Glaukos Corp (GKOS) 2022 Q1 法說會逐字稿

Good afternoon. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Glaukos' First Quarter 2022 Financial Results Conference Call. (Operator Instructions)

Chris Lewis, Vice President of Investor Relations and Corporate Affairs, you may begin your conference.

Thank you, and good afternoon. Joining me today are Glaukos Chairman and CEO, Tom Burns; President and COO, Joe Gilliam; and CFO, Alex Thurman.

Before we begin, we wanted to remind you of a change in the way we plan to handle our quarterly earnings disclosures and calls starting with this one. The company has posted a document on its Investor Relations website under the Financials & Filings Quarterly Results section titled Quarterly Summary. This document is designed to provide the investment community with a summarized and easily accessible reference document that details the key facts associated with the quarter, the state of the company's business objectives and strategies and any forward statements or guidance we may make. This document has been and will continue to be provided alongside the company's earnings press release and is designed to be read by investors before the regularly scheduled quarterly conference call.

As such, beginning this quarter, we will make very brief prepared remarks and quickly transition into a question-and-answer session. It is our goal that this change will make our quarterly earnings process more efficient and impactful for the investment community going forward. (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 sales, our products, pipeline technologies, U.S. and international commercialization, integration and market development efforts, the efficacy of our current and future products, our competitive market position, our regulatory strategies and reimbursement for our products, financial condition and results of operations as well as the expected impact of the COVID-19 pandemic on our business and 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.

Finally, please note that during today's call, we will also discuss certain non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into Glaukos' ongoing results of operations, particularly when comparing underlying results from period to period. Please refer to the tables in our earnings press release available on the Investor Relations section of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure.

With that, I will turn the call over to Glaukos Chairman and CEO, Tom Burns.

All right. Thanks, Chris. Good afternoon, and thank you all for joining us today, and we certainly hope everyone is safe and doing well.

Today, Glaukos reported first quarter net sales of approximately $68 million, flat versus the year ago quarter and up 1% on a constant currency basis. Our first quarter performance reflects solid execution across our global glaucoma and Corneal Health franchises amidst continued COVID-related volatility and headwinds globally and U.S. combination-cataract glaucoma dynamics associated, in particular, with the 2022 CMS final physician fee reimbursement rates that became effective on January 1, 2022. From a commercial perspective, we've been very pleased with the execution of our strategies and the resiliency of our U.S. combo-cataract franchise in the face of the reimbursement headwinds thus far in 2022.

During the latter part of this first quarter, we launched our iAccess device that has both minimally invasive and tissue sparing features that will allow customers to perform goniotomy procedures. We also look forward to bringing iPRIME to customers soon as well. And our international glaucoma and Corneal Health franchises continued to deliver strong results as we develop these important businesses.

We are raising our 2022 net sales guidance range to $270 million to $275 million versus $265 million to $275 million previously given our better-than-expected first quarter results and latest forward outlook.

On the development front, we continue to advance our pipeline. Following the recent clearances of iAccess and iPRIME, the FDA 510(k) review of iStent infinite is continuing, and we remain focused on a potential midyear clearance for this important product. iDose TR and Epioxa or Epi-on activities remain on track for NDA submissions and targeted FDA approvals in 2023. The iLution Phase II clinical trials for dry eye and presbyopia are well underway.

Finally, the FDA did recently notify InnFocus, a Santen company, that its PreserFlo MicroShunt PMA submission is non-approvable. While the MicroShunt is not a material potential driver of our near-term business, this outcome is disappointing given our early positive commercial experience with this product in Canada and Australia and encouraging surgeon feedback globally as they seek alternatives for late-stage glaucoma treatment. We intend to engage with the FDA to determine optimal clinical and regulatory next steps.

Before we open it up to questions, I'd like to reiterate our conviction in our long-term strategic vision. We anticipate and are planning for a robust cadence of new dropless platform and product introductions over the coming years that have the potential to fundamentally transform Glaukos over time and meaningfully advance the standard of care and improve outcomes for patients suffering from sight-threatening diseases. We are continuing to invest in Glaukos to scale our team and to advance our mission to transform vision with disruptive dropless game-changing platform innovations. So we are excited about our prospects and confident in our ability to execute our plans in the years to come.

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

(Operator Instructions) Our first question comes from Andrew Brackmann from William Blair.

I like this new format. So congrats to Chris and the team for putting all this together. Maybe just to start here and have you sort of address the elephant in the room on multiple procedure reimbursement. Obviously, the stock has been sort of under pressure to a degree because of that, and investors are certainly sort of having questions around that. So can you just sort of talk to us sort of about your thoughts on that topic, specifically how you're viewing the landscape there with iAccess and iPRIME and just what it means for your business?

Thanks, Andrew. And Chris, pass along his sincere thanks as well. Well, there's a lot in that. Obviously, there's been a lot of, I think, investor-related activity on this. So I'll try to cover the sort of core topics. And if you've got follow-ups, we can handle it.

I think as it relates first maybe to iAccess, and just as a reminder for investors, reimbursement is determined by the procedure performed and not the device itself. And we believe iAccess has features that allow surgeons to perform a goniotomy procedure that would meet the definition of CPT Code 65820, if they deem it medically necessary and reasonable.

As you think about iPRIME, similarly, we believe surgeons can use the iPRIME device to perform procedures that meet the definition of CPT Code 66174, if they deem it to be medically necessary and reasonable at their own discretion.

And to the heart of your question as it relates to the pairing of procedures, the AAO has really already weighed in formally on the subject of pairing these procedures where a surgeon feels it's medically necessary to maximize the clinical benefit for patients. In March 2022, they put a Savvy Coder bulletin out that stated if a canaloplasty is performed in conjunction with a stent and cataract, then you should bill 66174 and 66991 as being appropriate.

And more recently, in April of this year, they also released a bulletin that if a goniotomy is performed in conjunction with stents and cataracts, then you should bill 65820 plus 6691 as is appropriate.

So I think, Andrew, at the end of the day, when you put it all together, it appears many surgeons are increasingly turning to multiple procedures now they have the tool to do so and to provide the max benefit to their patient given this is a sight-threatening disease. And ultimately, our goal is to provide surgeons with truly minimally invasive alternatives to maximize the overall patient benefit and hopefully grow the overall markets while doing so. So I think hopefully, that provides a little more clarity to some of the information flow that's been running in the investment community.

Certainly. And then maybe if I can just sort of switch topics here for a second. And I hate to be so sort of near-term focused, but as it sort of relates to guidance, so you beat the quarter and you beat The Street by, pretty handily, $7 million or so in the quarter but only raising the full year range by -- I think it's $2.5 million. So can you just sort of talk to us about and give us sort of any additional detail with respect to the process or changes in assumptions to that updated range?

Yes, sure. Thanks, Andrew. I think -- well, look, first, we provided guidance for the year and not the quarter. And while it's fair to say we were pleased with the first quarter results and how it turned out versus our expectations coming into the year and really acknowledge that and also to state largely that performance was without the benefit of new products, I think, on the positive side as we think about the setup for the remainder of the year, but having said that, it's still early in the context of the risks that we described entering this year, namely the U.S. pro fee cuts, the impact of those and competition globally.

And change doesn't happen all in a single quarter. We know competition will continue to get their sea legs as the year goes on. And we have other factors we have to think about, the FX considerations here, some of the macroeconomic dynamics that are playing out there. And as much as we don't like to admit it, COVID risks still remain as we move forward here. So if you put all that together, I think we were pleased to be able to raise the bottom end by $5 million just 2 months after the initial guidance given everything that was facing us coming into the year.

Makes sense.

Our next question comes from Chris Cooley from Stephens.

Congrats on a great start to the new year. And let me just briefly also echo Andrew's sentiment. Great job to Chris and his team. This is such a better way to do a call. Just in terms of my 2 questions, could we kind of unpack the growth a little bit that you saw, in particular, I should say, the 15% decline you saw in the U.S. glaucoma franchise? Help us think a little bit there about how much of that was volume related versus price? And then as we think about stepping back up through the year, kind of what you're assuming in terms of the contribution from both iAccess and iPRIME. And then I've got a quick follow-up.

All right. Thanks, Chris. Chris, also thank you for the kind comments at the beginning of your question. On the first part, I guess I would answer it this way. Pricing remains stable in the first quarter, largely stable. So what you're seeing there is from a performance overall in the U.S. glaucoma segment is largely translated to volume dynamics over the course of the first quarter.

Now there's probably 2 things going on there. As you'll recall, COVID was still a reality globally at the beginning of the quarter in January and early February. And then, of course, on top of that, we have the dynamics around the changes in the professional fee reimbursement. What was your second question?

No, that hit it. I just was thinking about the second part of that was just going, moving ahead kind of the contribution from iAccess and iPRIME and how that helps to bolster the overall domestic glaucoma franchise. But I can follow up with that online.

Yes. No, no. That's fine, Chris. I can answer that. I think -- look, as it relates to going forward, we mentioned when we gave the guidance for the year at $265 million to $275 million that we include some contribution, albeit modest, from iAccess and iPRIME and iStent infinite under the expectations that we would see product launches from those over the course of the year. And I think that remains the case. So I wouldn't get too far ahead of your contribution from those products at this stage. Ultimately, we'll have a lot more, I think, to say as the year progresses around how those are being adopted and utilizing what it's doing in terms of driving our top line.

Great. And if I could just squeeze a quickie in. Just in thoughts here, you clearly have a very strong cadence with iPRIME and iAccess and the controlled launch here in the second quarter moving forward. We have Epi-on and iDose coming as well. But how are you thinking about the iLution platform? How will we start to see data and kind of milestones across the board there for both dry eye and presbyopia? Just trying to think about some markers we can put out there just to kind of track the progress.

Yes. You're welcome, and thanks, Chris. This is Tom. And so I'll answer the question on the foundational platform we have with iLution. So as you know, we're excited about this as a new platform to be able to provide not only depot effect of the cream itself but that as it penetrates the eyelid, we think the tissues itself will act as a depot, which gives an opportunity for different APIs to travel using either the (inaudible) of the conjunctiva or through scleral diffusion to be able to get into the front of the eye and treat anterior segment disease.

So with that, we have launched, as you know, 2 Phase II clinical studies. One, a 200-patient clinical study, evaluating twice a day iLution pilocarpine versus placebo to be able to determine safety and efficacy, looking at dry eye signs and symptoms. And what we said on the clinical reports, [clinicalgov.com], I guess, is that we'd look to complete that clinical trial by May 2023. And I think we're tracking to be able to beat that pretty substantially.

Likewise, we are also looking at another proprietary formulation of pilocarpine in the iLution cream to treat presbyopia. And as you know, presbyopia, nearly 100 million patients in the U.S. with the disease. We plan to make a difference there if this product is proved safe and effective. We also have counseled the completion of that clinical trial of May 2023. And I see that our progress leads me to believe that we'll beat that as well.

So that should give you some indication of what we'll be looking at. Obviously, we'll be looking at dose ranging at various concentrations in order to determine what would be appropriate to take into a Phase III clinical trial, and we hope to make a difference in the treatment of dry eye disease and presbyopia.

Our next question comes from Larry Beigelsen from Wells Fargo.

This is Charles Ellson on for Larry. I had a -- first, congrats on the nice quarter. I had a question on iDose. So like the 1-year follow-up, if I had this right, for the Phase III studies is completed in June this year. Do you have a plan for disclosing the top line results and the full data? Do you think you'll be able to present that maybe at a medical conference before approval?

Yes, Charles, we will. And as I stated before, what we'll be looking at doing is probably be looking at releasing the Phase III pivotal trial, both data sets, in the latter part of this year, let's call it, the tail end this year or certainly by early next year. So that should give you some strong indication that we're on track and that -- and we'll have those results available.

Our next question comes from Ryan Zimmerman from BTIG.

This is Phil Dantoin on for Ryan. I just have 2 quick questions here. Just number one, there's not really consistent coverage of goniotomy combined with stents for MACs across the U.S. So what is your expectation that LCDs could change both positively or negatively?

Thanks, Phil. I'll start off, and if Tom wants to add anything, he certainly can. I think anytime you go through new product launches, you have a variety of things that you work through. That's no different than what we've gone through over the years with the MIGS devices with iStent inject and iStent at its original launch. So we'll continue to work through those dynamics as it relates to the MACs and keep you advised as we move forward.

I would just say what's been powerful really is the release and disclosure by the academy, which has taken a position that if surgeons deem it medically necessary and reasonable that goniotomy and stents can be used. And they codify both 65820 and the 66991 as the measures for how surgeons would use the codes to be able to code for these procedures. And so to me, that's a very forceful arbiter and gives us kind of a powerful way to approach these MACs to be able to influence them in a positive way going forward.

Awesome. And then just on my second one. As far as you have a line of sight on this, what should we expect at the upcoming AMA meeting on canaloplasty? Why are they discussing this? What risk does this potentially present to iPRIME?

Yes. Thanks, Phil. I think there's been a little bit of a misconception around this upcoming AMA CPT Editorial Panel. We believe it's expected to discuss the simple addition of an example in a parenthetical to 66174, the code, to basically clarify what that code should be used for, for example, canaloplasty. The AAO asked for this given provider questions about proper terminology, and ultimately, that parenthetical will become effective in January 2024.

Makes sense. Congrats again on this transition to the better format.

Thank you.

Our next question comes from Matt O'Brien from Piper Sandler.

This is Drew on for Matt. I guess just to start off, maybe an update on Alcon and Hydrus. Any changes so far with how that device is being marketed? Or anything you can speak to or have seen as far as the impact to Glaukos that you're baking into your guidance?

Yes. Thanks, Drew. Obviously, I'll start with the latter and say we've obviously factored that in originally, all competitive dynamics, including Alcon's acquisition of Ivantis. We set our guidance for the year, and we factored it in as we thought about the raising of the bottom line of the guidance this time. So we factor that in financially in our expectations for the year.

I would say that as you've heard us say before, we have a tremendous amount of respect for Alcon as an organization. And they obviously now have full control of the Hydrus stent. And we see them in the marketplace like we have for several years now. So I would expect to continue to get their sea legs over the course of the year, and we'll continue to see them from a competitive standpoint, not just here in the U.S. but globally. But I would say it's continued sort of more of the same.

Okay. Okay. That makes sense. And then just thinking about that 15% decline in the U.S., it sounds like that's largely related to volumes. I assume some of that early in the year here would be temporary competitive trialing. So just any sense for how some of those trialing activities have gone for Glaukos, if you had surgeon try other devices and come back to Glaukos? And when do you expect some of that temporary trialing to begin to wind down?

Yes, it's a fair question. It's a hard one to answer. I mean I think any time you go through a situation like the adjustment in the professional fee reimbursement, you're going to have some disruption in ordering patterns, customer trialing and trying. Some of which has come back. Some of which will. Some of which will potentially be -- continue to be lost as physicians become aware of it. So I think it remains a fluid dynamic. We're encouraged by what we saw in the first quarter, and that's all reflected in the guidance we gave.

Our next question comes from Tom Stephan from Stifel.

If I can just sort of start big picture. A lot of happening in 2022 with MIGS between new products, obviously, reimbursement changes, and we kind of picked up in our checks a lot that there just seems to be a bit of confusion in the marketplace among doctors. So I guess I would love to hear your perspective just on sort of the state of the U.S. MIGS market today and how you believe the longer-term, I guess, competitive dynamics may ultimately play out.

Yes. Thanks, Tom. I'll start off. And then, Tom, if you want to add comments, you can add to it. I think it is true that there has been a fair number of new product introductions in recent years, including some of our own here as we navigate 2022. And whenever you do that or go through that, surgeons are going to be evaluating what's their optimal algorithm with the products that are available and the patients and the state of disease that they have. So I think it's natural that there'd be some of that here and now as we go through all this.

I think you've heard us say for a long time that the part of the mission at Glaukos was to provide the full portfolio of alternatives for these surgeons as they move forward. So I think those are discussions that we look forward to engaging in with these surgeons as they think about those algorithms and how our product portfolio may map against that. Ultimately, our goal is to provide the most minimally invasive alternatives and to hopefully maximize the overall patient benefit and expand the market while we do it.

And I would just add that as we look at this, there are a number of alternatives that have entered in as surgeons kind of grapple with that and get their sea legs as to how they want to build their own algorithms. That probably leads to some of the near-term confusion over what you're hearing from the end market.

What I am very encouraged by is the movement of surgeons independently of us to the use of paired procedures to be able to arrest this sight-threatening disease. Clearly, there is a need to be able to drive the lower intraocular pressures through the use of procedures that may be either additive or synergistic to be able to get them there. And because of that, I think we've been perhaps a little prescient and put ourselves in a very, very good position as we move forward in this marketplace.

Got it. That makes sense. If I can quickly pivot just to supply chain disruptions, inflationary pressures. Any updated view kind of as we sit here today? Or any moving parts in particular we should be mindful of, whether it's in relation to your core portfolio or the pipeline? And then do you guys still feel comfortable with sort of that 83% to 84% gross margin range you've talked about recently?

Yes, Tom, it's Joe. Maybe I'll start with some of the macroeconomic points, and then I'll turn it to Alex for the gross margin view. I think we're certainly not immune, right? The world continues to navigate new supply chain challenges each and every day. I would say that our -- we couldn't be more proud of our organization and how they've responded to that. That required creativity and ingenuity and all the things you can imagine to navigate that successfully. And so far, so good in the context of continued product supply, of continued clinical trial supply and all the things that are going on there. But it's a lot harder in that context than it was pre-pandemic and some of the things that are going on.

And we've also seen, obviously, the inflation dynamics that I think many are talking about. It's playing itself out in various ways, including with suppliers and the associated partners as it relates to our pipeline and then almost everything we do here from a human resource and other perspective. So there's a very real dynamics, but so far, so good in terms of our ability to navigate them. Alex?

Yes. Tom, it's Alex. So on the margin, the range, 83% to 84%, we do believe that is still the appropriate margin for the business. We did an 83% in the quarter, and that was about 160 basis points less than fourth quarter. However, that was primarily driven by geographic revenue mix and our international revenues being a much higher percentage of our overall revenue mix in the first quarter, which drove it down a little bit. And as we've said historically, our international margins are a little bit lower than our U.S. margins. But given that fact pattern, we still believe and we still target internally, and we would express that same sentiment to you that the 83%, 84% range is the correct one.

Our next question comes from Allen Gong from JPMorgan.

I just had a few quick ones. The first one is you obviously had very strong trends in your core glaucoma business. Was any of that stocking dynamics earlier on in the quarter as physicians and practices really prepared for things to hopefully get back to normal and for them to be getting back to normal levels of volumes?

Yes, I think it's a good question, but the answer is no. I don't think there was really any stocking dynamics associated with the first quarter results. If anything, you had a little bit more noise associated with COVID and just the general sort of environment.

Got it. And I think someone already asked something kind of along the lines of this, but glad to see the bottom end of the guidance range moving up. But even if I just take the sales that you had in first quarter and annualize it, you're already at the very bottom of the range. So when we think about the sequential improvement we should really be seeing as hopefully trends get a little bit better as new products launch, what are you assuming for competitive dynamics? Is it just assuming that, as you said, Alcon maybe gets a little better, a little bit more pressure from Alcon and other competitors, offset by these new products and hopefully just broader trends getting better? And yes, I guess like why isn't the top end of the range where we should be off the back of such a strong first quarter?

Yes. Again, I think it's fair, and we acknowledge that we are pleased with the way the first quarter played out relative to our expectations entering the year. But as I said earlier, I just think it's still early in the context of the risks we face entering the year and that we still face, right, namely the pro fee cut dynamics and just in competition generally. And then when you overlay some of the FX-related considerations, the macroeconomic factors, the COVID risk, et cetera, quite frankly, we came into this call quite pleased that we were able to raise the bottom end of the range by $5 million just sort of 2 months after giving our initial guidance.

Our next question comes from Steven Lichtman from Oppenheimer.

This is David on for Steve. I was wondering if you could provide any more color on the latest macro outlook you're seeing through April relative to procedural volumes, new patient flow and backlog.

Thanks, David. But in general, you have to -- in answering that question, you have to think about it in terms of individual geographies. I think in the U.S., we've been pleased with the stability that we've seen in terms of those macro dynamics around COVID, procedure flow and the things that you'd expect as we come out of the winter months and into the spring here in the U.S.

Internationally, I put more markets than not into that same camp, but there are still pockets of COVID resurgence that create sometimes temporary, sometimes a little bit longer than temporary disruption in procedure volumes. And I think that is something that we've gotten used to for almost over 2 years now being that dynamic. It's a little bit less than what we've seen in the past, but it's still a relevant dynamic to call out.

Got it. And then just one question on how we should think about the OpEx spending trend through the rest of this year. Is there any significant investments planned for additional sales reps or pipeline products that we should think about?

David, this is Alex. Happy to take that question on the OpEx. So as you saw, we posted about a $70 million non-GAAP OpEx in the first quarter, which if you run that out for the year, it's about $280 million. However, Joe has said in the past, and we believe this still holds true, that our business really justifies around a $300 million run rate for the year. So we would encourage you to think about that and to kind of put that into your model, which also says that you're going to see sequential increases over the year to get to that $300 million level of OpEx.

We have no further questions in queue. I'd like to turn the call back over to management for closing remarks.

All right. This is Tom, and I want to thank you all for your time and attention today. We again hope everyone is staying safe, and we thank you for your continued interest in Glaukos Corporation. So with that, goodbye.

This concludes today's conference call. Thank you for your participation. You may now disconnect.