Glaukos Corp (GKOS) 2018 Q4 法說會逐字稿

Welcome to Glaukos Corporation's Fourth Quarter and Full Year 2018 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)

As a reminder, this call is being recorded, and an archived replay will be available on 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. Please go ahead.

Thank you, and good afternoon. 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. To ensure ample time and opportunity to address everyone's questions, we request that you limit yourself to one question and one follow-up. If you still have additional questions, you may get back into the queue. 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 sales, our products, our pipeline technologies, our U.S. 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 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 can find these documents in the Investors section of our website at www.glaukos.com.

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

Thanks, Chris. Good afternoon, and thank you for joining us today. Glaukos finished the year strong, capping an excellent 2018 that saw us exceed our financial outlook each quarter, bolster our U.S. market leadership position with the iStent inject launch, drive increased international penetration and make significant clinical and regulatory progress to advance our transformative pipeline. While we're pleased with the strong performance in 2018 and focused on 2019 execution, we continue to believe we're still on the early stages of unlocking the company's long-term value potential. Today, Glaukos reported fourth quarter net sales of $54.1 million, up 30% versus the year-ago quarter and 23% sequentially. For the full year 2018, net sales rose 14% to $181.3 million from $159.3 million in 2017. We are also issuing 2019 net sales guidance of $220 million to $230 million. Joe will discuss our financial results and outlook in more detail later in the call. Our mission at Glaukos has been aspirational from the outset: to truly transform glaucoma therapy for the much-needed benefit of patients worldwide. And today, we remain ambitious as we seek to transform Glaukos into a global ophthalmic pharma and device leader by pioneering powerful platforms in sustained pharmaceutical systems, micro-scale surgical devices and diagnostics capable of providing Glaukos approaches for effectively managing glaucoma and possibly other ocular diseases. These platforms combine to create a robust portfolio of micro-scale injectable therapies, potentially capable of providing an optimized treatment solution at each stage of glaucoma disease stage severity, on the earliest manifestation to the most severe and in both combo cataract and standalone procedures. They are also providing increasingly promising early stage development efforts in other ocular diseases. We believe these pipeline platforms, if approved, could significantly expand our market opportunity at a solid cadence and ideally 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 could potentially 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. In 2018, we made significant progress to advance our mission with the following key accomplishments. Number one, we received FDA approval and commenced the U.S. commercial launch of iStent inject months ahead of our original timing expectations. Number two, we began patient enrollment of key U.S. pivotal clinical studies for iDose Travoprost and iStent infinite. Three, we continue to deliver strong international growth. Four, we expanded our pharmaceutical capabilities through continued investment and a new pharmaceutical development agreement with D. Western Therapeutics Institute. Five, we added to our patent portfolio of over 200 method and apparatus patents designed to protect the viable technologies that we've created. And six, we grew our body of clinical evidence, which now includes 104 separate peer reviewed articles. A key driver of our success in the fourth quarter was the tactical U.S. commercial launch of the iStent inject, our next-generation Trabecular Micro-Bypass device. We continue to deliver on our expectations since the September launch. Now in full swing, our methodical launch strategy is designed to achieve optimal procedural proficiency and patient safety through superlative sales rep training and skills transfer to the surgeon. Our seasoned U.S. commercial team is meeting its internal conversion targets, with more than half of our installed base either fully trained or in the training process by the end of 2018. We've also seen early indications that the iStent inject has the potential to be a market expanding product in the U.S. over time, similar to our international experience. Thus far, we have opportunistically trained numerous first time MIGS surgeons on iStent inject despite our primary focus on existing customer conversions. Over the first half of 2019, we'll remain primarily focused on converting existing iStent implanters with a gradual shift of our reps back to training new surgeons who have yet adopt MIGS, along with increasing utilization within existing accounts. Overall, we are very pleased with the initial response to iStent inject by the ophthalmic community, surgeon feedback and emerging real world results here near our experience in international markets and continue to provide us with high confidence in the product's prospects and what it means for Glaukos going forward. U.S. surgeons consistently highlight the elegant and straightforward nature of the iStent inject implant procedure, providing them with confidence and predictability of stent placement. They note greater than expected IOP reductions with promising initial outcomes given the 2 patent bypass openings through to the trabecular meshwork designed to create multi-directional flow through the Schlemm's canal.

Finally, feedback and results reinforce the product's superlative safety profile and its minimally invasive tissue-sparing procedure. In 2018, we grew our robust body of clinical literature that is unrivaled within the MIGS category. Our clinical library now consist of 104 peer reviewed studies supporting the performance of our technologies, including a total of 38 studies on iStent inject or multiple iStent therapy in 18 clinical publications specifically on iStent inject. These data sets continue to confirm the product's ability to achieve sustained IOP reductions that are equivalent or better than U.S. pivotal trial results. By now, many of you have seen the results from Dr. Hengerer of Germany published in ophthalmology and therapy. In a case series study of 81 eyes implanted with iStent inject in combination with cataract surgery, his data showed a mean IOP reduction of 37% to 14.3 mmHg and a 68% reduction in medication burden at 3 years post implantation. A recent presentation at the Asia-Pacific Glaucoma Congress by Dr. Clement showed 165 subjects implanted with iStent inject in combination with cataract surgery achieved a mean IOP reduction of 23% to 14.2 mmHG along with a 72% reduction in medication use at one year. Another recent publication in ophthalmology and therapy by Dr.Guedes compared the use of iStent inject in combination with cataract strategy versus the first generation iStent. In his study of 73 subjects with 6 months post implantation, the iStent inject cohort achieved a mean IOP of 12.7 mmHg versus the iStent cohort mean IOP of 13.9 mmHg. In addition, 100% of subjects in the iStent inject cohort achieved an IOP less than 18 mmHg and researchers observed a new medication burden reduction of 83%. Dr. Guedes' publication represents an important milestone for Glaukos, marking the 100th peer reviewed publication on our technologies. iStent inject represents the first in a potential cascade of new product and platform introductions over the next 5 years. In 2018, we achieved several critical pipeline milestones, most notably commencing 2 key pivotal clinical programs for iDose Travoprost and iStent infinite. The iDose Travoprost Phase III IND clinical program consists of 2 concurrent prospective randomized double-blind pivotal trials that will enroll approximately 1,100 ocular hypertensive or open-angle glaucoma subjects across roughly 100 investigator sites, primarily in the United States. The studies have a primary efficacy endpoint of non-inferiority to topical timolol of 12 weeks and a primary safety endpoint of one year. Similar to our Phase II iDose study, we'll follow the Phase III subjects for 3 years post implantation in order to evaluate sustained longer-term efficacy duration along with safety. Patient enrollment for the iDose Travoprost studies is proceeding in line with our expectations to support our FDA approval target of late 2021 to 2022. Based on our actions with the ophthalmic community and feedback from clinical investigators participating in the iDose Phase III studies, we believe there's substantial appetite for a viable continuous glaucoma drug delivery treatment option to combat the ubiquitous problem of patient non-adherence to topical medication. This comes as no surprise, given several large scale published studies that have demonstrated that roughly 40% to 60% of patients do not adhere to their prescribed medication regimen. Further, as measured by pharmacy data of more than 10,000 subjects in the Glaucoma Adherence and Persistence Study, or GAPS, only 10% of patients who are prescribed glaucoma drops were persistent with therapy without any gaps in refilling the prescription over the following year. In this same study, 27% of the patients who discontinued their medication cited hyperemia as their main reason. Hyperemia is a frequent and disturbing side effect because topical glaucoma drugs require a relatively high loading dose to get through the precorneal tear film. However, because iDose is secured and anchored into the sclera behind the cornea, it is designed to create therapeutic index capable of providing IOP reductions over a sustained period of time in a micro-elution rate. In short, since iDose delivers the drug from inside the eye rather than on its surface, we believe it has the potential to significantly reduce hyperemia and other side effects often associated with topical drops while ensuring 24/7 compliance. This was validated in our Phase II 12-month interim data analysis in which no adverse events of hyperemia were reported in either high-dose cohort. In addition, we believe iDose has the potential to significantly expand our future addressable markets by 3 million eyes annually in the U.S. alone. Given its potential for a broad label and recurring treatment algorithm, we envision an opportunity for iDose to pave the way for a new treatment algorithm where surgeons could use it alone or in combination with other therapies, including our portfolio of surgical flow devices and will effectively manage patients' IOP. Further, we believe a powerful iDose Travoprost data available thus far underscores the potential of our novel drug delivery platform to produce future generations of sustained therapies for glaucoma and potentially other ocular diseases. And we are pursuing these opportunities through internal R&D programs, along with pharmaceutical development agreement we entered into 2018 with D. Western Technology Institute. This agreement facilitates joint research efforts using compounds from a proprietary Rho Kinase or ROCK inhibitor compound library. While our collaborative efforts remain in the early stages, we are encouraged with the initial discovery progress being made for potential new ROCK compounds capable of being used on the iDose platform that could have a highly synergistic mechanism of action to weigh prostaglandin. While we actively recruit our iDose pivotal trials, patient enrollment continues for the 510(k) pivotal trial for iStent infinite, our 3-stent standalone product for advanced and refractory glaucoma patients. As a reminder, this is a prospective, multi-center, single-arm, clinical trial that will enroll roughly 65 refractory subjects.

We continue to target FDA approval for iStent infinite in the late 2020 to 2021 time period.

Finally, the pivotal trial data set analysis on initial preparation for FDA discussions for iStent Supra, our suprachoroidal stent, is expected to be completed over the coming months. We look forward to examining the full data set with the FDA and determining the most appropriate regulatory and potential commercial path forward for this product. Our notable clinical and regulatory progress in 2018 leaves us well positioned to further advance our transformational pipeline in 2019 and beyond. We believe the powerful platforms we are building combine to 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 hypertension to refractory glaucoma, both in combo cataract and standalone procedures and through a variety of mechanism of action treatment approaches. Throughout 2018, we also made meaningful progress to expand and strengthen our international business. Not only did revenues grow 61% in 2018 over 2017, but we continue to successfully optimize reimbursement in key markets to support future growth and to resolve several reimbursement challenges that often remain a fundamental issue in pioneering new international markets. In Australia, the permanent reimbursement code covering the implantation of iStent and iStent inject in combination with cataract surgery became effective on November 1, 2018. In France, we are delighted to learn that after a more than 5-year process, the French Health Authority designated iStent inject to be registered on the list ensue or add-on list, which provides hospitals with reimbursement coverage to use the new technology. We are now working with the French Ministry of Health pricing committee in hope to finalize pricing sometime in the first half of this year. Our international commercial strategy in 2019 will be more the same. We plan to continue to support and grow our quality experienced surgical sales teams while working to optimize the reimbursement coverage and payment landscapes, train surgeons and leverage our compelling clinical data to grow MIGS adoption and drive deeper penetration. In addition to the 16 international countries where we've had a direct market presence today and continuing to add resources, we continue to evaluate and make initial investments in potential future direct international markets for us where favorable market opportunities and reimbursement pathways exist. While we remain bullish about our long-term OUS growth opportunities, it is important to remember it takes time to pioneer a completely new market in each of these international countries, and potential unforeseen setbacks may arise through this early market building product phases. To that point, in the U.K., the NHS has recently proposed reductions in reimbursement for a broad range of medical devices including glaucoma devices set to become effective in April 2019. As always, we will work with the NHS and medical community in an effort to secure fair reimbursement for our customers.

Finally, our 2019 focus will be on continued commercial execution in the U.S. and abroad, accelerating our clinical and regulatory efforts, expanding our core research programs and implementing improved enterprise systems and facilities infrastructure to support our future cadence of global growth.

So to the last point, as we discussed on our third quarter call, 2019 will be an important investment year for us. Late last year, we were excited to announce our plans to shift our corporate headquarters to Aliso Viejo, where our new campus will be a design to provide Glaukos with customized state-of-the-art facilities to support the pharmaceutical and medical device innovation that is necessary to achieve our long-term growth objectives. Combined, we believe the investments we're making today will help strengthen Glaukos' ophthalmic pharma and device leadership position, fuel our continued growth and solidify the foundation from which our franchise can significantly expand over time.

So with that, I'll turn the call over to Joe for a summary of the fourth quarter and full year financial results. Joe?

Thanks, Tom. As noted earlier, net sales for the fourth quarter of 2018 were $54.1 million, a year-over-year increase of 30%. The U.S. represented 84% of our sales in the quarter, and international 16%. In the U.S., fourth quarter 2018 sales were $45.3 million, up 25% from the same period a year ago. U.S. sales in the quarter primarily benefited from the launch of iStent inject and the competitive market development late in the third quarter. Outside the U.S., fourth quarter sales were $8.7 million, an increase of 63% from the same period a year ago. Our international business continued to outperform expectations, driven by broad based growth. Our gross margin in the fourth quarter was 86.8% versus 88.9% in the same quarter in 2017. The latter of which included a one-time benefit related to an inventory valuation adjustment. We continue to expect our gross margins to remain in the mid-80s percent range going forward as our product mix shifts increasingly to iStent inject in the U.S. SG&A expenses in the fourth quarter rose 24% to $32.1 million versus $26 million in the year-ago quarter. This 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 and investments associated with the iStent inject launch. R&D expenses rose 23% in the fourth quarter to $13 million versus $10.5 million in the same year-ago period. This rise reflects primarily the costs of additional personnel as we expand our pharmaceutical R&D capabilities and within clinical research, where in particular, the direct costs associated with the iDose trial enrollment continues to increase. We finished the fourth quarter with net income of $1.8 million or $0.04 per diluted share compared to net income of $1 million or $0.03 per diluted share in the fourth quarter of 2017. As of December 31, 2018, we had cash, cash equivalents, short-term investments and restricted cash of $149.3 million compared to $137.8 million at the end of the third quarter 2018 and $119 million at the end of 2017. While we're pleased by the profitability and cash flow generation of the business, it is important to remind you that as we move into 2019, our primary focus remains on long-term growth as we prudently invest to build the MIGS market, drive increased penetration of our iStent and iStent inject platforms globally, drive our robust pipeline initiatives through necessary clinical studies and programs, advance new opportunities into clinical studies and build our global infrastructure. As we said before and consistent with Tom's remarks, we do expect CapEx to increase substantially in 2019 as a result of the investments we are making across the business. Notably, with the buildout of our new headquarters facilities and upgrades in our global systems capabilities, including the implementation of improved enterprise systems to broaden our technology capabilities to support future growth.

Now I'll briefly recap our full year 2018 results. Total net sales were $181.3 million, a year-over-year increase of 14%. U.S. net sales were $151.7 million, a year-over-year increase of 8%. International net sales were $29.6 million, a year-over-year increase of 61% and approximately 16% of total 2018 net sales versus roughly 12% in 2017. Our 2018 gross margin was 86% versus 87% in 2017. SG&A expenses for the full year rose 24% to $119.5 million versus $96.3 million in 2017. R&D expenses rose 28% for the full year to $49.7 million versus $38.9 million in 2017, excluding the one-time in process R&D charge of $5.3 million. Our 2018 net loss was $13 million or $0.37 on a diluted per share basis compared with net loss of $100,000 or $0 per diluted share in 2017. As Tom indicated earlier, we are introducing 2019 net sales guidance of $220 million to $230 million. This guidance takes into account our expectations for organic growth, the updated MIGS market landscape, and competitive dynamics, the new doctor training dynamics associated with our inject launch, and the expansion of our international sales, which we now expect to be in the range of $36 million to $38 million for the full year based on current currency exchange rates.

Finally, as we think about our operating expenses in 2019, we expect to modestly expand our SG&A spending from Q4 levels to support the inject launch international efforts and increase our R&D spending as clinical costs increase 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 pursuing an aspirational mission to transform glaucoma therapy. We made significant strides to advance this mission in 2018 with U.S. approval and commercial launch of iStent inject along with the commencement of the key pivotal clinical studies for iDose Travoprost and iStent infinite. While the progress we've made to date is important, we believe our future opportunities remain robust. The powerful platforms we are building in sustained pharmaceuticals, micro-scale surgical devices and diagnostics should help us evolve into a hybrid ophthalmic pharma device global leader, capable of providing optimized droppers, treatment approaches for effectively managing glaucoma and potentially other ocular diseases. I believe we remain in the early stages of unlocking the company's long-term value potential and am excited for the opportunities that lie ahead.

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

(Operator Instructions) And your first question comes from Brian Weinstein with William Blair.

Just thought we'd just start on the guidance the $220 million to $230 million. Obviously, you guys said I think very strong fourth quarter and just sort of annualizing that with just along within the range there. So just can you just remind us about how we should be thinking about seasonality coming in here? And thinking through the other parts of the guidance in particular, anything that you can provide on pricing that you guys are thinking on inject? And any other dynamics that we should be considering?

Brian, it's Joe. So maybe I'll start off and I'll start somewhat at a high-level and then if we want to dive in any of the other subjects you sort of raised there, we can do that. I think as we think about guidance for the year as you know, pretty consistent with past practice, we run and we look at a lot of different scenarios and we think about that in the context of a standard bell curve distribution of potential paths for the year. And we take a look at that and decide where we're going to land. In the context of 2019, there is a handful of things none of which will surprise you that are driving our views on the year. Core market growth remains healthy but we have to analyze that and think about various scenarios there. In particular, as we think about the dynamics around new doctor training. CyPass share recapture. It continues to be in line with expectations and in our prior communications, so we expect that over the course of 2019 as well. The inject conversion process, right? We've talked about that. I think in the prepared remarks, we discussed that we remain on track there as well and we expect that to continue to phase in over the course of first half of 2019. Competition, obviously, we continue to assume trying and trialing associated with full-scale launch there. However, to date they really haven't formally commenced the full launch, but we have to factor that into the views of 2019 guidance. Then on the international front, we continue to have broad progress, but we have to factor in the inevitable setbacks with a small company, and we're building brand-new markets as Tom alluded to, in 16 distinct countries. So we continue to take a cautious view of that progress as we look forward.

Got it. And then as far as some of the investments that were made -- or you're thinking about making rather, you talked about some of the CapEx investments in other things. But can you give us an update on where the sales force is right now in the investments that you're specifically making, both domestically and internationally to expand that sales force?

Brian, it's Chris. We continue to look at these things opportunistically and where see an opportunity, we do add people. As an example of that, we added some people, some sales reps in France. At the U.S. level, we were still in the high or mid-to-high 50s with sales reps and 90 overall in terms of sales professionals. And those numbers, pretty mirror the international markets as well. So we'll continue to look at it and where we see opportunity, we'll add people as needed.

Your next question comes from the line of Robbie Marcus with JPMorgan.

Joe, maybe I can follow up on -- hey. Maybe I can follow up on that last question and ask it a different way. So I know you don't give quarterly numbers but maybe help us understand what the company did in the U.S. or maybe what market growth was in 2018. If you could help us out maybe on a one-time look at volumes and pricing for the year. True us up at year-end and then help us understand what you're assuming for market growth in 2019 and those -- the volume price dynamics as well. There's a lot of moving parts and I think it would help us understand the guidance a little better.

Yes, absolutely, Robbie. Happy to do that. Maybe I'll first address the market related questions then I can circle back to the kind of the quarterly cadence component of what you and Brian were asking. So first from a market standpoint, I think the year ended up shaping up almost exactly as we had predicted it at the outset. So I would say that for the year, we saw market growth in the neighborhood of 20%. To get there, as you can imagine, that meant the fourth quarter was somewhere in the mid-teens from a market growth perspective. Again, as we sort of predicted and expected at the beginning of the year and entirely driven by our new doctor training efforts and the slowing of that associated with the iStent inject conversion. As we think about that turning the corner in 2019, we have to take into consideration that you have both the lag effect of the lack of new doctor training in the second half of '18 as well as new doctor training being slowed or the continuation of that being slowed in the first half of 2019. When we think about all those pieces and we look at the opportunity in 2019, we see mid-teens market growth for the 2019 time period. That's on the market side and we can talk about any of the individual drivers later in the call. On the quarterly cadence component, you're right, there are a fair number of puts and takes that we can discuss. I think the net of that and while we don't give quarterly guidance is that we would expect that the 2019 year in the U.S. will actually somewhat mirror the traditional cataract seasonality. So as a reminder, because we've had a couple of years here where this has been a little bit of a different pattern, the typical cataract seasonality happens -- about 22% of cataract volumes happen in the first quarter, with 25% happening in the second and third quarter, and 28% in the fourth quarter. So I would think that's probably the best indicator you can have for how we think about the rollout of 2019.

Great. And maybe just the one other component for '18 that I think would be helpful, is what do you think is the de-stocking number was?

Yes, so it's interesting and obviously, we talked about this in the past. It's hard to pinpoint the exact number. We can look at it in a fairly macro sense and I will say this: when we talked about there being some de-stocking at the tail end of the second quarter that continued into the third, it's our belief that in the fourth quarter based upon the analysis we've done here that, that actually had reversed itself a bit, particularly in the second half of the fourth quarter where we start to see a little bit of restocking. And I'll say that restocking is probably measured in the tune of $1 million-plus of revenue that was coming back in as some of our larger customers that have converted over to iStent inject.

That's really helpful. And then maybe if I could just squeeze in one last one for Tom or Chris. If you guys could just give us your thoughts from the field and what doctors are telling you in the uptake of inject, how they like it and just maybe comment on what you're seeing from competitive launches out there.

Robbie, it's Chris. We couldn't be more pleased with the execution and the rollout strategies of the iStent inject launch. Things are going well and it's really validating what's been seen in the clinical literature and what we've seen internationally with iStent inject. Doctors are getting good results. They're pleased with the IOP reductions, the safety profile and the ease of use of the product. So in short, it's going, not exactly, but very much in line with what we expected.

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

Joe, just a follow up. One, on the guidance for Q1, I mean, it looks like you've got about -- based on what you've said, about $188 million at the midpoint for the U.S. in 2019, 22% of that is about $41 million, you just did $45 million in Q4. But the growth rate slowed, so that $41 million, if I'm doing the math right, is about 23% versus the 25% you did in Q4. But it would seem, Joe, that you could actually do better, given the stocking issues in the second half of the year. So why would, on a year-over-year basis, growth slow a little bit in Q1? And I had a follow up.

Sure, Larry. I mean obviously, it's difficult on a slide to follow all the calculations you just did there. But conceptually, I think what we're looking at, first and foremost, as you alluded to, it's always a little bit difficult because we go from our seasonal high quarter Q4 into our seasonal low quarter in Q1. And in particular, in Q1 just the dynamics behind the scenes are that we see a lot of the volume actually happen in the month of March in particular. So that informs a little bit of where the guidance is as we sit here today and think about this. But in general, the business remains healthy. Obviously, we're expecting to experience an uptick in some of the competitive trying and trialing activities that would come from competition. And sometimes, the international business can be a bit more speculative out at the outset the year as well.

Sorry for the math question there. So on the international, how big is the U.K.? How big is the reduction in the reimbursement? And just lastly, Tom, you could probably have anticipated this question, but what's the next steps in the Ivantis litigation? And I guess, given the strength of the patents that at least we thought, the strength of your patents, we were surprised that you haven't requested a preliminary injunction. Is there anything you can share with us?

Yes, why don't I go first and attack that head on. So just to give everyone kind of a refresher on where we are, we're really kind of in the relatively early phases of litigation with Ivantis. As you know, we filed our preliminary claims against Ivantis in April. The trial date has been set for February of 2020. And over the course of this year, you can expect that there will be discovery from both sides, depositions and claims construction prior to the trial. We also know that we filed a summary judgment to get a finding of noninfringement on the patents that Ivantis had started against us in litigation. And the court did grant Ivantis some additional time for discovery so we expect that the judge will hear that motion again, probably sometime in March of this year. We are on track with where we are in the litigation. I will tell you that as you know, we've been consistent in our position that we're not going to publicly talk about our IP strategy. But I will tell you that we've also been very consistent in that strategy and we remain very, very confident in our position.

Okay, it's Joe. I'll start off with the U.K. question and Chris can add some color as well. We've obviously never broken out specifically individual countries' revenue contribution. But what you have heard from us, especially over the last year-plus is that the U.K. has been an important driver of the overall growth of our international business, in particular since we launched iStent inject there, the latter part of 2017. So it's an important market for us but we've not quantified that publicly.

And to add some color to that NHS has proposed a cut to all glaucoma devices including us. And this is now under review and there's a commentary period. To be specific, it would affect the facility fee, right now being reimbursed at $2,000 and would go down to $1,200. And this is something we're obviously working with the Congresses and individual physicians. And as I mentioned, we're in the commentary period and it is a proposal. So we'll see what happens over the next couple of months.

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

This is Drew on for Matt. I know in the past, you've been hesitant to disclose CyPass captures specifically but now that you've had another quarter here, how should we frame expectations into 2019? And should this really be an accelerating piece going forward?

Drew, it's Joe. I'll start off with that and if others want to add in, they can. I think with respect to CyPass and the share recapture, it's really gone as expected and sort of as we communicated even from the early days post the recall announcement. So nothing new there in terms of what we experienced in the quarter. We are capturing the majority, the vast majority of those procedures, but it's not a 1 to 1. And for those procedures that are not being captured, often they're being lost at later stage or in therapy devices. And we would expect -- and there's a reason not to expect that would continue in 2019 as well.

Okay. And then...

This is Tom. I would just add that because in the real world, we're seeing perceptions that the real world results delivered by iStent inject are really significantly better than what we've seen -- saw on the iStent pivotal trial and for that matter, for iStent real world data. I think that makes iStent inject a more compelling opportunity for patients that previously were more relegated to CyPass for more moderately advanced patients. I think that just puts us in a better position to capture the majority of these patients.

Okay. And then on infinite, I believe that device could be on the market in the next 2 years or so and just targeting more severe patients initially. But I believe there are also some mild to moderate patients that don't quite achieve the IOP reductions as necessary with inject. Could a 3-stent system like inject be helpful to these patients? And if that was the case, would a separate approval be necessary to target them?

Yes, okay. So what I will tell you again is that the iStent infinite is undergoing a 510(k) review for more refractory patients as you're all aware. And as we move forward, we'll seek approval for that indication. And as you know, surgeons, once this product when and if is approved, will have the discretion to use it in patients that they see fit or where they think they can achieve desirable intraocular target pressures. I think what we need to be cognizant of is to make sure that we have the appropriate coverage where payers will pay for that device in ranges that are outside the approved claim. Obviously, we cannot and will not promote for any indication that's outside of our approved claim. But we suspect that with a 3-stent alternative, there will be some surgeons that will see a desirable need to use an iStent infinite for patients where they are seeking a little bit additional reductions in pressure to reach lower intraocular target pressures.

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

Maybe 2 or 2.5. The first is price. Joe, I believe you usually give us some color on price historically. I don't know if I missed it, but how was 4Q '18 U.S. ASP versus a year ago? And then in '19, I'm guessing you're going to have mix shift in your favor with inject. Will there also be any increase in price on the underlying stent themselves? And then I've got a follow up.

Sure, thanks, Jon. So I think for the fourth quarter of 2019, the reason why you didn't hear that in our prepared remarks, it was a very modest benefit in the fourth quarter on a year-over-year basis coming from the combination of the mix shift and just generally, pricing with the inject device. And as you alluded to in the context of 2019, you obviously do get a bit of benefit from the mix shift as we have been pretty consistent in saying that the iStent inject is a premium product and that we would expect to get a modest price premium for that device. It's not -- it'll phase in, of course, in the course of 2019 as we continue to convert doctors and accounts over type inject. And we'll see the full benefit of that obviously, in 2020 once we've got the vast majority of our surgeons converted.

Okay, great. Helpful. And then just to shift gears, can you talk a little bit about the competitive landscape? I mean, any update on Ivantis, what you are or are not seeing there? What's reflected in your guidance? I think to build on, I think it was Brian's question earlier, if you sort of take that 4-2 number in the U.S., annualize it, add in your international, you sort of scrape that $220-ish million type of number. So then maybe if you could also talk to you what's the swing factors, Joe, between the low end and the high end of your '19 guide?

John, it's Chris. In terms of Ivantis, they've still been limited in their activity, but we do expect them to ramp up and scale up through the course of the year. They've been very prominent at some of the major meetings in the first quarter. But at this point in time, they still seem to be doing a limited launch, a controlled launch. To the best of our knowledge, they have between 10 and 12 representatives.

John, the second part of your question, as you think about 2019 and what sort of frames the low versus the high. I arrear sort of what we started this call with, which is it's a little bit of everything, right? So when we talk about mid-teens growth and some of these are interrelated, right? The pace in which we get the doctors converted over to inject, right? And those last sort of handful of docs that are out there as we get towards the middle part of the year. What that does or doesn't mean in terms of our ability to get back and training new doctors and focusing on same-store sales growth will have a pretty big impact both on the core market growth as well as the pricing question that you asked previously. On CyPass, to Tom's point, right, we run scenarios around what we're seeing today and how that may change as we look forward with inject being in the hands of more surgeons and our ability to capture a little bit more. On competition, you were sort of just hearing it from Chris. I mean, it's still early days but we have to obviously factor in scenarios that involve increased trying and trialing over the course of the years as they -- we would expect that they would more formally commence the full launch. And then internationally, as we talked about, there's things there, whether it's the U.K. example or those that are smaller that we don't call out or those that are unforeseen right now. To date, we've done a great job I think as a company in these markets, working our way through those, resolving them with minimal disruptions of business. But as we think about 2019, we have to factor that in as well as we think about the high to the low end.

Your next question comes from the line of Chris Cooley with Stephens.

I'll keep it literally to 2. Could you help us define significant when you think about the step up in CapEx this year in 2019? And then maybe I'll do the same thing everyone else has in regards to trying to parse guidance. When we look at the OUS component, you just put up 63% in the fourth quarter. And while the U.K. may represent a fairly material headwind, you're expanding into new markets and you have continued just overall adoption. The guide only implies to 20% to 26%, so maybe you could help us think about what is and isn't factored in to that OUS component of your top line guidance for '19.

Sure, so I'll start with the latter part of that question and we can focus on that. So from the international standpoint, obviously, a couple of things going on there. One, we've talked about now at length the various things we have to factor in. If you look back historically on the international business, you've seen a business that grew 135% in 2016, 95% in 2017, 60% roughly in 2018. One of the challenges that 2019 from a growth rate perspective when we're looking at that way, is just that from a comparability standpoint, 2018 was the first year in which all of our international markets were really running at full speed for the entire year. You'll recall that the vast majority of the 16 international markets we actually entered into over the course of 2017. So we had a little bit of favorable comparability as we looked at 2000 -- as we went through 2018 that won't be there for 2019. But beyond that, we do factor in things as we said earlier, about whether it's the U.K. or other potential setbacks in these markets as we look to grow them. Oh and sorry, you also asked Chris about CapEx. So for us, we did about $10 million of capital expenditures in 2018 that was broad based as you'll see in our 10-K when it's filed. For 2019, our best estimate right now is that might approach somewhere that you've heard $20 million of capital expenditures. But I want to caution that there's a lot of variability in that and it has to do with the timing and the build out of the Aliso Viejo headquarters and the receipt some of the associated TI allowances, which are pretty substantial there. So there could be some variability there and I would expect that to be fairly back end-loaded in the year.

Your next question comes from the line of Joanne Wuensch with BMO Capital Markets.

This is Matt Henriksson for Joanne. First question, with regards to your commentary on opportunistically training new physicians, that sounded new from previous commentary. So what's the strategy about going into 2019? Are you going to expand these opportunistic training? And then is this factored into your 2019 guidance?

Matt, it's Joe. So first and forward, yes, of course, it's the -- all of our doctor training expectations by quarter are factored into the 2019 guidance. While it may be the first time you've heard that in Tom's prepared remarks, we've often said that one of our strategies would be to opportunistically hire or train new doctors alongside. The bar is high as you can imagine because the primary focus first and foremost from the beginning and through today is on converting our existing surgeons. But there are exceptions to that. We've been very pleased with the reception that we've received in the community and the desire to be trained on inject even from those surgeons who have done MIGS in the past. So we've taken advantage of that in cases and so we're just simply putting that out as a part of what's happened in the fourth quarter.

That's helpful. And then just back to pricing, are you seeing the MACs being more willing to cover the add on code for the second stent for iStent inject?

This is Chris. And at this point in time, there is just one MAC that is consistently covering the add-on code 0376T. The other MACs have been variable in terms of their coverage, both from a rate perspective and whether or not they're covering it. It's something that we're going to continue to pursue. It's something that we're hopeful of. But we do feel that the 0191T coverage of the iStent inject from a professional fee standpoint is healthy enough for these doctors to want to use the best MIGS procedure out there. So it's something that we're not counting on, but it's something that we're pursuing. And the 0376T code is not something that we factor into our guidance in the context of it would be upside if that continues to make progress.

Your next question comes from the line of Ravi Misra with Berenberg Capital Markets.

So I guess, I have one to kind of beat a dead horse on guidance again, and then another on operating expenses. So just I think a lot of us are trying to understand here just whether there's realisticness or conservatism baked into guidance. And based on some of the questions, could you just help us calibrate how we should be thinking about in our models, like, is the way to kind of think about this that you have this mix shift driving ASPs slightly higher, offset by flattish surgeon trainings with kind of volume growth in existing accounts above levels exiting last year a kind of good way to get to the midpoint of your number?

Ravi, it's Joe. I would say as we think about the setup for the year, I'm not sure I would necessarily say it's as much price driven as maybe it sounded like and the way you set that up. I think it's fairly broad in terms of the drivers that are taking our business forward in '19. And as I mentioned earlier, it's a combination of the core market growth, the CyPass share recapture, the pace in which we convert the remaining physicians over to inject and start focusing back again on same-store sales and new doctor training. The competitive landscape and how that will evolve over the course of the year and then obviously, the international business there. Also reiterate again what we said with respect to setting guidance. We look at a lot of scenarios, we look at what that means from a sort of distribution of the bell curve, if you will, and we try to be -- have our guidance range be a bit left center as you might expect. But we really do take a thoughtful approach in looking at all the various paths forward for the year before we set the number and give it to you guys.

And then just my follow up was you showed some really nice leverage on the SG&A line there in the quarter. Just wondering if that's kind of a one-time thing or with you guys delivering this profitability in net income, help us think about maybe where the leverage can go in the model, if you go to the top end or the bottom end of your range.

Sure. Well, I think one thing to take a step back on the fourth quarter from an operating perspective is obviously, was a fairly material change in the marketplace and competitive landscape heading into the fourth quarter. It's always hard to change your investments you're making in the business as fast as obviously, what changed in the commercial market place. Having said that, you heard from Tom, you heard from me, we're going to continue investing heavily in 2019 both from an infrastructure perspective and a commercial infrastructure in the increased spending around the clinical trials, iDose, infinite, et cetera. So we're going to continue to make those investments over the course of the year. Growth there in operating spending will probably look something fairly similar to what you saw percentage-wise in 2018. But as you think about longer term in the operating leverage, it's there. We're clearly still building the pieces associated with our international business, our infrastructure that we're still in the middle of that. But having said that, with our gross margin profile and just the dynamics of our business, we see a lot of operating leverage in the years ahead. In particular, as we get on the other side of the iDose launch and some of the larger investments that we've got associated with that.

There are no further questions at this time. I'll turn the call back to the presenters.

Okay, so this is Tom. I want to thank you all for your time and attention today and always for your continued interest in Glaukos. Thanks, and goodbye.

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