Glaukos Corp (GKOS) 2016 Q2 法說會逐字稿

Welcome to the Glaukos Corporation's second quarter 2016 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'd now like to turn the call over to Sheree Aronson, Vice President of Investor Relations. You may begin.

Hello, everyone. Joining me today are President and CEO, Tom Burns, Chief Financial Officer, Rich Harrison, and Chief Commercial Officer, Chris Calcaterra. Following the 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 products, our pipeline technologies, our US and international commercialization efforts, the efficacy of our current and future products and our competitive market position, financial condition and results of operations.

These statements are based on current expectations about future events affecting us, and are subject to risks, uncertainties and the factors relating to our operations and business environment, all of which are difficult to predict and many of which 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 current SEC filing for more information about these risk factors. You'll find these documents in the Investors section of our website at www.Glaukos.com.

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

Thanks, Sheree. Good afternoon to everybody and thank you for joining us today.

Glaukos reported another record high quarter today, with second quarter 2016 net sales of $28.6 million. Up $10.8 million or 61% versus the same period one year ago, and marking our 12th consecutive quarter of at least 40% year-over-year sales growth. As you saw in the first quarter of 2016, strong same-store sales and conversions of high volume cataract practices helped drive our unit volumes higher in the second quarter. Given our year-to-date results, we are raising our 2016 full-year net sales guidance to a range of $105 million to $107 million.

Our second-quarter results illustrate the continuing strength of our iStent adoption ramp. We're extremely pleased and excited about the way ophthalmic surgeons are embracing iStent, and the potential for our portfolio of micro scale injectable therapies to ultimately address the full range of glaucoma disease states and progression.

As the founder of micro invasive glaucoma surgery, or MIGS, we're establishing an entirely new treatment class that we believe is capable of disrupting the $5.1 billion global glaucoma market. So to accomplish this, we're focusing our energy, expertise and resources on four objectives.

First, we want to leverage our seasoned sales team and compelling clinical evidence to drive US iStent adoption in combination with cataract surgery. Second, we want to fortify our MIGS leadership position and expand the market with next-generation iStent 4 devices for combination cataract and standalone procedures. Third, we want to advance our iDose injectable drug delivery platform. And finally, fourth, we want to enter or expand our presence in the high-value international markets.

Let me touch briefly on the progress against each one of these objectives, beginning with driving US iStent adoption. In the second quarter, the average number of US glaucoma sales representatives stood at 52 representatives which represents a 16% increase versus the same year-ago period. While we may add some reps from time to time as these dictate, we feel that for now our current domestic direct salesforce is appropriately sized to cover the roughly 5,500 ophthalmic surgeons who make up our principal target market.

One of the key responsibilities of our US sales organization is to train new surgeons on the iStent procedure, which is performed in conjunction with cataract surgery. We started 2016 with about 1,600 iStent trained surgeons. Through the first half of this year, we have exceeded our goal to train at least 160 new surgeons per quarter with a special emphasis on higher-volume cataract practices.

Surgeon training and adoption of iStent fuels purchasing demand amongst our customers, which are the ambulatory surgery centers and hospital outpatient departments where the procedures are performed. During in the second quarter of 2016, this demand was evident in various metrics that we track. For example, the total number of facilities purchasing iStent was up more than 30% versus the year-ago period, and number of accounts that have purchased more than 100 iStents since launch nearly doubled in the second quarter versus the same period last year.

To sustain this momentum in the US and further stimulate demand, we're taking numerous actions designed to increase awareness among referring optometrists, prospective patients and other key constituents. For example, we launched a consumer-friendly website earlier this month and our marketing team is producing new patient education materials for use by iStent practices and implementing local market public relations campaigns. We're also forming a specialty sales group that will focus exclusively on growing our presence in key US teaching hospitals.

Surgeons' escalating interest in iStent was on full display at the American Society of Cataract and Refractive Surgery meeting this past May. Of the more 30 surgeon presentations and posters dedicated to MIGS data, 17 were on Glaukos technology, further cementing our leadership position in the market category we have founded and we've built.

In addition, there were multiple well-attended instructional courses and symposia that provided ample opportunity for current iStent implanters and interest of surgeons to share their experiences and discuss surgical pearls, patient identification methods and other insights. Among the data presented at ASCRS was an ongoing interventional case series by Kansas opthalmic surgeon, Dr. Michael Stiles, was following 50 eyes receiving eye iStent during cataract surgery. For 29 eyes followed through three years, Dr. Stiles' patients achieved mean IOP of 14.8 millimeters of mercury, and a 32% mean medication reduction.

Also at the ASCRS, Dr. Mark Gallardo of Texas presented his retrospective study of 135 eyes receiving iStent implantation with cataract surgery. His data showed a 22% reduction in mean IOP to 12.9 millimeters of mercury, and a 61% decrease in mean medications. In the same study, a subset of 40 eyes with uncontrolled glaucoma, which Dr. Gallardo defined as having intraocular pressure greater than or equal to 18 millimeters of mercury on three or more topical medications. With a goal to avoid filtering surgery, these patients had particularly impressive results with 95% of eyes achieving the treatment goal.

These patients achieved a 30% reduction in mean IOP to 13.6 millimeters of mercury, and a 44% decrease in mean medications from 3.2 to 1.8 meds. Further underscoring the power of a single iStent to effectively manage IOP while reducing dependence on topical meds or the need for more invasive surgeries. Both of these studies were independently conducted and managed by the investigating surgeons.

These and numerous other recent studies validate iStent's consistent performance and reliable safety profile in everyday use. And confirm the view that as surgeons become more experienced iStent implanters, their outcomes improve. Consequently, real-world iStent results are typically superior to those we saw in the 2008 IDE pivotal trial. Which included many surgeons' training cases, as more than 70% of the 27 investigators performed five or fewer cases and approximately 85% implanted fewer than 10 stents all together.

To provide surgeons greater flexibility to manage patients' intraocular pressure targets and to address the needs of a broader glaucoma patient population, we developed the iStent inject which deploys two stents into separate trabecular meshwork locations. iStent inject is designed to build on the success of iStent by not only offering surgeons potentially more potent intraocular pressure lowering capability via multiple stents, but also providing an extremely facile procedure, with a single motion, click and release stent placement.

We're pursuing FDA approval of two versions of iStent inject. The trial for the first version, designed for use in conjunction with cataract surgery, is fully enrolled and the two-year follow up will be completed in mid 2017.

Enrollment continues to progress in the initial trial for the second version of the iStent inject, which makes its own self-sealing needle penetration for use as an injectable standalone procedure in phakic and pseudophakic eyes. This expanded indication has the potential to address many of the roughly 3.5 million people in the United States who have glaucoma but aren't undergoing cataract surgery.

We're seeing excellent clinical results from iStent inject in international markets such as in Germany, where it is already approved for use as a standalone procedure and is delivering strong sales. For example, at the European Society of Cataract and Refractive Surgeons meeting next month in Copenhagen, Dr. Fritz Hengerer will present a consecutive series of 29 iStent inject cases in open angle glaucoma eyes.

At one year, mean IOP in these eyes was 13.8 millimeters of mercury, representing a 43% decrease from pre-operative intraocular pressure of 24.3 millimeters of mercury. Also at one year, patients mean medication use declined 86% to 0.4 medications from [2.8] medications pre-operatively. It is important to remember that these excellent results were achieved without the benefit of concomitant cataract surgery.

The iStent and iStent inject offers simple but yet elegant approaches to restoring the natural outflow of aqueous humor through the trabecular meshwork and into Schlemm's canal, known as the conventional pathway. In healthy eyes, this route is responsible for roughly [73%] of aqueous humor outflow.

In glaucoma's eyes, it is the site of greatest resistance to outflow, which causes (technical difficulty) in IOP. Reducing resistance in the trabecular meshwork is the physiologic way to treat glaucoma, and remains the most appropriate first-line therapy for mild to moderate glaucoma disease stages.

We also to continue to enroll patients in the US ID pivotal trial evaluating the iStent Supra, which accesses the unconventional outflow pathway via the suprachoroidal space. To provide some background, suprachoroidal devices are based on a cyclodialysis cleft surgical procedure that was first performed and appeared in clinical literature more than 100 years ago.

By dissecting the ciliary body from its natural attachment to the scleral spur, the surgeon opened the cleft through which aqueous humor or fluid could access across the sclera. These procedures were never widely adopted due to the frequency and seriousness of complications such as bleeding, hypotony and abrupt cleft closures that created sudden subsequent spikes in intraocular pressure.

Today's suprachoroidal procedures incorporate a shunt that is intended to maintain the opening for the outflow of aqueous humor from the anterior chamber. While complications are reduced relative to the original cyclodialysis procedure, we believe the adverse event profile for a suprachoroidal shunt coupled with its efficacy profile continue to create a higher risk to benefit mix procedure. For this reason, we and many leading surgeons continue to believe the [resourceful use] of suprachoroidal shunts are as adjunctive therapy in the glaucoma treatment algorithm to enhance the efficacy of trabecular bypass stents in order to achieve lower intraocular pressure targets in progressive glaucoma cases.

As you may know, a suprachoroidal device in this market niche [bypass] has just received US FDA approval. This approval comes earlier than originally expected, but it is not altogether surprising considering the recent flurry of activity and approvals in the ophthalmic space including the recent approval of a presbyopic inlay from ReVision Optics without a panel review. Even though it was only the second introductory product in a new market class.

What is important is that our team has been planning for heightened MIGS competition for many months. We're confident in our competitive position, we're well prepared and we're ready for other players to enter the market.

Moreover, we're very pleased at this new apparent shortened FDA approval cycle for ophthalmic devices. We see this not only as evidence of the vitality and potential of the MIGS category we've created, but also as harbinger for favorable and expedient approval timelines for our rich evolving pipeline which includes iStent inject, iStent Supra and iDose.

iDose is our microseal novel implant designed to be injected through a corneal incision and secured in the anterior chamber where it elutes therapeutic levels of a special formulation of Travoprost for extended periods of time. When depleted, the iDose can be removed and replaced, providing years of continuous IOP lowering therapy.

We believe iDose, if ultimately FDA approved, can be a game changer for its potential to overcome the ubiquitous and rampant non-compliance associated with topical medication therapy and can alleviate the side effects and ocular surface damage that these topical medications can cause. Our phase II IND clinical trial enrollment began earlier this year, and is moving forward as planned.

The earliest we'd expect any data readout from this study is sometime in 2017. Once an approvable iDose enters the market, we see the potential for glaucoma treatment algorithm where surgeons will use iDose either alone or in combination with iStent flow devices to manage IOP targets based on each case's individual disease stage and progression.

Turning now to our international expansion efforts. Our recently installed direct sales organizations in Germany, in Australia and in Canada are driving iStent and iStent inject adoption through new surgeon training and increased utilization. Our direct sales team in Japan is also busy with surgeon awareness building and training in anticipation of a decision by Japanese officials regarding reimbursement.

We have also taken steps to establish legal entities in various other countries including the United Kingdom, Sweden and Brazil, where we expect to begin building direct sales teams in the second half of 2016. Several additional iStent distributor markets are under evaluation for a possible conversion to our direct model. In addition we're using distributor partnerships to enter several new geographies where we have not previously had a presence and these include Mexico, Argentina and Costa Rica.

Surgeon interest in MIGS and enthusiasm for our iStent platform continue to build in multiple markets outside the United States. As I mentioned earlier, the ASCRS meeting will be held next month in Copenhagen. Glaukos will be well represented with 12 surgeon presentations and posters highlighting iStent technology, far more than any other MIGS player.

Finally, as all of you know now, Rich Harrison, our CFO, has decided to retire from Glaukos, and has graciously agreed to remain with us until sometime in 2017 to ensure a smooth transition to a new CFO. So I've worked alongside Rich for eight years, and can attest to his unwavering professionalism, dedication and enthusiasm. He has been an integral to our growth and success, particularly his role in guiding our 2015 IPO. Sometime next year, you're likely to find Rich either on the golf course or riding his Ducati motorcycle along the California coastline. But in the meantime, he remains an important part of the Glaukos team.

And with that, I'll pass the call over to Rich for a summary of second quarter financial results. Rich?

Thanks, Tom, and thanks for the kind words. Good afternoon, everyone.

As Tom reported earlier, our net sales rose 61% to $28.6 million versus $17.8 million in the same year-ago quarter. Growth was driven primarily by strong US sales, which represented 89% of the increase versus the year-ago quarter.

US sales represented 92% of total net sales in the second quarter of 2016, compared to 94% in the year-ago quarter. Increased unit volume worldwide was primarily responsible for the rise in second-quarter net sales, driven by an increase in the number of trained surgeons and higher overall iStent utilization.

For the second quarter of 2016, our gross margin was 85% compared to 82% of sales in the second quarter of 2015. The expansion reflects increasing sales relative to our fixed manufacturing costs and our intangible asset amortization, as well as the suspension for 2016 and 2017 of the medical device excise tax, which tax was included in our 2015 cost of sales.

In the second quarter of 2016, operating expenses rose 11% to $22.1 million versus $19.9 million in the year-ago quarter. Our operating expenses continue to increase as we add foreign subsidiaries and domestic sales, marketing and administrative personnel, and also increase our investment in worldwide marketing programs.

We finished the second quarter of 2016 with net income attributable to common shareholders of $2.3 million or $0.06 per diluted share. Compared to a net loss attributable to common shareholders of $31.9 million or a loss of $10.96 per diluted share a year ago in the second quarter of 2015. The net loss in the year-ago quarter included a $25.7 million charge associated with the acquisition of the iDose product line and related assets from DOSE Medical Corporation in June 2015.

While our exceptional top-line performance led to profitability in the second quarter, it is important to continue to remind you that we may not remain profitable. As our focus and priority remains expanding the market penetration of iStent globally, and rapidly progressing our deep and diverse pipeline.

Turning to the balance sheet. At the end of the second quarter of 2016, our combined cash, cash equivalents and short-term investments stood at $93.9 million, compared to $91.1 million at the beginning of the year or $88.2 million as of the end of the first quarter March 31, 2016.

As Tom indicated, we have revised our 2016 net sales guidance to a range of $105 million to $107 million, which implies a 2016 growth rate ranging from 46% to 49%. We believe this guidance reflects our strong performance in the first half of 2016, and remains appropriately conservative.

Tom, can I turn the call back to you?

Absolutely. Thanks, Rich.

So to wrap up, Glaukos delivered solid performance in the second quarter which, by the way, marked the one-year anniversary of our June 25, 2015 IPO. We're growing our global team. We're driving new demand for our breakthrough technologies, and executing a clearly defined strategy designed to deliver results that meet or exceed our expectations.

We're both excited and confident about the future of Glaukos and the opportunity that lies ahead for our business. We appreciate your continued interest in the Company, and the confidence that you've shown us and in our vision that seeks to transform the treatment of glaucoma.

With that, I'll open up to any questions. Operator?

(Operator Instructions)

Mike Weinstein, JPMorgan.

Hello, Mike.

Mike Weinstein, your line is open.

Can you hear me, guys?

Yes, we can. How are you?

Sorry, I'm good. Tom, I think if I would have said to you a year ago that after you guys grew 60% in 2Q 2015 that a year later you'll grow 61% in 2Q 2016, you probably wouldn't have believed me. Fair statement?

I think that's fair.

That's fair. Let's talk about a few items. So with, number one, with how well the business is doing and the uptake you've seen particularly in the last six months. You talked a little bit on the call in your prepared remarks about some of the initiatives you're taking to basically to continue the momentum in the business to make sure that you're doing all the right things including creating the specialty salesforce you mentioned for US teaching hospitals.

One question I have is, do you have enough bodies right now? If I just do some simple back of the envelope math on your rep productivity, it is already running much higher obviously than we would have been anticipating.

Do you have enough reps? Do have enough bodies? Is there any constraint at this point to the business just from the personnel you have in place?

Absolutely, Mike. I'm going to turn this question over to Chris, and then be happy to add any further color.

Hey, Mike. So as relates to the US, we're always looking to see if we have enough bodies, but at this time we do feel like we do from a sales rep perspective. As you did hear from Tom, we are adding a specialty salesforce to help in a number of areas.

One is strategic by getting into the teaching institutions and working with the residents and the fellows and the program Chairs. Two, it also frees up time for the sales representative to go out and allow him or her to capture more business outside of the teaching institutions.

So there is an efficiency gained by adding this specialty salesforce. But we're always looking at it, Mike, and we feel pretty good about where we are right now. Most of our growth in adding more bodies and time has been spent OUS.

Did -- let me cover a couple topics that have come up recently. So number one was the proposed reimbursement for the AFC and outpatient settings for FY17, which would imply a pretty significant increase in the reimbursements rates for iStent.

So assuming those go through, can you just talk about what that might mean to your business? What it might mean to your customer's business, number one. And two, how you would think about your pricing for your product and how that might change?

Sure, so let me cover the preliminary proposed rule and give a little bit of background. So beginning in 2017, CMS is really changed in the way it calculates reimbursement by qualifying certain individuals, CPT codes, with device intensive designations.

So previously, only CPT codes within device intensive APCs of which 673 assigned to 91T was not one qualified for this designation. So the change is designed to more accurately reimburse device and non-device procedures.

And so as I look at it and I look at the numbers, we can't help but be at least delighted with the preliminary rule in the ambulatory surgery center which represents roughly 75% of our sales. The payment rate, as you all know, went up $1,794 in 2016 to really $2,554. So we're looking at about a $760 increase in the payment for the facility.

And even when we droll down to taking that in combination with cataract surgery, we're looking at totally about $768 incremental dollars that are available for that CPT designation. So we can't help but be delighted with that preliminary rule, and it's something that we've been working with CMS for some time to be able to augment our position and to gain more ground for really this premium product and this premium category.

So how will we approach it, well one, it is preliminary. So we won't count our chickens until the end of October when this will issue as a final rule. We hope that there is no substantive change, but we will wait.

When we do receive that final rule, we will have to contemplate a number of things. The competitive landscape, the rate of adoption and how any price increase will affect our currently favorable positions with our provider customers, current contracts that we have into place.

So as you can imagine, like we've done -- we hope we've done with all of the things has been quite strategic and also empathetic to customers who have helped us build this whole premium market category. And so when that rule does issue, I can assure you we will already have in place a plan which will benefit both Glaukos and our customers and allow us to move this really incredible embryonic market channel forward.

Okay. Tom, let me ask two more questions, and I'll let other jump in. So one, on iDose, you reiterated that we shouldn't expect to see data until 2017.

Could you just comment on where you are with enrollment? And then second, on the transcend approval for side pass, could you just talk about for those that aren't as close to it what Alcon is going to have to go through in order to get reimbursement for that implant? Thanks.

That's right, Mike. So on iDose, as you all know, we were really delighted to be able to receive the go-ahead from the FDA. Really several quarters prior to what we had talked about in our S1 to be able to move forth for our phase II study, our IND with the iDose device. So that was quite extraordinary.

And we began our enrollment in the second quarter of this year. Enrollment is going, although we won't comment at any granular level, it is going as we expected and we are making progress with the study and with our initial investigators.

So in our continued consistent approach to concern of guidance, we will look to amass this trial when we've completed the full enrollment at three months, and then we will be able to share data with you at that time. So I think it is fair to say that best case, we'll have data available in 2017. So that's -- answers your question with respect to iDose.

With respect to the category of O253T, of which suprachoroidal devices will be governed. This is a new category, a category 3 that Glaukos established in 2011 when we sought a new code for our suprachoroidal devices.

And really any product that is a suprachoroidal device, we'll use this code going forward, and we'll be subject to the heavy sledding that we had to go through with the max and with private payers in order to get coverage for the product. In our experience, that took several months. I think most of you would say that we did it at light speed.

So we would expect that the process will be straightforward, but rather Herculean, and will take some time for any company that would have a new SCPT code to establish broad reimbursement, and that typically takes on the order of several months to sometimes several years. So that's what we would expect with anybody using a new code.

Perfect. I'll let some others jump in. Thank you, Tom, and congratulations, everybody.

Thank you so much.

Robert Hopkins, Bank of America- Merrill Lynch.

This is Travis Steed on for Bob today.

Hello, Travis.

I just wanted to follow up with on Mike's question on Alcon. Would you expect them to have any impact on the market until they get reimbursement? And also do you expect any trialing of their product to potentially impact the market at all?

Well what I would say is we would be consistent with what we have said all along. We think Alcon is a competitor that we respect, it's a competitor that's going to grow the market with the resources that they've built in. Certainly there's going to be people that try the product, that will be something that I would say with any new product that enters there will be curious reception and there will be an intent to try to see how it performs.

In terms of how well they will do, I think I'll just turn to our guidance to show you that obviously we were able to establish our guidance with the afore knowledge that Alcon received approval. So you can expect that our strong confidence and our continued growth will continues even in the presence of a new competitor.

Okay. And just to clarify, it doesn't sound like there were any changes to the iStent inject timelines. And then can you also just comment a little bit what drove the upside this quarter relative to your expectations? Were you able to train more doctors, or was utilization better than you thought?

So I'll address the latter part. So the numbers were generated by higher unit volumes than we had anticipated. That was driven by the addition of more high volume cataract surgeons.

It was driven by more same-store sales growth. And I would say it was also driven by continuing to execute on training new physicians. So all three things there, Bob.

With respect to iStent inject, what I would say is that we had the data in front of us, at least in terms of when we completed the trial July of last year. We continued to stress guidance for two years, safety and efficacy follow up, and so I will reassure you that that is the guidance as we go forward.

I would say if anything, I'm rather delighted with the FDA's departure from convention and expedited review of the transcend device and hope we can parlay that into a expedited review for the iStent inject when we submit the PNA for final approval.

Okay, great. Thank you.

Thanks, Travis.

Brian Weinstein, William Blair.

Hey, guys. Thanks for taking the question. Question for you on the high-volume docs.

How quickly do these guys get to a steady state? Are they kind of at a steady for that first cohort of high-volume docs that you were talking about last quarter? Are they still ramping, do they ramp faster than your more average volume guys?

I would say that it is all across the board, Brian. Just like before, some guys ramp quicker, some guys ramp later. Understand that these high volume guys that are coming in now have waited some time.

So I'd say as a general rule, they are going to be a little bit slower on the adoption curve. Just like we've consistently stated, once they get their 15 or so stents in, they tend to move along quite well.

Got it. As we think about the upside that you guys are showing. You're obviously funding significant R&D. You've got a salesforce that you said you're not looking to expand. So as this upside really comes through, where do you want to spend it? If you had an extra $10 million, where would you put that, where are the needs at this point for invest in the business?

Brian, this is Rich. So right now, cash resources are in no way any limitation on us. As you saw, we have $93 million some as of the end of the quarter, up from where we were at the end of Q1. So we actually generated some positive cash during the quarter.

So it is hard for me to really answer where would I spend it if I had an extra $10 million. I have the extra $10 million, and I think we're deploying our investments in the right places. Both in the sales and marketing side with the addition with foreign operations in those territories where we think we can really get a good bang for our buck, as well as in the R&D and development side.

Okay. And the next one for me, you guys talked about the fact your training was above your goals. What specifically are you guys looking for out of the salesforce in terms of doctors being trained previously? You talked about one new doc per rep per month, is that how we still think about it, or have your expectations gone up? Thanks.

No, the expectations are the same. And what we said all along is a 40% growth in trained surgeons year over year, and we're training a little bit ahead of that. What is key there is that they are quality trainings.

We could certainly crank up the numbers if we wanted to, but we don't. We want to make sure that everybody is trained well and effectively, and that leads to longer-term sales. So we're just above where we anticipated the 40% growth, and we feel real good about that.

Thanks, guys.

Thanks, Brian.

Matthew O'Brien, Piper Jaffray.

Morning, Matt.

Afternoon. Thanks so much for taking the questions. Just to start with on the guidance for the year.

I understand you guys are trying to be conservative, but just even at the midpoint of your range for the year, assumes basically the same run rate that you just did in Q2 here. So I'm sure you're somewhat factoring in the transcend approval slightly, but I would love to hear what else potentially could keep you from putting up growth well ahead of what you're even guiding us to for the full year?

Yes, hello, Matt, this is Rich. So when it comes to guidance, we have been fairly consistent all along in a number of ways. One way is granularity. We don't get very granular with it, and now is not a time where we're probably going to start that.

We have always consistently been conservative and follow a philosophy to under-promise and over-deliver. So I think probably the best way for me to answer your question is to say we continue to have a high level of confidence that we will meet or exceed the guidance that we're providing to the street. And that we have taken into account the planned introduction or the now new information about the introduction of a new competitor into our marketplace sometime this year.

Okay, fair enough. And then as far as the -- and I'm using some rough numbers here so forgive me if they're wrong, but I'm getting usually about $64,000 run rate annually on a trained surgeon basis. I'm curious as far as what type of revenue a surgeon could do annually, because I'm getting something closer to $150,000 for a year.

So I guess the question I'm trying to get to is, do you think within the surgeons that you've trained there is still a sense of room to run and then on top of that there's still a lot of room to continue adding new surgeons as well? So I guess getting back to the heart of the question on Q2 here, you talked about the broad-based improvement in a lot of these metrics. Was there any one specifically that really drove a lot of the upside in the quarter, via going deeper in existing accounts, new high-volume guys, et cetera?

I think maybe Chris and I can tag team this one and answer your questions. The first part about the room or the maximum amount of revenue from a surgeon, that's all over the board, as you know. There are some surgeons who are practicing in high-volume cataract practices and there are some that are not.

So I don't even know if I could make any educated reaction to your -- I think I heard you say something about $64,000. I wouldn't even know how to react to that. But as far as how much room remains for us to capture new surgeons, we're still embryonic here and I'd like to turn it over to Chris and let him add a little color on that.

Yes, couple things, one, Matt, we're in the low to mid-teens in terms of market penetration, so that right there says there is a lot of room. In terms of trying to assess where the majority of the growth came from, whether it was from new high-volume cataract surgeons or same-store sales growth, that's difficult to get at because of the way product is purchased.

It is purchased by facilities who have a variety of doctors within there. But looking at it and getting it as granular as I can, we're getting growth from both areas. Both from same-store sales growth as well as high-volume cataract surgeons.

Got it. Last one for me, just on Japan. I know we've got approval in hand I think for reimbursement. Are there any specific dates that we should be looking forward to as far as when potentially you could get some favorable or get a response or decision on reimbursement?

No specific date. We're hopeful that we would have it by the end of the year.

Got it. Thank you.

Thanks, Matt.

John Block, Stifel.

Great, thanks, and good afternoon. Tom, really good injected out of Copenhagen.

I think you said reduction in IOP of 43%, I also think you said meds actually 81% reduction. Just when or if you get inject approved here in the US for concomitant, how do you see the breakdown of that market developing? In other words, what percent of a doctor opting for inject versus two, versus one, if you would, if you can look forward and give us any feel there?

Yes, if we had to take a best estimate at this time, clearly the market has reacted quite favorably to our inject product because of just the facility of use and the fact that you'd have two stents. That is what you're hearing in all your due diligence calls.

And I think we believe as well, when we induce or introduce the iStent inject, we're thinking that will be somewhere on the order, if we had to make a call today, of 85% to 90% use of the iStent inject versus the iStent. We don't see the iStent going away completely. There will be people that have a high desire to continue its use and have used it with really strong clinical results over the years, but we do think that iStent inject will dominate the landscape.

Got it. Great. And maybe two more.

Rich, two quarters in a row with GAAP profitability, anything you can give us with how this business, the operating margin of this business, looks with a revenue run rate of $200 million, $250 million on an annual basis? I guess what I'm just trying to do is look out a little bit and get more color on the earnings power of the model.

I think that one is a question I answered in different ways before, and I'll go through it the same way. And that is, we've already demonstrated with our first couple of quarters and our history on our gross margin that if we wished to be profitable and significantly profitable going forward, if that was our key priority and focus, we could do that.

But as we continue to emphasize for the investment community, our focus is on growing the top line and growing our franchise and our business. So it seems likely when you throw out a number that high of revenue, that you would be in a good margin position. But I really don't want to speculate at this point about where our margins might be at that dollar amount.

It is so completely dependent on how much we decide we're going to spend on international infrastructure, on marketing programs, eventually with more and more direct consumer campaigns. As well as continuing development in the labs and in our product development area, where we are not just focussed on only those products in the pipeline that we've publicly talked about. But we look at other things as well, all the time. So it's really -- I'm not able to really answer your question directly.

Okay, got it. Last one for me, Tom, back to you. You mentioned the sales guys are prepared competition. Maybe what are your sales reps going to focus on in terms of transcend?

I'm just asking because guessing it gets a little tricky. You're likely going to have your own supra stent in a couple of years. So are there certain complexities specific to the transcend device that you guys will focus on? Thank you.

Thanks, John.

This is Chris. We're well prepared. We have, as we've always stated, there is a place for suprachoroidal stents. We have a suprachoroidal shunt, and we believe in it.

We just believe that it is a device that is -- it's an enhancement procedure, and should be used in combination with a trabecular bypass and trabecular bypass is a first line of therapy. So consistent with what we've said in previous calls, we'll continue to follow that direction and our sales organization will as well.

Thank you, guys.

Thanks, John.

Chris Lewis, Roth Capital Partners.

Hey, guys, good afternoon. Thanks for taking the questions.

Hello, Chris.

Hey, Chris.

Wanted to start on the ASCRS meeting in May. Obviously being in attendance it was pretty obvious that MIGs was really one of the highlights coming out of that meeting. I was hoping you could just spend a minute talking about the type of impact you think that had on the quarter, and your general takeaways in terms of momentum you've seen since that meeting in early May in terms of adoption.

I think it's fair to say if you're a participant and you weren't able to attend the numerous presentations that are made on MIGS of which Glaukos really dominated the plenary sessions in terms of presentations and posters. You would come away, as we did, quite enthusiastic and with a second wind as we went and left the ASCRS meeting.

It was clear to me that there was a strong embrace of the data that we were presenting, both with single stent and with multiple stents. And it was clear to me as well that the safety profile of the device really resonated with the group over and above other MIGS entrants trying to enter the space. So home run is an over-used term but it certainly was a two or three-bagger for us, and I think we left there with strong momentum and I think we are seeing the fruits of really a successful meeting at ASCRS today.

Great. And for the US study for iStent inject for standalone, I may have missed it. But can you go through how enrollment is coming along there, and I guess any timing and expectations of when you expect complete enrollment?

Yes, I would be happy to. So it is unchanged really from the last update I gave. We continue to make progress.

We really started enrolling in earnest in 2015, and we're enrolling the initial cohort. And as I stated before, it is a onerous inclusion, exclusion criteria, not dissimilar from what we experienced when we first started the combination cataract study in the first phase.

And so our goal now is to liberalize that study through the amendments that we are submitting to the FDA, of which we're achieving success. So that we really do open it up and facilitate an expedited move when we move into a pivotal expanded phase.

So this is not new for us. We have been successful in the past. It does take effort, particularly in this initial phase, until we get the protocol that we like in the expanded phase.

Moving to the international front, you had a pretty big jump there just in terms of absolute dollar number in sales. Can you just elaborate on what markets are driving that?

You talked about Germany and then you also talked about you're building direct sales teams in the UK, Sweden and Brazil I believe. So how many researchers do you plan to have there, and how should we think about those markets layering into the full and the back half of this year into 2017? Thanks.

Thanks, Chris. And that has certainly has been a focus of a number of people's efforts here is to grow our international business, and there has been a lot of activity taking place in Latin America and Europe. I would say that all three of those countries that you mentioned that have iStent inject, Australia, Germany and Canada certainly contributed to the growth on the international side.

In terms of where we're going next and our plans there, Europe and Latin America. We have set up legal entities in a number of countries in Europe. We mentioned two, Sweden and the UK.

Then in Latin America, we've set up a legal entity in Brazil and we will be moving to staff that. In fact, we already are. We're about halfway through some of the headcounts that we've identified, and we will be adding more in the third quarter.

Great. Thanks for the time.

Thank you, Chris.

Elemer Piros, Cantor.

Yes, good afternoon. My question is related to the Japanese market, Tom. It is a huge pharmaceutical market, but could you please remind us that in glaucoma what numbers are we looking at? And if you look out three, four years in the future, what percentage of your total revenue might come from Japan?

This is Chris, and I can't get that granular in terms of sales for the upcoming years and the impact, and so forth. But you're absolutely right.

Very strong pharmaceutical business in Japan. They didn't get glaucoma devices until roughly four years ago, five years ago, and the adoption of those is starting to increase which gives us encouragement for our entry into the surgical device -- glaucoma device market.

I feel bullish on Japan, but as I've always stated, Japan will go a little bit slower than some of our other major markets for some of the reasons I just described. And two, just the overall culture there of adopting new technologies, they tend to move a little bit slower.

But there's a lot of glaucoma in Japan. I've looked at the high utilization of meds there to be a big opportunity for us.

Thank you. And somewhat unrelated, I only noted one center on clinicaltrials.gov for the iDose phase II study in South Dakota. Do you plan to add more, or is that just not an updated list for the time being?

Yes, it's just not an updated list. We have several centers that are involved in the initial phase II trial.

Okay. Thank you very much. Congratulations.

Thanks, Elemer.

Thank you.

That concludes the Q&A session. I'll pass the call back to Mr. Burns.

Okay. Well thank you to everybody for participating today, and thanks again for your confidence and your support. And with that, I'll leave you. Thanks so much. Good-bye.

Take care, good-bye.

Ladies and gentlemen, this does conclude today's conference call. Thank you for joining us. You may now disconnect your lines.