Glaukos Corp (GKOS) 2017 Q3 法說會逐字稿

Welcome to Glaukos Corporation Third Quarter 2017 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. An archived replay will be available online in the Investors Relations section at www.glaukos.com.

I will now turn the call over to Sheree Aronson, Vice President of Investor Relations and Corporate Marketing.

Hello, everyone. Joining me today are: President and CEO, Tom Burns; CFO, Joe Gilliam; and COO, Chris Calcaterra. Following our prepared remarks, we'll open the call to questions. (Operator Instructions)

Please note that all statements, other than statements of historical facts made on this call that address activities, events or developments we expect, believe or anticipate will or may occur in the future are forward-looking statements. These include statements about our plans, objectives, strategies and prospects regarding, among other things, our iStent product, our pipeline technologies, our U.S. and international commercialization efforts, the efficacy of our current and future products, and our competitive market position and financial condition and results of operations. These statements are based on current expectations about future events affecting us and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, they may cause our actual results to differ materially from those expressed or implied by forward-looking statements.

Review today's press release and our SEC filings for more information about these risk factors. You'll find these documents in the Investors section of our website at www.glaukos.com.

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

Okay. Thanks, Sheree, and good afternoon, everybody.

Today, Glaukos reported third quarter net sales of $40.4 million, up 37% versus the year ago quarter, reflecting the continued global adoption of iStent and iStent Inject, along with the 2017 iStent price adjustment in U.S. ambulatory surgery centers or ASCs. We are also reaffirming our 2017 net sales guidance of $155 million to $160 million.

In United States, I'm pleased that the expanding adoption of our beachhead iStent device continues to drive MIGS towards the standard of care with co-morbid glaucoma and cataract patients while generating the growing revenue and cash flows that fuel our deep, late-stage pipeline.

At the same time, we continue to invest in and strengthen our domestic commercial sales and marketing organization to provide optimal resources for training new doctors, driving utilization in existing practices, obtaining broad reimbursement and increasing iStent awareness with optometrists, potential patients and others. This investment is evidenced in the tremendous expansion of our global commercial sales organization from 65 individuals at the time of our IPO to 177 today, including more than 90 Glaukos professionals currently serving the U.S. MIGS market.

On the reimbursement front, CMS has now published their final 2017 fee schedule. The final schedule is consistent with the proposed draft and is a reaffirmation of the 2017 reimbursement increase that was implemented when the 0191T CPT code describing iStent implantation received a device-intensive offset designation. These reimbursement adjustments remain an extremely positive longer-term development for the iStent platform and a meaningful recognition of the value of MIGS to the healthcare system overall.

We continued during the quarter to increase the ranks of trained U.S. surgeons with the goal of having more than 3,000 fully trained by the end of this year, a portion of which includes glaucoma fellows and residents at teaching hospitals. While this particular subset of new trainees may not be meaningful to near-term procedural growth, they are a vital component to the longer-term adoption curve for iStent and our pipeline technologies. This is an area we will continue to target through the strategic account manager, or SAM, sales force we created in mid-2016.

Later this week, we head to New Orleans for the American Academy of Ophthalmology meeting, where we will host a major MIGS educational symposia for active and potential iStent implanters and take part in various other activities designed to advance iStent awareness and utilization.

During the third quarter, we also made considerable progress towards providing a complete portfolio of solutions across the entire glaucoma disease stage of therapy continuum. We believe our pipeline platforms, if approved, will significantly expand our addressable market opportunity and uniquely position Glaukos for growth and leadership as a provider of innovative pharmaceutical and surgical solutions well into the next decade.

First, as highlighted in our recent Investor Day, we are delighted with the initial efficacy and safety profile demonstrated by iDose travoprost in our Phase IIb clinical trial. The Phase II IND trial data is powerful, and it validates the potential for sustained glaucoma drug delivery system to address the widespread problem of patient noncompliance with topical medications. The 104 -- 50 -- or 154-subject Phase II result showed that at 12 weeks the fast-eluting and slow-eluting versions of iDose travoprost achieved average IOP reductions from baseline of 8.5 and 8.0 millimeters of mercury, respectively, compared to 7.6 milligrams of mercury for topical timolol, meeting a fundamental clinical goal of non-inferior IOP reduction to topical therapies.

It's worth noting that at 12 weeks post-operatively approximately 40% more subjects required additional meds in the timolol control arm than in either iDose arm. Importantly, both elution rates of the iDose travoprost achieved mean intraocular decreases of 30% or greater.

Longer term, iDose travoprost results also showed excellent performance. In the 43 subjects with 9 months of follow-up, average IOP reductions in the fast and slow-elution groups were 8.3 and 7.5 millimeters of mercury, respectively, demonstrating sustained IOP reductions of 32% from pretreatment baselines.

And perhaps, most impressive was the stellar safety profile. The Phase II study resulted in 0 reported intraoperative adverse events in the iDose groups. Moreover, across all patient cohorts, no hyperemia was reported. And the incident rate of other AEs was low.

We'll be meeting with the FDA before year end to review these results in detail and to map out plans for the pivotal Phase III trials, which we hope to begin early in 2018. We expect to conduct 2 600-patient Phase III clinical studies: 1 primarily in the U.S. and 1 international, supporting our goal for iDose to be commercially available in the 2022 to 2023 time frame.

We also expect our next-generation iStent flow devices to be important drivers of our future growth as we expand beyond the combo cataract market segment.

iStent SA, our 2-stent, stand-alone product includes an injection system designed to yield smooth trabecular stent insertion during a closed-chamber stand-alone procedure, allowing the surgeon to enter the eyes once to implant 2 stents in a straightforward click-and-release motion.

Multiple clinical studies have shown the potent IOP-lowering capability of 2 trabecular bypass stents, including one presented at the ASCRS by Dr. Richard Lindstrom, and more recently at the ESCRS by Dr. Konrad Schargel. This latter study revealed a 42% reduction in IOP versus pre-op unmedicated IOP in 57 open-angle glaucoma subjects followed through 2 years. Moreover, 98% of subjects achieved pressures at or below 18 millimeters of mercury without medication at 2 years.

The initial IDE iStent stand-alone trial of 75 phakic and pseudophakic patients is now complete, and we are in discussions with the FDA regarding the protocol for the 500-patient Phase III pivotal trial. We hope to agree on an inclusion/exclusion criteria that will achieve more timely enrollment that we experienced in the initial trial.

As we negotiate a more liberal Phase III inclusion/exclusion criteria, we will consider evaluating only mild-to-moderate pseudophakic open-angle glaucoma patients which we believe represents about 1/3 of the total U.S. open-angle glaucoma population and where we contemplate the most rapid initial commercial adoption of the iStent stand-alone product.

We continue to target initiation of this pivotal trial in early 2018, with commercialization possible in the 2022 to 2021 time frame.

Similar to the iStent assay is our most recent addition to the pipeline, the iStent infinite, which we unveiled at our Investor Day. We will seek an iStent incident indication for stand-alone use in refractory glaucoma patients. The iStent infinite is preloaded with 3 stents that may be implanted across 5 to 6 clock hours of Schlemm's canal. By establishing multiple openings through the trabecular mesh work and accessing numerous collective channels within Schlemm's canal, the iStent infinite is designed to further lower IOP in the most advanced glaucoma patients, offering a minimally invasive procedure with a fast recovery time and few complications. Unlike conventional late-stage procedures, it does not create a bleb.

In international, case series of 30 eyes, including 27 with prior trabeculectomies, the iStent infinite achieved 52% reduction in mean IOP to 13.7 millimeters of mercury and a 77% reduction in the mean numbers of meds at 12 months post-operatively.

Our plan is to submit an IDE filing for the iStent infinite with the FDA by the beginning of 2018 and to conduct a 1-year clinical trial subject -- of 65 subjects, followed by an eventual 510(k) submission after the study is completed. Estimated U.S., commercialization is 2022 to 2021, further expanding the market for our stand-alone flow platform beyond mild-to-moderate patients and into advanced and refractory glaucoma.

Finally, progress continues with our next-generation combo cataract flow devices, the iStent inject and iStent Supra, which we hope to commercialize in the latter part of 2018 and 2020, respectively.

The iStent inject PMA is on track to be filed with the agency by year end. Once approved, we expect iStent inject to provide significant advantages in the combo cataract market in terms of efficacy, safety and ease of use. Moreover, like the iStent SA and iStent infinite, the iStent inject will utilize the existing 0191T reimbursement code already in effect for our iStent device, with full coverage and payment by the MACs and commercial payers already established.

We believe that the iStent, iStent inject, iStent SA, iStent infinite and iDose represent the most comprehensive portfolio in the global glaucoma landscape, a portfolio capable of meeting the needs of the entire disease state continuum from ocular hypertensive to refractory glaucoma.

As I said earlier, our pipeline platforms, if approved, will significantly expand our market opportunity at a solid cadence over the next several years and uniquely position Glaukos for growth and leadership well into the next decade.

To put this in context, using our treatment algorithms and combination therapy expectations, we expect our U.S. addressable market opportunity to expand from roughly 600,000 procedures today to a pool of over 11 million diagnosed and treated eyes, of which we believe over 4 million to be treated annually.

We continue to invest significant resources in an effort to fully capture these opportunities and to expand beyond our current pipeline with new products that leverage our core technologies and expertise. This includes investing in broad pharmaceutical development capabilities. As many of you may know, we've recruited the esteemed Dr. Jay Katz to serve as our Chief Medical Officer. At the same time, our pharma development organization has now grown to over 30 scientists, chemists and other experts with prior experience at leading pharmaceutical companies.

We continue to bring in-house the technologies and tools required to advance our development capabilities into the future. While these efforts remains early, I'm excited at the capabilities we're building and the pipeline of opportunities that this organization is generating.

At the same time, we continue to invest in the global infrastructure required to expand the opportunity for our iStent and iStent inject combo cataract franchise today and serve as the foundation for the commercialization of our broad portfolio and longer-term growth objectives internationally.

We finished the third quarter with direct sales operations in 14 countries outside the United States, including Canada, 9 countries in Europe, 3 in Asia Pacific and 1 in Latin America. All but 3 of these, Canada, Germany and Australia, represent direct commercialization efforts we've launched in 2017.

Our focus today is on building quality, experienced surgical teams in all of these markets, while working to establish favorable reimbursement, train surgeons and leverage our compelling clinical data to grow awareness around the merits of our MIGS offering.

Some recent developments of note include: one, we were well represented at the ESCRS last month in Lisbon, Portugal, where there were 7 surgeon podium and poster presentations highlighting our iStent and iStent inject technologies.

Two, we're gaining traction in the U.K., following the favorable MISE ruling earlier this year that made iStent available under standard protocols with no restrictions, and the recent introduction of iStent inject into that country.

Three, in Japan, iStent surgeon training continues in earnest, with concentration on glaucoma specialists. Given the size and ultimate potential for this market, we are currently increasing our representative count to approximately 16 in Japan. We believe the strong foundation we have built in the glaucoma specialist community over the past 12 months should begin to gradually allow broader adoption across the comprehensive ophthalmologist surgeon pool and ultimately support more meaningful growth in 2018 and beyond for Japan.

In Brazil, fourth, we have -- where we've established a direct sales organization in the second quarter, we just launched iStent inject, and we're encouraged with its initial market receptivity.

So lastly, I'll touch briefly on our efforts to fully develop 3 complementary and comprehensive technology platforms: surgical flow devices, sustained pharmaceutical systems and in vivo diagnostics.

Our surgical flow device platform has already positioned us as the market leader in the emerging MIGS treatment class. Core competencies and micro engineering design, assembly and manufacturability have put us well ahead of the competition and facilitated our foray into sustained pharmaceutical systems. We are leveraging these core competencies while building a seasoned team to explore additional glaucoma applications for our iDose platform and possible expansion into other ophthalmic diseases. And with our recent acquisition of IOP sensor assets, we are further leveraging our micro-scale ocular device expertise with micro electromechanical systems. And our aim is to develop, elegant implantable biosensors with the potential to improve the way physicians monitor and manage glaucoma.

Ultimately, we envision Glaukos as a hybrid drug device company capable of delivering a host of novel surgical and pharmaceutical ocular therapies and diagnostics tools that address important unmet patient needs.

So with that, I'll turn the call over to Joe for the summary of the third quarter financial results. Joe?

Thanks, Tom.

As noted earlier, our third quarter net sales rose 37% to $40.4 million versus $29.6 million in the same year ago quarter. Growth reflected unit volume increases worldwide, higher ASPs in the U.S. and international expansion.

U.S. sales were $35.6 million and grew 32% versus the year ago quarter. As discussed at our Investor Day, our strong U.S. growth has been impacted by several headwinds.

First, we believe commercial insurance disruption remains the most significant headwind in Q3. As we have said previously, about 20% of our target patient population falls under commercial insurance. And while virtually all of the 100-plus national commercial payment policies have already been updated to reflect the current Medicare rate, we continue to be impacted by legacy rate schedules, at many of them more than 500 affiliated sub-payers and plans and thousands of individual provider payer contracts.

Our newly expanded reimbursement team is now working diligently and making progress with customers to ensure that these rates are updated as efficiently as possible. This remains largely an account-by-account administrative issue, and we continue to believe it is a question of when, not if, we will convert the vast majority of these situations to the new reimbursement rate.

In the meantime, we have introduced several initiatives to help customers manage through this situation. As we have evaluate the pace of resolution sitting here today, we do expect this issue to decline but persist through the first half of 2018.

Next, the recent hurricanes did temporarily impact iStent procedures in Houston, Florida and, to a lesser extent, the Southeastern United States. We did start to see the return of these accounts during the second half of September and believe that most of the iStent practices are now back up and running. But patients remain impacted and, thus, it may be early 2018 before all the procedures lost in the third quarter are fully recaptured and the pace of procedure volumes normalizes for these regions.

We estimate the Q3 hurricane impact to be less than $1 million.

In the Noridian region, we continue to monitor the situation closely to determine whether or how the lowered surgeon fee is impacting procedure growth trends. We now have several months of experience with the lower surgeon fee, and it does appear that has had a modest impact to our growth in the region as expected. As we have noted on prior calls, this impact has come primarily from a slowing of new surgeon training and utilization within lower-volume practices. It is important to remember that any MAC has the ability at any time to adjust professional fees for Category III codes.

At this point, while various efforts continue, we have no evidence that the policy Noridian surgeon fee policy will change in 2018.

And on the competition front, the situation remains consistent with our commentary at Investor Day. The launch of CyPass has thus far been largely in line with our original expectations, the exception in the margin being more aggressive free sampling programs and customer payment terms. While this headwind will likely persist and grow in 2018, as CyPass sees additional reimbursement coverage, we remain firm in our belief that the trabecular meshwork represents the optimal first-line MIG therapy and that over the long term more market participants will further our goal of driving MIGS to be the standard of care.

As we look outside of the United States, our international sales were $4.8 million in the third quarter, up 80% versus the year ago quarter and representing 12% of total net sales versus 9% 1 year ago.

This quarter, Australia and Germany were joined by Japan and the U.K. as being responsible for the majority of the year-over-year increase. As we have previously discussed, the reimbursement situation in Australia has continued to have an impact on volumes there since changes were made in May, but we expect the situation to be resolved in the first half of 2018.

Our gross margin in the third quarter was 86% of sales versus 87% in the same year ago quarter. The change primarily reflects the growing contribution of our international business.

As previously indicated, we expect our gross margins to remain in the mid-80% range going forward as U.S. customer contracts and international sales become more substantial contributors to overall net sales.

SG&A expenses in the third quarter rose 43% to $24.1 million versus $16.9 million in the year ago quarter. The rise reflects higher personnel and other costs related to the ongoing expansion of our domestic and global infrastructure, primarily in our commercial and international operations.

R&D expenses rose 26% in the third quarter to $9.8 million versus $7.8 million in the same year ago period and reflect primarily the cost of additional personnel as we expand our pharmaceutical R&D capabilities and within clinical affairs where we are managing multiple clinical studies and associated investigational sites and study investigators.

We finished the third quarter with net income of $1.3 million or $0.04 per diluted share compared to net income of $1.2 million or $0.03 per diluted share in the third quarter of 2016.

Our cash flow was strong in this quarter, resulting in combined cash, cash equivalents and short-term investments of $108.8 million compared to $103.8 million at the end of the second quarter.

While we are pleased by the profitability and cash flow generation of the business, our primary focus remains in the short- and long-term top line growth as we invest heavily to build the MIG market, drive increased penetration of our iStent and inject platforms globally, and advance our robust pipeline initiatives through necessary clinical studies and programs.

As Tom indicated earlier, we are reaffirming our 2017 net sales guidance of $155 million to $160 million.

Finally, while we are not providing 2018 guidance today, we do want to take a moment to provide some preliminary high-level comments on how we are thinking about next year, beyond my commentary and the headwinds, as stated previously.

As Tom mentioned earlier, we remain hopeful that the iStent inject launch will happen in the latter part of 2018, but obviously, the specific timing is variable and dependent on the FDA.

Two additional points worth noting as it relates to iStent inject: one, we would expect the iStent inject launch to temporarily impact the overall pace of new doctor training, both immediately prior to launch as physicians may elect to wait, and in the subsequent post-launch period as the sales force will primarily be focused on conversion to inject.

We also expect that 2018 may bring new competition from Hydrus and, with that, we would expect similar trying and sampling activities during the second half of 2018.

Finally, we will continue to invest in our business, with incremental expenditures occurring primarily in 2 areas: one, the R&D organization to continue our pharma development efforts and to support the substantial expansion in the pivotal clinical trial activities that we expect will reach nearly 1,800 patients when completed; and two, our global commercial infrastructure to support the continued adoption of iStent and iStent inject, but with a focus towards the substantial market expansion opportunity that is ahead of us.

And with that, I'll now turn the call back to Tom.

All right, thanks, Joe.

As the MIGS pioneer, Glaukos continues to build this promising new glaucoma treatment class, and in so doing, manage the inevitable near-term challenges of increased competition in the combo cataract segment of the market. This initial stage of our commercial development is important because it lays the groundwork necessary to achieve our broader goals, to establish Glaukos as an ophthalmic pharma device leader with unique microscale flow, sustained pharmaceutical systems and diagnostic platforms.

Beginning in 2018 and extending well into next decade, our pipeline is designed to deliver an annual cadence that we expect will deliver 5 or more new market-expanding products and to truly transform the treatment of glaucoma. At the same time, we are making significant strides to grow our presence in key high-value international markets and to expand our organizational skills and capabilities so that we're well positioned to capitalize on the tremendous potential that lies ahead.

We have never been more optimistic about the future for Glaukos and our ability to deliver sustained, long-term value to shareholders.

So with that, I will open it up to questions. Operator?

(Operator Instructions) Your first question comes from the line of Mike Weinstein from JPMorgan.

Let me start with the quarter, if I can. So at the September analyst meeting, September 14, you lowered your third quarter guidance, and there was a whole laundry list of issues, including the hurricanes, that you called out and the headwinds for commercial reimbursement in Australia, which you had mentioned. Quarter ended up coming in better than the lowering of the guidance. You were at $41 million to $43 million. You lowered it to $38 million to $40 million, and you ended up beating that range. And it looks like it's relative to The Street expectations with the combination of U.S. and international. So can we just spend a minute on the second half of September and why effectively the second half of September was a little bit better than you were expecting?

Sure. Thanks, Mike. This is Joe. I'll start, and then Tom or Chris can add any additional any commentary. I think the second half of September, obviously, as implied by everything you just said, was certainly stronger than what we saw leading into the Investor Day. I'd say there is probably 2 primary puts and takes that I would highlight there. The first is we did see, obviously, the return of the hurricane-affected region towards the latter part of September. At the time we were going into the Investor Day, if you remember, it was right in the sort of throes of what was happening in Florida. And so we took a pretty conservative approach about what that meant for the hurricane-related impact. The second, I would say is actually maybe a bit of a counter to that, which is the commercial insurance side, while we're continuing to make progress, as we continue to go relatively slow, and you heard some of that in the commentary and the prepared remarks we made. But those were the primary 2 puts and takes that I would comment on since the Investor Day.

And you had -- in the international piece, you had guided towards the lower end of that $16 million to $20 million. It looks like you're going to do better internationally. So why is that the case?

Well, these are still -- again, this is Joe. It's still early days in many of these markets, Mike. We're obviously very embryonic in what's happening there. But as you heard in the commentary that we gave, I think we're pleased with the progress we're making in Japan and in Brazil and in the U.K., in particular, during the third quarter, in addition to what has been continued strong performance out of the longer-term markets, Australia and Germany.

Okay. And then I want to ask you on inject. You've continued to say expect the filing by the end of this year, but it sounds like you're -- just in terms your commentary on when you think that translates into approval, and it's now kind of shifted towards the end of '18. And I don't assume that, that's because you've had any incremental dialogue with the FDA that would make you think that it's later in the year versus middle of the year. But any reason to think that's going to later versus what you were thinking 3 or 6 months ago?

This is Tom, Mike. So thanks for your question. What I would say is that we -- as we start to approach the 2018 budget, we get a little bit more granular. We're looking for benchmarks that can be telling of how the FDA may treat this PMA submission. The nearest benchmark we have is the CyPass adjudication, which took about 9 months. So we're on track, as we've stated all along, to submit the final module of our PMA for iStent inject by year end. If we use that benchmark, then plus or minus we expect to be somewhere around that range. So I don't know if it's much of a shift. I think it's just more of our granular take on what has been a predisposition of the FDA.

Okay. And then can you just talk about the competition issues because I think that's obviously what everybody is concerned about in the short term? And the overarching fear is that Alcon, who is dominant in the cataract surgery space, could -- if they wanted to could give away CyPasses, which they're doing right now, to trial and train people. They could keep giving away CyPasses for as long as they'd like. So how do you think about 2018? And what are you seeing at this point from Alcon just -- in this period of where they really are just trying to trial and train surgeons, to get them to try and use their product? What are you seeing from them that gives you any indication as to how the behavior is going to be forward?

Yes. Mike, this is Chris. And they're basically doing exactly what we expected, with the exception of taking a little longer on their free trialing. And that's a function, I think, of their coverage. Right now, there is 4 MACs covering them. They have one commercial payer covering them. And it's probably taking longer than they anticipated, so they are giving away product or extending terms. So in large part, it's been pretty consistent with what we have felt they would react and respond and to what we guided you both in Q2 and at the Investor Day.

So no surprises, no changes there?

Yes, we would say there's really no change. This is Tom. And so we've been pretty consistent all along on what we thought Alcon would. And just to restipulate, we have immense respect for the organization and its ability to use muscle and mass in the U.S. and around the world. Having said that, we believe we have the primary product that provides the best benefit to risk calculus for patients in the mild-to-moderate open-angle glaucoma segment. We continue to firmly believe that. As we get our channel checks, you can imagine nobody is more intimate with the community than we are. We believe that the outcome of CyPass launch has gone largely within our expectations.

Your next question comes from line of Robert Hopkins from Bank of America.

Tom, I wanted to start with you, if okay. I just -- I think I saw an 8-K just filed for you guys that maybe talks about restated change of control provisions for the 3 executives of the company. I was just wondering if you could comment on that and why -- just sort of the why now question on that?

Bob, it's Joe. I'll just chip in on that. So I think it's just ordinary housekeeping, right. As we go through various planning at the board, the timing was just to fly it alongside with the documents today. Nothing unique there.

Okay. And then on the question of 2018, I mean -- there's obviously a ton of moving parts here, some of which are obviously very temporary and some we'll see, and then a lot of product launches coming from you guys late in '18 and then '19, '20 and beyond. So '18 is clearly a transition year. And I realize you'll give guidance a quarter from now, but preliminarily, it looks like it's probably not going to be a year where there's really frankly any growth. And I was just wondering if you could sort of kind of react to that comment just so we can level set given that it is such a unique year.

Yes. Thanks, Bob. It's Joe. Obviously, as you alluded to in your question, it's premature for us to get any more granular with respect to 2018. We will obviously give that guidance on our Q4 call early next year. Today, what you heard was an attempt to give a little bit more thought and commentary and color around the various puts and takes and how we think about them for 2018. But I'll leave it to you for now to assess on what that means in your models for the year.

Okay. And then just -- maybe then just on your Q4 guidance, can you give us a sense as to, especially in the U.S., the difference in the growth rate in the commercial accounts versus the other 80% of the business?

I think it is a difficult one to answer, Bob. So obviously, in any account, we're seeing it's a mixture of the commercial and Medicare-related patient volumes. I guess, what I would say, if you're thinking about it in the context of maybe putting it in same-store sales terms, right, which is we continue to see about 1/3 of our accounts that are growing quite nicely. Not surprising, those are accounts that are not impacted by either hurricanes or commercial insurance issues and the like. And they're growing in the direction we would expect. About 1/3 of our accounts are in and around flat, and they may be dealing with some issues or there may be more fully penetrated in terms of their procedure volume practices they're doing. And then about 1/3 are being impacted in some way by either the commercial insurance issue and/or the trying and trialing of competitive products.

Your next question comes from the line of Brian Weinstein from William Blair.

Just to go back on to CyPass for a second. Can you talk, just to be clear about this, where you're seeing the utilization? Can you talk about if you're seeing it head to head with the primarily more on the glaucoma specialists side or with the general surgeons? And then are you hearing about similar complication rates in the field to what they saw in their clinical trial?

Brian, this is Chris. Yes, I would say that the -- they started out primarily with glaucoma specialists. That is still, I would say, their primary customer. They have started to move into comprehensive ophthalmologists as well. They are, in some cases, experiencing many of the things that were listed in their IDE in terms of complications, but there are people, too, who are having some success with it. We still feel strongly that the trabecular bypass approach is a better approach. It's more consistent. There is not as much very variability, not as much variability. Gives you basically the same efficacy and less chance of complications. And for all those reasons, we still feel very good about our product portfolio and our positioning within the marketplace.

Great. And as a follow-up, as it relates to the fee schedule. Now that the fee schedule has been published and this number has basically been in there for 2 years, Joe, does this help you guys in your negotiations or your -- not negotiations, but your discussions in trying to get this done? I think would think that, that might be some sort of accelerant to make the job a little bit easier now that it's been there for 2 years?

Yes, Brian, I think that's probably a safe assumption. The final ruling came out very similar to the 2017 ruling, so it was in line with what we expected. And given that this will have been in place now for 2 years, it certainly can't hurt us and should help us.

Yes, I would just add, Brian. It's Joe. I think it's like we said in the remarks, we don't necessarily think it's a matter of if these conversions happen. It just -- it's a blocking and tackling issue, account by account, situation by situation, and that is just taking it's time.

Your next question comes from the line of Larry Biegelsen from Wells Fargo.

It's Adam in for Larry. I guess I had -- Tom, I had one question on Q3. Can you give us any more visibility into the U.S. performance? How much was unit growth versus price? And then I was wondering how the underlying volume growth compared in Q3 versus Q2? And then I had one follow-up.

Yes, thanks, Adam. It's Joe. Yes, I think I can answer that and you can -- you'll be able to do the analysis offline that the ASPs were stable from Q3 to Q2. And from that, you can probably do the rest of the analysis on the relative trends.

Okay, that's helpful. And then one question on inject for stand-alone use. You -- so recognize you guys are still working to firm up the Phase III trial design with FDA. I may have missed it, but do know whether that will require 1 or 2 years of follow-up? And then, I guess, just in general, why is the process taking so long?

Yes, Adam, this is Tom. So to answer your question, we're still in discussions and negotiation with the FDA. And as I've been kind of consistent all along, we do think that there -- and we know there's some underlying deliberation on 1 versus 2 year for that clinical trial. There's also deliberation on whether or not we go with pseudophakic alone patients or pseudophakic and phakic patients. And so this is all kind of coming to a conclusion as we try to seek to liberalize the open-angle glaucoma inclusion criteria, which will speed our enrollment in this expanded-phase clinical trial. Why is it taking so long? That's probably less a question for me. I think this is endemic in these discussions. We're on the frontier of a whole new treatment class for stand-alone procedures. The FDA is, by nature, conservative. There are multiple terms that go on into these negotiations. And so as we've said from the beginning, we hope to be able to get a protocol available by year end, and we're committed to doing so.

Our last question comes from the line of Jon Block from Stifel.

And maybe just 2 questions. First one, just on Noridian, it seems like that battle's still going on. Is there a time period where it ends and we don't hear anything. In other words, I think, in Noridian, initially lowered back in April. Here we are, 6 or 7 months, later past. So just from your experience, is there, "Hey, the window has shut, and we don't think we can prevail here?" Or can this go on for several more months, if not quarters? And then I've got a quick follow-up.

Well, I think it's the latter. Well, I would temper your expectations as we've given no guidance or no indication that there'll be a successful conclusion. What I will tell you is that, as we've said all along, there was an earlier MAC that we're in a principally the same condition with. And after about a year, they upgraded significantly the professional fee payment that they had for the iStent. And so there is no time, course or deadline. This is something that's normal course for Category III code. And I will tell you that these discussions, as I've said before, are opaque to us. They're largely happening behind the scenes with state medical societies and others that are highly interested in a fair payment for the iStent as well as other MIGS procedures, professional fee payments.

Great, very helpful. I actually I didn't know the other one took up to 2 years. That was good color. And then just to shift gears, Joe, I've got to be the guy that asks you, the $5 million spread to keep the full year unchanged -- so that $5 million spread seems wide as you head into 4Q. It seems like in the past, you've been able to pinpoint $2 million or $3 million delta for a particular quarter. So any reasons why you're keeping that $5 million spread with only one quarter to go? Is that a competitive thing? Is that a market thing? I would just love your overall thoughts there.

So it's a fair question, Jon. I think, obviously, as we've talked about here in the call, we have a fair number of moving parts heading into the quarter. And as we evaluate various scenarios in terms of the progress we make on the commercial insurance front, the pace in which we recover some of the procedures from the hurricanes as well as the pace that the competition gets additional reimbursement and whatever traction they're going to get within the market, we just felt it was prudent at this point to stick with the $5 million range.

We have one additional question from the line of Matt O'Brien from Piper Jaffray.

It's Kevin on for Matt today. Just one from me. Most of mine have been asked. I just wanted to dig in on Japan for second. We heard about the headcount adds in the quarter. Just curious, at a high level, any other updates there in the region? And then number two, knowing you don't want to talk too much about next year, just how should we think about that geography in our models for next year, either from a cadence perspective or...

Yes. Kevin, this is Chris. We remain very excited about Japan. What we've said all along is that from a med tech standpoint, Japan always adopts new technologies a little slower than most, and that we were going with a limited launch in 2017, focusing primarily on the glaucoma specialists to ensure that we got their support, and that '17 would be more of an investment year, with the majority of the payer -- not the majority, but with '18 starting to be a payoff year for us. We have been training a lot of surgeons. We were strictly focused on the glaucoma specialists until this month, where we had our first koshykai training, which is their training project there, which included comprehensive ophthalmologists. So it's where we expect it to be, and we look for good returns from Japan in 2018 and beyond.

There are no further questions at this time. Mr. Tom Burns, I turn the call back over to you.

Okay. So to all investors and analysts, thank you so much for your time today and your attention and for your continued interest in Glaukos.

Thanks, again, and goodbye.

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