactly right. Any new competitor is going to have to start from scratch.

They're going to have to go to [MACS], they're going to have present this data. They are going to have to go through the heavy sledding that we went through, and you know that we did it, I think, in record time. We got full Medicare MAC approval within seven months after commercial launch, and I think that's a tough bar to hit. And I think any competitor that enters with a new code is going to have several months going through petitioning and denial of claims, which actually becomes a frustrating source for physicians who, in the event that they want to try the product, will go through some onerous trials before they actually get full approval.

So -- thanks for that. And then just as a follow-up, can you remind us of your latest thoughts on timing for iStent Inject? You mentioned, just in your prepared remarks, that the trial finished enrolling in mid 2015. Will we see any data at the one year timeframe? And will we have to -- or will we have to wait for two? And what's your latest view, also, on a best case timeline for a regulatory filing? Is there is scenario where that could be made after one year? Thank you.

Yes. So I think, Bob, the short answer is, we don't expect to issue or disclose any data, until we have completed the two-year data set of safety and efficacy. So to address your question further -- and this is a question that I might have answer previously -- but there are several trade-offs to consider. And as you know, the MIGS guidance -- new MIGS guidance from the FDA basically states that if a solicitor or sponsor can establish an invariably -- or an orderly weighed benefit to risk scenario for a new product, that meets the safety and efficacy parameters in the patient's advantage, that they will consider a one-year efficacy endpoint.

And as we look at that, there are several trade-offs to consider. First, even if we were to agree -- or get the FDA to agree to a one-year endpoint, we would worry a little bit about how the FDA would move, pursuant to that one-year endpoint. Would they wait for two years, to see that data, before they adjudicated the case series, and gave us the approval to move forward? So we're not entirely convinced that it's a one-to-one ratio, with us seeking a one-year endpoint.

Also, as you are well aware, going to a one-year endpoint and changing our statistical plan could impose some significant burdens on us, so we are highly sensitive to that. And then finally, we weigh the advantages of having two-year data. What that means competitively, what that means foundationally for the future, what that means for payers. And we have a bias, so that two-year data is a data set that we would like, and would move forward with.

And so having said that, as you look at your models, I guess I would reaffirm that we stay with the base case of two years, as you [seek and] look chronologically, and when we would get approval for iStent Inject. And if there is any change in our thinking, we will alert you to that.

And then lastly, what's the next major timeline for any kind of data from iDose? When is the next major data set that we should look forward to? Thank you.

Yes, okay, so that's a great question. Thanks, Bob. So we are entirely pleased. We -- as you mentioned, and others have given us credit, we had, in our S-1 that we would file for our IND in 2016, and instead, we were fully cleared. We had five in late 2015, and we are fully cleared to move forward early in 2016. So we are humping, and moving forward with all speed, to enroll clinical sites, and to fully enroll this initial phase 2 trial.

We believe, once we enroll that, and will be able to unmask the data, once we a last patient enrolled at 12 weeks, and then we will be able to disclose our findings to the community, of which we are principally excited. So I won't give you any direction, or give any estimates on when we think we will have the data. But chronologically, you can estimate, based on the information that I have given you.

Perfect. Thank you.

Thanks, Bob.

David Roman, Goldman Sachs.

Hello, David.

Can you guys hear me okay now? Sorry about that.

Yes, thanks, David.

Thanks for taking the questions. I wanted just to start with the progression of sales that you mentioned, in both the press release and the prepared remarks, recognizing the seasonality that comes with the cataract surgery market. It does look like your guidance would imply a fairly significant ramp throughout the year, and an acceleration in overall procedure volume growth, as we pace through 2016.

Is that, A, an accurate interpretation of what you're saying with respect to the quarterly phasing? And then B, is there anything that would specifically drive an uptick throughout the year, whether it's some of the efforts that you are undertaking, with respect to market development, patient education, et cetera?

So David, to answer your question directly, yes, that would suggest that we have a significant uptick in sales beyond the first quarter. And yes, to your second question, all the initiatives that we have in place, from the new professional campaigns to the patient campaign to the OD networking to the programs that we're putting in place, at congresses and so forth, would also help to stimulate that growth in the -- from the second quarter on through the fourth.

Okay. That's helpful. And then, maybe just going into the outlook. Assuming -- taking Tom's comments about not expecting a competitor until the first half of 2017, it looks like you are assuming pretty much a consistent rate of market development, in terms of penetration, for 2016. Is it reasonable to think that some of the efforts you're undertaking actually would be a source of upside, relative to those expectations that you're putting out today?

We stand by our numbers, but we always look to achieve or exceed those numbers. And we're quite pleased with our progression, with what we've done in the past, and where we are today.

And then lastly -- I know you are not giving specific guidance around the P&L, but can you maybe help us think about some of the spending that would be associated with additional marketing? You've done a really solid job keeping a lid on discretionary expenses thus far, post IPO, and getting very close to breakeven in the fourth quarter. How should we think about the investments that you may be undertaking in 2016?

Hi, David, this is Rich. Good question, and I think we would expect to continue to see our spending in the operating expense area, both in SG&A as well as R&D, continue to increase. As Chris mentioned, all the programs that he discussed all have a cost associated with them. I mentioned in my prepared remarks that we're going to start to incur the expenses at our subsidiaries more fully now.

We had limited exposure to those costs in Q4, but going forward, this year, we will have a full exposure to new spending at our Canadian and Australian subsidiaries, in addition to the expenses we had late last year from Japan, and all of last year for Germany. And then on the R&D side, we are going to be spending more money on the iDose clinical study, so we're going to see increases in spending there. So there's really no change in our outlook on when we expect to get to breakeven or profitability.

Okay. Thank you very much.

Thanks, David.

Brian Weinstein, William Blair.

Hey, guys, thanks for taking the question.

All right, Brian.

So a lot of things you've already asked, but let's talk a little bit about OUS. You guys are direct Canada and Australia, and you are seeing some uptick in Germany. But can you talk a little bit about what you expect, OUS, next year? And break down the growth rates that you're expecting for the overall business, between the US and OUS? And inherently in that, can you talk about what's embedded, as far as your Japanese assumptions, as far as revenue contribution, potentially, from that country?

Hi, Brian, this is Rich. I will comment, and then Chris may want to add some color afterward. But we have -- we are expecting approval for Japan in 2016, but we haven't really indicated when. So we are expecting, as soon as we get that approval, it will start to contribute. But certainly, the Australia and Canada are off and running, and we expect them to do well this year. But overall, our guidance on international has been -- our history has been, 5% of our revenues have been OUS.

We think that, in the relatively short term, we can start to get it closer to the 10% range. But at this time, until we see exactly how everything works out in those markets, I think we'd be hesitant to say much more than that. So I'd say, plan on somewhere between 5% and 10% of our sales in 2016 being from international.

How are you doing? It's Chris. And I would say that we are really stepping up our efforts here. We're going to be in four markets directly: Germany, Canada, Australia and Japan, once Japan gets approval. But all these programs that we're putting in place, many of them carry over outside of the United States, as well. Specifically, our initiatives around clinical programs, our professional campaigns, and many of our marketing initiatives will also help to drive sales outside the United States. And we have an increased focus with our distributor alliances, as well.

Okay. Thanks. Thanks for that. Going back to a question that was asked before -- and maybe I missed your answer to it -- but specifically, can you comment on how the enrollment is going for gen three? And when do you expect enrollment to be completed for that, as well as for the Supra?

Okay, Brian, this is Tom. So gen three is the Supra, so let me deal with that first, and we are in the expanded phase clinical trial. We are making good progress. As in the past, we hesitate to give any further guidance on when we expect to achieve approval. But I will tell you that we are well into the expanded phase, and we are recruiting at a rate that meets or exceeds our internal expectations.

Right. And obviously, I meant, with the Supra, of course, but then also with the second version of Inject? And any specifics, specifically, about when the enrollment would be completed there? But I'm guessing (multiple speakers).

[No] question. So I'll take that, as well. So as you know, we received approval for the Inject [fakic pseudo-fakic] trial really late in 2014, and began enrolling in earnest in 2015. And as I've stated before, when you pioneer a new clinical trial, the FDA imposes some really -- or can impose, and in this case, did impose some pretty narrow inclusion/exclusion criteria. So we are moving through, and we are starting to work with the FDA to file amendments. And we've made some substantial progress in broadening the clinical enrollment and the [fakic pseudo-fakic] trial.

We have more to go. And we did this, and overcame these obstacles in our first clinical trial, with combo cataract. We will do it here. I won't give you guidance on when we will finish the Phase 1, but I can assure you, once we do, we will be moving forward, in an expedited fashion, into the Phase 3 trial, and toward a commercial approval.

Okay, great. Thanks.

Thanks, Brian.

Caroline Corner, Cantor Fitzgerald.

Hi guys, thanks for taking my question, and congratulations on the quarter. Most of my questions have been answered at this point. But just pushing a little bit, as we look at the international markets, I heard your commentary about how you do about 5% internationally, growing that to 10% in future years.

As you approach these markets -- Germany, Australia, Japan and Canada -- some of the competitors -- or potential competitors have products that are either CE market, or cleared by Health Canada, for example. How are you positioning your iStent any differently in those markets, as you start your initial marketing campaigns, and push in there? Is there specific data you are using more readily, when you are selling the product in those markets? Or is it just more of the same?

This is Chris. And it's -- to use your terminology, it's more of the same. And while our competitors may have CE mark, and approval with Health Canada, very few of them are actually selling product internationally. So we continue to utilize the same direction, the same positioning, the same approach that we do here in the United States. And we will continue to do that, even as competition comes out, and is selling those products abroad.

Okay, and you are anticipating, as you get out there, then, in those markets, and seed the market, that competitors might piggyback on your efforts? As far as bringing MIGS to the forefront, and getting the word out, and having patients in those geographies accept MIGS as a next big new thing?

Yes, I think when you have companies such as Alcon and Allergan getting into the MIGS space, their promotional dollars, their selling efforts, will continue to expand the market. We won't be the only ones out there really talking about it. Not that Transcend or [Aquasys] or Advantis haven't been speaking about it. But when you have the support of companies as large as Allergan or Alcon, I think that helps to expand the market, and validates the space.

Okay, thanks. And then just a quick one, too, you were talking about the second-generation Inject enrollment, which has been enrolling in 2015. You mentioned that the FDA had put some pretty specific inclusion and exclusion criteria in place, which helps temper enrollments to some degree. Can you talk a little bit, specifics, as to what they are? Or have you given that before?

This is Tom. I would be hesitant to do so, for competitive reasons. We have worked very hard to establish this clinical protocol with the FDA, as a landmark first-ever (inaudible) trial for a MIGS device. And as much as I like to help people and competitors when I can, this is probably not an area that I would be inclined to do so.

Okay. Thanks. I was just checking I hadn't missed anything there. Thanks very much, and congratulations on the progress.

Thank you.

Matthew O'Brien, Piper Jaffray.

Good afternoon, thanks for taking the questions. Just a follow up on the last couple of questions, on the enrollment. Tom, am I reading this the right way, that this could -- the timing of that could be delayed slightly?

Yes, so -- Matt, first of all, nice to hear from you. What I would say is that, delay is not the word I would use. With the guidance that we have given with this clinical trial with (inaudible), that we would expect to commercialize this within the five-year planning period.

We gave that guidance during the IPO, and during the tail end of 2015. And so we expect that we are -- this was not an unanticipated period, where we negotiated with the FDA, and look to be able to expand the inclusion/exclusion criteria. We've done it before with our initial clinical trials. So no, I would not characterize it as a delay. It meets our expectation, and we will continue to make progress with the trial.

Okay, so you'd built in some flexibility, and you may need some of that here?

Yes, that's correct.

Okay. And then just heading back to Q4 for a second, I understand the 2016 guidance seems fine. But the sequential improvements that you saw in revenue in Q4 was the same that you saw in Q3, and well below what happened in Q2. And I know Q4 is typically a seasonally strong period for you, so I'm just a little curious as to why -- I know your results are in line with expectations But why results weren't even a little bit better, on a sequential basis, there in Q4?

It is Rich. We're always going to have some variability from quarter to quarter, and we have mentioned seasonality is an underpinning that may show up a lot, and in some cases may not. So versus some of the analysts' expectations we did extremely well in Q3. We tempered the expectations, I think, when we gave our guidance for Q4, and our numbers came in where we expected them to be.

Fair enough. And last one for me -- and I know this is a ways away. But one of the things that I think some investors are a little bit worried about is just the reimbursement transition that you are going to be going through, here in 2017, from a temporary code to a permanent code. And I am just -- I know you've talked about it in the past. You're anticipating it will be similar rates, but I'm just curious, what gives you that confidence in seeing a similar type rate, once the permanent code comes out? And when is it -- even if the payment comes down to Trabeculectomy levels, or even a slight discount to that, would that really impact utilization of your iStent?

Yes, Matt, I will take this. So what we have said is that, as you know, the category three code that we currently have in place will sunset at the end of 2017. And we have the opportunity, at that time, to petition for a category one code, or to try to seek another extension. So we will continue to consider that, as we go forward.

In converting to a category one, which gives us some confidence is, one, I can tell you we have done our own RVU probing, within physicians that have utilized iStent, which gives us a point to understand where we may end up. And an RVU analysis, which is typically done by the [Ruck] committee, as you convert to category one. That data is resonant with us, and gives us some quiet confidence. But secondly, one of the things we look at as a low water mark is the goniotomy procedure.

And if you look at that, that is -- again, a goniotomy, which is typically used in peds, a radial incision made in the trabecular meshwork, this is paying, at current rates, at around $700. And I think you could make an argument -- a very valid argument -- that the iStent is at least a goniotomy plus, and should fall somewhere above the RVU analysis for what goniotomy currently is at. Now, having said that, as we go forth in the future, many years, there will be pressure. There has to be.

As we become more ubiquitously used, and if we become -- as we demonstrate the kind of penetration, globally, that we think we will, I think that there will be some change in rates -- Medicare rates that physicians get for implanting the iStent. But I think those would have to be really substantially below what our estimates are to affect adoption. And so we remain confident that reimbursement will serve us, during the planning period and beyond.

Very helpful, thank you.

Okay. So with that, I want to thank everyone for joining us today, and really thank you for your continued interest in Glaukos. Thanks very much, and goodbye.

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