Glaukos Corp (GKOS) 2017 Q4 法說會逐字稿

Welcome to Glaukos Corporation's Fourth Quarter and Full Year 2017 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 an archived replay will be available online in the Investor Relations section at www.glaukos.com.

I will now turn the call over to Chris Lewis, Director of Investor Relations and Corporate Strategy and Development.

Hello, everyone. Joining me today are: Glaukos 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 products, our pipeline technologies, our U.S. and international commercialization efforts, efficacy of our current and future products, and our competitive market position, financial condition and results of operations. These statements are based on current expectations about future events affecting us and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, they may cause our actual results to differ materially from those expressed or implied by forward-looking statements.

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

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

Good afternoon, everybody, and thank you for joining us today. Today, Glaukos reported fourth quarter net sales of $41.7 million, up 26% versus a year ago quarter or 34% after adjusting for the $2 million inventory load and that occurred in the fourth quarter of 2016. For the full year 2017, our net sales rose 39% to $159.3 million from $114.4 million in 2016. We also issued a 2018 net sales guidance range of $160 million to $165 million. Joe will discuss our financial results and outlook in more detail later in the call.

Our mission at Glaukos has always been aspirational, to truly transform glaucoma therapy for the much-needed benefit of patients worldwide. We intend to accomplish this by delivering a portfolio of micro-invasive sustained pharmaceutical therapies and surgical devices capable of providing an optimized treatment solution at each phase of glaucoma disease stage severity, from the earliest manifestation to the most severe and in both combo cataract and stand-alone procedures.

Over the course of 2017, we've made significant progress to advance this mission. As a result, I can now look ahead at our 5-and-5 growth strategy with increasing confidence about what it means for Glaukos. In addition to our current iStent device, Glaukos is advancing a cascade of 5 distinct pipeline products targeted for U.S. commercialization over the next 5 years. We believe this expanding product portfolio will facilitate our evolution into a hybrid pharmaceutical and surgical company, while potentially delivering a sevenfold increase in our current U.S. addressable market opportunity, allowing us to penetrate more deeply and fulsomely in the growing glaucoma marketplace.

Driving this ambitious development plan forward requires meaningful progress on a number of fronts, including obtaining clinical evidence and establishing clear regulatory pathways that derisk our emerging opportunities. In this regard, 2017 was a watershed year as we moved closer to delivering our transformative pipeline.

In 2017, we submitted the iStent inject PMA application. We reported a favorable Phase IIb iDose Travoprost data. We completed the iStent SA U.S. IDE clinical trial and finalized the design for the expanded phase pivotal trial. We completed enrollment in the iStent Supra pivotal trial. We submitted an IDE application for the iStent Infinite. And we continue to make significant investments to grow and strengthen the Glaukos pharma team and pipeline.

Our commercial performance and the cash flow derived from our beachhead iStent combo cataract product continued to fuel our key initiatives and, we believe, produced the capital necessary to drive our pipeline in global infrastructure expansion.

In 2017, we achieved a number of important commercial objectives, included that we implemented a successful price increase in the ASC care setting. We sought and received an extension through 2023 for the 0191T CPT code. We grew the number of iStent-trained U.S. surgeons to more than 3,000, an increase of approximate 25% versus 2016. We added to our patent portfolio of over 200 method and apparatus patents designed to protect the viable technologies we've created. And we grew our body of clinical evidence which now includes 74 separate peer-reviewed articles.

We also made significant strides in 2017 to expand and strengthen our international presence, finishing the fourth quarter with direct sales operations in 16 countries outside The United States, including 13 that were fully established in 2017.

Our OUS focus is building -- is on building quality, experienced surgical sales teams, while working to establish favorable reimbursement, train surgeons and leverage our compelling clinical data to grow MIGS awareness and adoption.

In terms of specific country highlights, we are growing momentum in the U.K. following the favorable 2017 NICE ruling that made iStent available, understand our protocols with no restrictions as well as the recent launch of iStent inject. In Japan, iStent reimbursement is established and surgeon training continues in earnest with a concentration on glaucoma specialists. Given the size and ultimate potential for this market, we are methodically building a strong foundation within the glaucoma community through a controlled commercial launch that we believe should lead to broader adoption across the comprehensive ophthalmic surgeon pool over time.

In Australia, our commercial progress continues. Despite reimbursement headwinds in 2017, we continue to make progress with the Department of Health regarding the permanent code for the implantation of iStent and iStent inject in conjunction with cataract surgery.

And in Germany, our commercial execution remains solid as the continued conversion of private payers has provided expanded market access for patients.

As I said at the top of the call, our unrivaled pipeline is designed to transform the glaucoma treatment paradigm and facilitate our evolution into a hybrid pharmaceutical and device company. A testament to this evolution is in no place more evident than the recent news surrounding our initial iDose platform product, the iDose Travoprost, which has shown initial efficacy and a favorable safety profile in its Phase II trial, further validating this potential to address the widespread problem of patient noncompliance with topical medications.

We're delighted with reported Phase II 12-week postop results, which supported the FDA's decision to allow us to commence Phase III trials. The longer-term iDose Travoprost results are also very encouraging. In an interim cohort of 74 patients filed through 12 months, the fast-eluting and slow-eluting versions of iDose Travoprost achieved average IOP reductions from baseline of 8.2 and 7.9 millimeters of mercury, respectively, compared to 7.6 for topical timolol. In addition, patients required 31% more medications on average in the timolol controlled group compared to the iDose groups. This most recent Phase II data readout also showed a favorable safety profile, with no adverse events of hyperemia reported to date in either elution group and a low overall rate of AEs.

Preparation for the Phase III trial are currently underway, and we expect to begin enrolling patients in the first half of 2018. The FDA-approved design of the prospective, randomized, double-blind pivotal trial will be similar to the Phase II and will enroll approximately 1,000 ocular hypertensive or open-angle glaucoma subjects at U.S. and international clinical sites, supporting our goal for iDose Travoprost to be commercially available in the 2022 to 2023 time frame.

We've also begun the processes to seek regulatory approval for iDose Travoprost in European markets and in Japan. We believe the iDose Travoprost data to date is powerful and see iDose as a potential platform for future generations as sustained therapies, both within glaucoma and potentially for other ocular diseases. As such, we continue to invest significant resources to expand our pharmaceutical development capabilities. Our team now includes over 30 seasoned scientists, chemists and other experts with prior experience at leading pharmaceutical companies.

Moving now to our next-generation surgical devices. As discussed earlier, we achieved our goal to submit the final clinical module of our iStent inject PMA application for use in combo cataract surgery to the FDA by the year-end 2017. We remain hopeful for approval in the latter part of this year and are moving ahead with preparations for U.S. commercial launch later in 2018.

In a recent independent industry survey, U.S. surgeons overwhelmingly identified iStent inject as the yet-to-be-approved MIGS device they are most looking forward to by a factor of 6 to 1, underscoring the anticipation that is building behind the product. We attribute this to significant benefits we expect iStent inject to provide surgeons in terms of clinical performance and ease of use, which is consistent with the favorable real-world results and adoption trends it is already achieving in the international markets. Recall that the iStent inject is a 2-stent product that allows a surgeon to enter the eye once, to inject stents into multiple trabecular meshwork locations in a straightforward click-and-release motion. We expect to present the initial results of our iStent inject pivotal trial at the ASCRS meeting in April, adding to the published and accruing clinical evidence that continues to validate its performance in both combined cataract and stand-alone procedures.

Our clinical team is currently gearing up to begin the IDE pivotal trial for the iStent SA, our 2-stent trabecular bypass product designed for stand-alone use in pseudophakic mild-to-moderate glaucoma patients. The multicenter randomized trial will enroll approximately 400 patients and have a primary efficacy endpoint of noninferiority to SLT at 1 year postoperatively. We're very pleased with the final trial design, which reflects our successful collaboration with the FDA to liberalize the expanded phase inclusion/exclusion enrollment criteria. We continue to target FDA approval and U.S. commercialization in the 2020 to 2021 time frame.

Similar to the iStent SA is our most recent addition to the pipeline, the iStent Infinite, a 3-stent stand-alone procedure for severe or refractory glaucoma patients. We submitted our IDE application to the FDA last month, seeking authorization to study the iStent Infinite in a prospective multicenter, single-arm clinical trial.

Assuming we are successful in receiving approval via a 510(k) pathway, we would expect U.S. commercialization in the 2020 to 2021 time frame. The concept for the iStent Infinite derived from a Glaukos-sponsored dose-response study authored by Dr. Katz et al that showed 3 stents may provide additional IOP reductions for surgeons who are seeking lower mean postoperative baselines in patients where medical treatment and/or prior surgery did not result in desired control for glaucoma. The latest findings from the study recently published in Clinical Ophthalmology support this thesis. At approximately 36 months postoperatively, the 1-, 2- and 3-stent groups achieved unmedicated post-washout mean IOPs of 17.4 millimeters of mercury, 15.8 millimeters of mercury and 14.2 millimeters of mercury, respectively, translating into mean, unmedicated IOP reductions of 30%, 37% and 43%. At 42 months, 61%, 91% and 91% of eyes in the 1-, 2- and 3-stent groups, respectively, achieved a greater than or equal to 20% reduction in IOP without medications.

A readout of this 54-month -- of these 54-month outcomes from the study along with numerous surgeon presentations on our technologies will be featured at the American Glaucoma Society Annual Meeting beginning tomorrow.

Our notable clinical and regulatory milestones in 2017 leave us well positioned to further advance our transformational pipeline in 2018 and beyond. We believe that the iStent, iStent inject, iStent SA, iStent Infinite, iStent Supra and iDose combined to represent the most comprehensive portfolio in the glaucoma or the global glaucoma landscape, a portfolio capable of meeting the needs of the entire disease state continuum from ocular hypertension to refractory glaucoma.

We believe our pipeline platforms, if approved, will significantly expand our market opportunity to have 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 estimate our U.S. addressable market opportunity to expand sevenfold from roughly 600,000 procedures today to a pool of over 11 million diagnosed and treated eyes, of which we believe over 4 million can be treated annually.

Finally, our strategy as we head into 2018 remains unchanged. It will be an investment year for us. As competitive dynamics evolve in the combo cataract market, we've always understood that the path may not be perpetually linear, but our focus on long-term growth continues. And the year ahead, we expect to, one, obtain FDA approval and commence the U.S. commercial launch of iStent inject; two, begin patient enrollment for 3 key pivotal studies, including the iDose Travoprost Phase III U.S. IND study; the IDE expanded phase trial for iStent SA and the IDE trial for iStent Infinite; three, drive increased penetration in our direct international markets; and, four, expand our pharmaceutical capabilities through continued investment.

So with that, I'm going to turn the call over to Joe for a summary of our fourth quarter financial results. Joe?

Thank you, Tom. As noted earlier, net sales for the fourth quarter of 2017 were $41.7 million, a year-over-year increase of 26% on a reported basis or 34% after adjusting for the $2 million inventory load-in that occurred in the fourth quarter of 2016. The U.S. represented 87% of our sales in the quarter and international 13%. In the U.S., fourth quarter 2017 sales were $36.3 million, an increase of 20% on a reported basis from $30.2 million during the same period a year ago and 29% after adjusting for the 2016 inventory load-in.

U.S. sales growth was impacted by higher ASPs and the previously discussed competitive launch and commercial reimbursement headwinds.

Outside the U.S., fourth quarter sales were $5.3 million, an increase of 80% from $3.0 million during the same period a year ago. This quarter Australia, Germany, Japan and the U.K. drove the majority of the year-over-year increase, led by growing iStent inject sales.

Our gross margin in the fourth quarter was 89%, which includes a onetime benefit related to an inventory valuation adjustment. This compares to 85% in the same quarter in 2016. We continue to expect our gross margins to remain in the mid-80s percent range going forward as we may incur inefficiencies during the scaling of our inject manufacturing infrastructure and inventory ahead of potential U.S. launch.

SG&A expenses in the fourth quarter rose 27% to $26.0 million versus $20.5 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 42% in the fourth quarter to $10.5 million versus $7.4 million in the same year-ago period. The rise reflects primarily the cost of additional personnel as we expand our pharmaceutical R&D capabilities and within clinical affairs where we are managing an increasing number of clinical studies and associated investigational sites and study investigators as we head into 2018.

We finished the fourth quarter with net income of $1 million or $0.03 per diluted share compared to net income of $0.1 million or breakeven on a diluted per-share basis in the fourth quarter of 2016.

Our cash flow was strong in this quarter, resulting in combined cash, cash equivalents and short-term investments of $119 million as of December 31, 2017, compared to $108.8 million at the end of the third quarter and $95.8 million at year-end 2016.

While we are pleased by the profitability and cash flow generation of the business, it is important to remind you that as we move into 2018, our primary focus remains on long-term growth as we invest to build the MIGS market, drive increased penetration of our iStent and iStent inject platforms globally and advance our robust pipeline initiatives through necessary clinical studies and programs.

Further, our fourth quarter 2017 cash generation benefited from seasonalities somewhat from prior years, but also the timing of several key expenditures that shifted into the first quarter of 2018.

Now I will briefly recap our full year 2017 results. Total net sales were $159.3 million, a year-over-year increase of 39% on a reported basis or 44% after adjusting for the load-in that occurred in the fourth quarter of 2016.

U.S. net sales were $140.9 million, a year-over-year increase of 34% on a reported basis and 39% after adjusting for the 2016 load-in.

International net sales were $18.4 million, a year-over-year increase of 95% and approximately 11.5% of total 2017 net sales versus roughly 8% in 2016. Our 2017 gross margin was 87% versus 86% in 2016.

SG&A expenses for the full year rose 49% to $96.3 million versus $64.8 million in 2016. R&D expenses, excluding the onetime in-process R&D charge of $5.3 million, rose 33% for the full year to $38.9 million versus $29.2 million in 2016.

Our net loss was $0.1 million or breakeven on a diluted per-share basis compared to net income of $4.5 million or $0.12 per diluted share in 2016.

Our 2017 net loss does reflect the onetime in-process R&D charge of $5.3 million related to our April acquisition of the IOP Sensor platform.

Finally, as Tom indicated earlier, we are introducing 2018 net sales guidance of $160 million to $165 million. This guidance outlook takes into account the 2018 considerations we outlined on our third quarter call, including the full year impact of an evolving competitive landscape, the iStent inject launch timing and broader U.S. reimbursement dynamics, as well as expansion of our international sales which we expect to be in the range of $23 million to $26 million for the full year.

Historically, we provided certain U.S. market growth-related metrics, such as doctor training goals and same-store sales commentary. While these areas remain an internal priority for us, competition, the training of noncommercial residents and fellows and trained doctor productivity have made these data points less representative of market growth. To simplify things going forward, from time to time, we will comment on our overall market growth expectations instead. As such, we expect the U.S. market to grow approximately 20% in 2018 as Glaukos' efforts continue to primarily drive the markets' growth. These efforts in 2018 will be impacted by the previously discussed doctor training dynamics in the months prior to and immediately following the inject launch.

Finally, as we think about our operating expenses in 2018, we expect to modestly expand our SG&A spending from Q4 level to support the inject launch and international efforts and accelerate our R&D spending as clinical costs increased to support our pivotal trial activities.

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

Okay. Thanks, Joe. So to recap, Glaukos is advancing an aspirational mission to transform glaucoma therapy. Importantly, with the viability of our iDose platform validated in positive Phase III data, we continue to evolve into a hybrid ophthalmic medical device and pharmaceutical company, with the ability to more fully penetrate this large and growing glaucoma marketplace. The ubiquity and alarming rate of patient noncompliance to topical therapies in glaucoma demands alternate dropless therapy approaches that can provide continuous treatment and minimize the potential for disease progression due to patient nonadherence. We believe Glaukos' robust pipeline of 5 distinct products can advance glaucoma therapy while sustaining competitive advantage, expanding our addressable markets and driving shareholder value.

So with that, I'll open the call to questions. Operator?

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

I've got a long list here, but I'll try and be quick. So first off, the U.S. market commentary for 2018 of 20%, is that a revenue growth outlook? Is that a volume growth outlook? And is there -- and what would be the difference between the 2? And then how does that compare to what you think the market did in 2017?

Thanks, Mike. We'll start with the first of your many questions on that. So on that market outlook, the 20% U.S. MIGS market growth is volume-driven for 2018. And how does that compare to 2017, it's obviously a slight deceleration from what we saw in 2017 and that's largely driven by some of the things we talked about in prepared remarks where our ability to train new doctors in 2018 will be impacted by the dynamics in and around the iStent inject launch.

So the 20% is a volume 20%? Or is there a difference, in other words, between price -- between volume and revenue?

It is a volume-based estimate. There'll be a slight difference in that as you recall in Q1 for Glaukos specifically. We still have some benefit of price in the first quarter as we implemented our price increase last year over the course of first quarter.

Got you. And as you go through 2018 in your own modeling and the guidance you provided here, what are you assuming the impact for the year as a price on your growth?

Our assumption is that price remains relatively stable over the course of the year versus what we've been experiencing post the price increase in 2017. And so the only impact you have from price, as I have just mentioned in context of the overall market, would be the slight benefit or tailwind to our results in the first quarter.

Got you. Understood. And then 2 last questions here. So if you think about your growth and the guidance you gave here over the course of the year, how would you characterize your growth rate? I don't think you gave specific commentary on the first quarter. But how would you characterize your year-over-year growth in the first quarter, say, versus the fourth quarter? And then the last question, I promise, is on Tom's commentary about the independent survey that was so bullish for iStent inject. Could you just share with us more on that survey? Who did that survey? Where was it? And could we see it?

Okay, so Mike, I'll take the first one here. I think where you're really getting at is on the quarterly cadence of sales in 2018, right?

Yes.

And so first, I think everybody at this point kind of understands that sort of cataract market seasonality where you see 21% to 22% of the volumes in the first quarter, 25% in Q2 and 3, and then 28% to 29% in Q4 in a typical year for cataracts. 2017, we obviously saw a slightly different trend and how that translated for us given the myriad of headwinds we saw in the second half. And so sitting here today in 2018, I think the best way to think about it is, seasonality will still play a role, but when you roll out all the various puts and takes for us over the year, I think it will be a bit more muted for us over the course of 2018 than a typical cataract market.

Okay. And on your question, Mike, the independent source that we look at is a source that you may be familiar with is called Market Scope. And this is their last publication. And they looked at preapproval MIGS products. And you can reference the data there. To me, it was truly outstanding in an affirmation of what the appetite is for iStent inject and it's coming up in the potential approval.

Your next question comes from the line of Bob Hopkins from Bank of America.

Couple of questions. Maybe I'll just start off by following up on the last series of questions, just to be clear. I understand what you're saying for 2018 in terms of that 20% in the U.S. I'm just curious and I understand there is changing dynamics here, but if you think about the back half of '17, what was the unit volume growth of the market, your best guess, kind of a year-over-year in the back half of '17 where you're guiding to 20% for the market in '18. I'm just kind of curious where things were in the back half of '17. It seems to me like it was closer to maybe 10% or even less market growth. But I'm not sure. Really appreciate your help on where you think the market grew in the back half of '17?

Sure. Thanks, Bob. It's Joe. I think over the course of 2017, we continued to see the linear trend in terms of the scaling of the market and what that meant for overall growth. But I would say, similar to what we were -- what I said to answer to Mike's question that the back half of the year, I think, also saw market growth that was a little bit in excess of the 20%. We're talking about for 2018. We didn't see it as being something as low as what you're suggesting there.

Okay. So you think the U.S. market in the back half of '17 was right around that 20% in terms of units. Okay.

It's probably a little bit higher than that, Bob.

Okay. So the second -- two other quick things I want to hit on. Just -- would love to get your latest update on what's going on from a local MAC perspective? And where do you think we are in that process? And is that stable? Is there potential for more dislocation? Just curious as an update from your perspective on that front.

Hey, Bob, this is Chris. As it relates to MACs and prophys, things are stable right now. We haven't seen anything new, but per, I think, Joe's comments, I don't think it's unrealistic to think that the MACs may go down into the $300 to $500 range as you plan out over the planning period here. But as of now, there hasn't been anything new to really speak up.

Okay. And nothing you anticipate in the near-term horizon or that you're hearing about from a near-term perspective?

Not that I'm aware of.

No, but -- Bob, it's Joe. I would add. I think when we think about our outlook for the year, as Chris was saying, we assume that, that can continue to happen in the reversions, I mean, if you will.

Okay. And then lastly, I was wondering if you could just give us a little help on the data presentation coming up in April just in terms of setting expectations. I know you guys are good about sharing a lot of data with us as it comes out. Should we expect, for some reason, meaningfully different data from iStent inject relative to the multistent data that you've been showing us? Just maybe set expectations a little bit for that conference and for that dataset?

Well, the expectations that I'll set, Bob, are that we're going to present the data at ASCRS. As you can imagine, we've taken -- we have striven to not disclose or color the data in advance of our presentation. That's largely for competitive reasons and allows us some liberty to prepare how we want to present the data at that meeting. So unfortunately, I won't be able to give you any color. But I do want to let you know, we said it would happen in the first half of the year, it's going to happen at the ASCRS meeting.

Fair enough. I guess, the point of the question is really is there something structural that would perhaps make it different from what we've seen previously. But I hear your response and we'll be there in April.

Okay.

Your next question comes from Brian Weinstein.

Couple of questions. First, just wanted to see how you guys are thinking about -- you talked a little bit about Q1 and how to think about it, but how you're factoring in the potential for? Or if you've seen any impact from flu there, in particular? We know that the U.K. has suspended elective procedures in many of the NICE hospitals in the month of January. And obviously, other companies have reported that there is some impact on surgical volumes as a result of that. So how have you thought about that to begin with? And then I have a couple others.

Hi, Brian, it's Joe. Yes, I'm aware of that in several of other calls that, that topic has been coming up and it's somewhat recurring theme. I think -- of course, you can have some modest disruption, patient cancellations or rescheduling in a severe flu season. I think that for us, the impact is much less in terms of what we're seeing. These procedures tend to be rescheduled and get in there. So if you had a particular spike in that dynamic at the end of the quarter, you could see some procedure shift into the next. But right now, I think it's a less of a material impact for us.

Okay. And then on reimbursement, you've obviously made some pretty clear comments there. But can you talk about what you've seen as far as volumes in those territories where you've already seen that reimbursement cut. Previously, you've talked about a modest impact. Would you still characterize it as such? And if you're thinking about this going to $300 to $500 eventually, Tom, how do you think about the potential then to push into that level 1 CPT code? Would that not seem to make a stronger argument to do that sooner?

Let me do it first.

Yes. You go ahead.

Hey, Brian, it's Chris. Really it's unchanged. Speaking of Noridian where it is a low prophy right now, we really -- it's consistent with what we've said in the past. And that is it's had a modest impact to that specific area of the country specifically. It may have had a slight impact on new physicians starting out with iStent, but to our overall business, it's a minimal impact overall.

And, Brian, I'll answer the second part of your question. And so what I would tell you is that we're -- overall, we're pleased with where we are with the Category III assignment and on balance how it's serving us in this market place. So even if fees go down to the $300 to $500 range, we believe there'll continue to be robust adoption of the technologies moving forward. And one of the principal reasons that would make us hesitant to convert to Category I code is if we went and did a rock in an RVU analysis on the current procedure, it would be valued as an ancillary procedure as part of the cataract -- overall combo cataract procedure, which we think would minimize the overall value that would be ascribed to the procedure. So you can imagine we want to wait for a stand-alone opportunity to present a preoperative case, which would include all the preoperative methodologies that are entailed as well as postoperative treatment period, which would give us the most robust value for a stand-alone procedure. So you can see we're continuing to monitor this. But we like where we're at, and we'll continue to review this from time to time.

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

Just a couple of follow-ups and then one on competition. So, Joe, if I'm understanding the pricing commentary earlier, are you not planning now to price inject at a premium? I interpreted it that way because you said price would be stable. Do you still expect, I guess, the question is to price inject at a slight premium?

Yes, I think I'll answer that, Larry. I think Joe was talking principally about the ASP that would continue over the course of the year. I think I would reaffirm that when we do have iStent inject, we would expect to price at a modest premium to the current iStent product. And so we're consistent -- we've been consistent in that position from the start. We think there is enough headroom in the APC to do so. We think the product deserves that premium value.

That's helpful. And just 2 last ones from me. The U.S. cadence of growth, Joe, I mean, it looks like the guidance is implying basically flat year-over-year sales in The United States. Any color on what the growth rates might -- how the growth rate might look different through the year given that you have inject in the back half? And just lastly on competition. Anything new you can share on CyPass, Tom. I know you read a lot about and you've also mentioned myopic shifts with CyPass. I mean, it does seem to be percolating in the clinical community. Is it too early to assume that their share has kind of peaked? Or has this not started to really impact prescribing?

Sure. Thanks, Larry. So I'll start with your first question there around the quarterly cadence of sales and the relative growth rates. So if you think about over the course of the year, the only -- from -- I think it was Mike that asked the question around the contribution. We'll obviously get additional price benefit to certain extent in the first quarter. But beyond that as you think -- as you translate into the second half of the year, obviously, our expectation is that we'll have inject coming online and we'll start to make that measured launch of that product. But you also could have the additional impact of -- additional competitive trying and trying in the second half that offsets that a bit, which is a reason why the net of that, I think, is a slightly more muted seasonality than you would typically expect just from directly translating the cataract market itself.

Hey, Larry, this is Chris. I'm going to address your second question around CyPass. And I would just say that the competitive dynamics on CyPass that we've laid out in the past remain largely unchanged. And what you're hearing and what you're seeing happening out in the field really validates and reaffirms what we've said all along and that the benefit-to-risk ratio for the trabecular bypass is preferred. And that the majority of people trying the CyPass are glaucoma specialists who are more prone to be able to work in that space. And that over the long haul, the comprehensive ophthalmologists, we believe, is going to gravitate to trabecular bypass because of the safety profile and the efficacy that it gives. Really when you look at all the literature that's out there, the efficacy profile of both is similar, but the safety profile for the suprachoroidal shunts are little bit riskier. And I think that's playing out.

Your next question comes from the line of Jon Block from Stifel.

I guess, first one. Joe, this might be for you or Chris. Is there an update on the commercial payer scenario? I think that was called out as sort of one of the bigger headwinds in 2017 when you had several moving parts. Is there an update? And does the guide still assume sort of a midyear resolution specific to the commercial payers? And then I got a lengthy follow-up.

Thanks, Jon. So first, this is Joe. On the commercial insurance side, what we said was over the course of the third quarter, we brought on additional resources and programs to help alleviate that. And our expectation was that we would resolve that in a somewhat linear fashion from that point through the first half of 2018. And at this point, that is on track. The folks that we brought onboard are making considerable progress in the field. We're pleased with the -- what they're accomplishing. And so sitting here today, we continue to expect that resolution to happen in a somewhat linear fashion over the remaining part of the first half of the year.

Okay, great. Got it. Very helpful. And then let me try the second question. I sort of need to put a stake in the ground for '17 on market share, but if you assume 90% iStent share for full year '17, I believe the U.S. implied guidance on market share would be around 75% in '18 considering the 20% growth you gave and the fact that the U.S. sales will be somewhat flattish year-over-year. So I guess, a couple of questions. One is the trend line seem to be in the right ballpark. And then the second part of the question would be, is that where you expect the competitors to sort of max out on share in and around 1 quarter of that concomitant market?

Thanks, Jon. I'll start off that and Chris or Tom may have additional comments. So I would say, I think we're not going to comment on specific market share estimates that are out there from a -- I think we've given the information that's needed to sort of understand what we think the market growth dynamics are going to be and what we think is going to happen for our business. And I think from that you can translate into what you think the relative market share is based on your diligence and your assumptions. And then I think on the second part of your question, somewhat speaking for Chris here, you could sort of answer that in that -- I think we continue to see CyPass gaining MAC coverage, doing the things you'd expect in the marketplace. We remain confident in what that -- in our position for the long term. But to put a stake in the ground with respect to specific timing of that is it's probably step too far at this point.

Your next question comes from the line of Matt O'Brien from Piper Jaffray.

This is JP on for Matt. I just wanted to go back to the guidance and on the U.S. outlook for this year and just trying to reconcile, is it still -- the overall penetration of the MIGS market is still 20%. And I'm just trying to understand this early in the game why the U.S. is going to be flat? And when you bake in the price increase, volume may be down a bit. Is it maybe on the commercial strategy? Or is it -- is everyone waiting for inject? Little color there would be helpful.

Sure. JP, it's Joe. So I think when you try to reconcile between what we're saying about the market growth dynamics and what we're implying from our guidance here is really 2 primary elements you need to consider. The first is, obviously, CyPass really came online in the second half. And as they were gaining MAC coverage over that period of time, you have to start by assuming a full year impact of that alone. And then from there you can make whatever adjustments based upon your diligence and thoughts on what their ultimate market share will be over the course of the year. And second, you have to factor in the potential for additional competitive trialing that may occur in the second half of 2018. And when you factor those 2 things in there, I think you'll get back to something that looks an awful lot like what we're saying in our guidance.

Okay. And then just maybe on inject when you introduce that OUS, some of those markets, can you talk about maybe what -- I'm just trying to get how many surgeons are just kind of on the sideline waiting for inject and whether we should see an acceleration in '19 or not based on that product introduction?

Hey, JP, this is Chris. What I would say is where we've launched iStent inject, we've been very successful. And that the majority of the time we're converting the iStent customers who were about 90% to even as high as 95% of them switch over to iStent inject. And while I don't have exact data, does it help to expand the market, are there people who enjoy and waited for -- enjoy using the product and waited for the product, the answer to that would be yes.

Your next question comes from Joanne Wuensch from BMO Capital.

A couple of questions in no particular order. Did you have any pull-forward or recovery from the lost hurricane revenue in the third quarter?

Thanks, Joanne. Yes. I think what we said in the third quarter call was we recovered the majority of that at the very tail end of September in the third quarter. So there probably was a little bit of carryover into the 4, but not a significant or material amount.

Okay. One of the things that we spoke about last year was sort of some pushback on the private pay side of the world. Could you give us update on where you are in doing that or addressing that?

Yes. So I think consistent with what we said earlier in the call on the commercial insurance side, we're on track. We made investments in the third quarter, and those investments in terms of the people on the ground are making the progress we would expect. And so we remain on track for somewhat linear resolution to the first half of 2018.

And then on the competitive front, you mentioned CyPass, but there are other MIGS like products that are coming to market. Can you sort of address your thoughts as you think about that?

Overall thoughts Joanne or in the context of our guidance?

All right. What I mean is do you see, for example, Ivantis' Hydrus gaining momentum throughout the year, CyPass sort of petering out. I mean, how do we think about this? Are we going to enter a whole another round of competitive trialing?

I'll start with specific to our 2018 guidance, which is that we factored in the potential for additional trying and trialing of competitive products in the second half of the year. I don't know if you want to add anything in color or commentary, Chris?

Yes, the color there is, in ophthalmology, and I'm assuming elsewhere as well, these doctors like to try new products and particularly when they're given to them free of charge. So I -- we expect that if they do get approval, when they do launch similar to what happened with the CyPass that there will be a number of physicians trialing this product or trying it and being given product to do so.

Okay. And my last question, I promise, is does that mean when you want iStent inject, you will be giving it away to help in the trialing process of that one?

Yes, I don't know that I want to disclose what I'm going to do from a competitive standpoint, but I'll just leave it at that.

Yes, I would just say that and to give some color, we're really highly confident that when we do have iStent inject that the perception in the community will be that it is a far more elegant, facile and truly micro-invasive procedure versus some of these other products that may or may not reach the marketplace. And so we continue to remain very, very confident of our positioning. It seems that we are on track and validating how we thought about CyPass. I think we will set the same marker and be validated with how we see new products and how we compete with them in the future as well.

Your next question comes from Chris Cooley from Stephens.

Maybe just change gears here on the expense side, sort of easier one for Joe. You mentioned in your prepared remarks, there were a number of expenditures that were typically in the 4Q, which had slipped here into the first half. I'm assuming explicitly the 1Q. Could you just maybe help us quantify those expenditures? And how much of those are assuming 100% come to pass here in the 1Q? And then I do have a follow-up on the market.

Thanks, Chris. It's Joe. So I think probably the word expenditure is -- these are all fully accrued and things that were there. It's more of the timing of payments. So my point was that the cash balance at the end of the year might have been a little bit elevated and some of the timing of some larger payments actually happened earlier in the first quarter than at the end of the fourth quarter. And it was about the actual expense run rate in the first quarter versus fourth.

And then on the market, I guess, I'll take my shot at this. I'm just a little bit curious when you think about the 20% volume growth and how you are deriving that. Are you assuming greater utilization? So I guess, more broadly when we look at the relative number of practices and physicians that are using MIGS today, are you contemplating a little bit more of, I guess, going deep within the existing users and getting that 20% volume step-up? I'm assuming, it sounds like you're have a little bit of a zero-sum game in the back half of the year when we have 3 potential competitive entrants in the marketplace at that time? I'm just trying to triangulate that a little bit more.

Sure. Well, I think in the context of the market and to directly answer your question first, we do assume that there is incremental same-store sales growth for the marketplace in 2018. But the more material driver of that is we've taken into account the number of doctors we expect to train and their productivity, doctor turnover statistics. And then as I said before, the same-store sales-related trends that we expect for the year.

Your last question comes from the line of Justin Kim from Cantor Fitzgerald.

Just want to shift gears maybe and ask about iDose. Could you share any additional details on and what way the Phase III design would match or differ from the Phase IIb study apart from size?

Yes, so Justin, this is Tom. I can tell you that we are currently really finalizing the protocol with the FDA, as we speak. And we expect it to be similar in construct to the Phase II data, right? So you've got a fast-eluting stent, a slow-eluting iDose Travoprost stent, which will be compared with topical Travoprost which will be dosed twice daily. And what we'll look for is -- or what the FDA will look for during submission when we file the NDA, will be looking at a 12-month -- sorry, a 12-week efficacy endpoint that we can file at 1 year. And so much like we have conducted the Phase IIb trial, we expect that with some differences, but differences typically in liberalizing the protocol, we would expect the Phase III trial to be conducted in a similar way with the Phase II.

Okay, great. And then in terms of sort of the finalization of the protocol, should we expect that sometime in the second quarter given the start of the study?

Yes. So what I would tell you is it's similar to what I just had mentioned in January that we will be finalizing the protocol and we expect to be in a position to start enrolling patients in the first half of this year. And so we're on track to do so. We like where we're going. We like how we're finalizing the protocol. We're also making some significant progress moving forward with the voluntary harmonization procedure in Europe with Ireland as our health authority leading the charge there. And we also have had, as you know, some initial discussions, which have been very favorable in Japan meeting with the PMDA on this issue. So we remain just immensely excited about iDose and how we're tracking to get it into clinical trials.

Okay. If that's it, thank you all for your time and attention today and especially for your continued interest in Glaukos. Thanks and goodbye.

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