GLAUKOS Corp Q3 FY2021 Earnings Call

Welcome to Glaukos Corporation's Third Quarter 2021 Financial Results Conference Call. A copy of the company's press release issued after the market closed today is available at www.glaukos.com. This call is being recorded, and an archived replay will be available online in the Investor Relations section at www.glaukos.com. I would now like to turn the call over to Chris Lewis, Senior 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. 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 integration and market development efforts, the efficacy of our current and future products, our competitive market position, 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 that is available in the Investor Relations section of our website for a reconciliation of these measures to the most directly comparable GAAP financial measure. With that, I will turn the call over to Glaukos President and CEO, Tom Burns.

Thank you, Chris. Good afternoon, and thank you all for joining us today. We hope everybody is staying safe and doing well. Today, Glaukos reported third quarter net sales of $74.7 million, representing growth of 15% versus the comparable year ago period. These results exceeded the top end of our guidance range and reflect solid execution across our glaucoma and corneal health franchises, amid both continued COVID-related volatility and headwinds globally and U.S. combination cataract glaucoma dynamics associated with the originally proposed CMS rules from July. I'd like to take a moment to recognize the continued dedication and resiliency of our teams around the globe who remain steadfastly committed to their work throughout the ongoing pandemic. It is clear that the pandemic and subsequent global recovery from it continues to pressure labor markets and the global supply chain. We and our customers are not immune to these realities and risks as we move forward, but we have been pleased with our continued ability to attract world-class talent and the resiliency of our supply chain thus far. We remain focused on our near-term execution as we drive new adoption and deeper penetration globally for our transformative MIGS and iLink solutions. Importantly, we continue to self-fund and successfully advance our robust pipeline of novel promising platform technologies that we believe have the ability to significantly expand our addressable markets and to transform our company into a leading hybrid ophthalmic pharmaceutical and device player over time. Pioneering innovation, scientific evidence and clinical rigor play a vital role within our organization. During the third quarter, we accomplished a market-leading clinical milestone, surpassing 200 peer-reviewed publications on our iStent technologies. This represents the most robust, diverse and longest-term body of clinical evidence for any microinvasive glaucoma surgery technology. This robust library is comprised of over 20,000 eyes across a range of studies over nearly 20 years, including 15 publications analyzing long-term 4- to 8-year follow-up data. Outcomes from these studies reinforce the powerful benefit-to-risk calculus of iStent technologies' microinvasive, tissue-sparing approach, supporting the utilization of iStent globally. An important aspect of pioneering new markets the way we have is the ability to protect our proprietary inventions with a formidable portfolio of intellectual property. To that end, during the third quarter, we announced the settlement of patent litigation with Ivantis, under which Ivantis has agreed to pay Glaukos $60 million in two payments and a 10% ongoing royalty through April 2025. We are pleased with this outcome. We remain confident in the strength of our robust intellectual property portfolio and believe this settlement allows us to focus our full attention and resources on executing our long-term growth strategy by bringing transformative new technologies to the market for the benefit of patients worldwide. Within our U.S. glaucoma franchise, our commercial team continues to successfully train and educate our current and prospective surgeon customers on the favorable risk-benefit profile of our iStent family of technologies and advance MIGS toward standard of care for glaucoma. Regarding CMS, earlier this week on November 2, CMS issued its final calendar year 2022 Medicare physician fee and facility fee schedules, respectively. The final 2022 rule updates the payment policies, physician fee and facility payment rates and other provisions for services furnished under the Medicare physician fee schedule in both the HOPD and ASC settings. These filed rules supersede the proposed rates that were issued in July 2021 and are subject to the issuance of any updates or corrections by CMS prior to or around January 1, 2022, the date these final rules take effect. Over the past three months following the July proposals, Glaukos, along with six key national industry societies, 31 patient efficacy groups, 20 state societies, 16 congressional districts, many ophthalmic surgeons and others, have directly engaged with CMS and undertaken a comprehensive and coordinated response that led to over 1,300 unique submissions to CMS, a positive recommendation by the CMS advisory panel on hospital outpatient payment in favor of our proposals, and broad bipartisan support from policymakers in Washington. As a reminder, the CMS 2022 final rules include physician fee and facility fee payment rates for two new Category 1 CPT codes, including 66991 for noncomplex cataract extraction in combination with the insertion of an aqueous drainage device, and 66989 for complex cataract extraction in combination with the insertion of an aqueous drainage device. CPT codes 66991 and 66989 will replace Category 3 code 0191T as the primary code that physicians, hospitals and ASCs will use to seek reimbursement utilizing Glaukos' trabecular micro bypass technologies, including for our iStent and iStent inject W devices when used as approved in combination with cataract surgery. Starting on the physician fee, often referred to as the professional or pro fee, the final rule indicates a 2022 physician fee for CPT code 66991 of approximately $664, representing an incremental physician fee payment of approximately $135 above noncomplex cataract surgery alone. This reflects an improvement of roughly $100 versus the July proposal. It still implies a decrease compared to a median physician fee today for 0191T of approximately $350, which as a Category 3 CPT code is priced independently by each Medicare Administrative Contractor, or MAC. Moving to the facility fee, which is the payment that a facility receives to cover the cost of a procedure, including the cost of the devices used, the final rule indicates that 2022 facility fee payment rate in the ASC setting for CPT code 66991 and 66989 of $3,246, which reflects an improvement of $730 versus the July proposed rate of $2,516 and compares to the combined ASC facility fee under the existing Category 3 code today of $3,353. We estimate that approximately 80% of procedures utilizing our trabecular micro bypass technologies in the United States are performed in the ASC setting. For the remaining estimated 20% of procedures performed in the HOPD setting, the final rule indicates a 2022 facility fee payment rate for CPT code 66991 and 66989 of $4,251, an increase of $333 over today's current HOPD facility fee rate of $3,918. We are pleased to see that our actions over the past several months materialize into notable improvements in the final rule for combo cataract MIGS versus the proposals, but we still have work to do going forward to ensure physicians and facilities are fully compensated for utilizing our sight-saving technologies in stand-alone and combo cataract procedures. We remain focused on various execution strategies to maximize access and overall care for glaucoma patients here in the United States. Now shifting gears to our international glaucoma franchise, where our year-over-year growth during the third quarter was broad-based across the European and Asia Pacific regions, but it is worth noting that we have continued to experience intermittent COVID disruptions in nearly all of our global markets. We remain early in our international penetration and are continuing to invest in our expanding teams as we drive broader adoptions of MIGS around the globe. These efforts were on full display at our recent ESCRS annual meeting, where our technologies were featured in various scientific programming. Additionally, we held two educational symposiums, our iStent inject W and iLink technologies, that were widely attended and continue to help us drive new physician interest and adoption through clinical education and sales initiatives to support long-term growth. Corneal health growth during the third quarter was driven by record U.S. Photrexa sales of $12.8 million and continued healthy momentum in new U.S. account starts. We continue to opportunistically expand our U.S. corneal health commercial team to fuel the execution of our commercial strategies and market development initiatives that are being well received. As you know, behind the scenes, we've invested considerable time and resources over the past 18 months to successfully integrate our Avedro acquisition. I am happy to report that these corneal health franchise activities are now largely complete, and Boston is integrated within our corporate enterprise systems. Moving forward, our focus remains on building upon the strong momentum we're experiencing within this emerging growth driver for Glaukos. We've also been investing considerable time and resources in our facility infrastructure to support our growth, capabilities and pipeline development. And as such, we are rapidly advancing toward the expansion and enhancement of our facilities in Southern California and will shortly kick off similar investments in our Burlington, Massachusetts facility. The strong capital position we have built has allowed us to remain on offense when it comes to successfully investing for our future. As a testament to this, we are continuing to invest in and advance our fulsome pipeline of core novel platforms where we anticipate and are planning for a robust cadence of new platform and product introductions over the coming years that have the potential to fundamentally transform glaucoma over time. On iStent Infinite, our three-step micro bypass stent technology designed to be used in a stand-alone procedure, we now expect potential FDA clearance in the first half of 2022 based on the pace of our review with the agency to date. Supported by strong pivotal data highlighting favorable safety and effectiveness, we are bullish on iStent Infinite's long-term prospects as a highly compelling new treatment alternative in a stand-alone procedure for severe and refractory glaucoma patients. We also continue to advance our late-stage development of iPrime, a highly complementary new VISCO delivery device designed to be a truly minimally invasive system to further support the needs of our physicians and patients. Regarding the PreserFlo MicroShunt, the FDA continues to gather additional input from glaucoma surgeons to ensure a complete evaluation of the clinical data submitted in the PMA. In the meantime, we are launching PreserFlo in Canada and are preparing for launch in Australia, given the recent regulatory approvals in both geographies. For iDose TR and Epi-On, we remain on track with our previous expectations for NDA submission in 2022 and FDA approval in 2023, respectively. Beyond these important near- to medium-term pipeline programs, we also continue to invest in and advance our key earlier-stage R&D programs, including in dry eye, retina, glaucoma, presbyopia and additional undisclosed projects. During the third quarter, we added yet another early but exciting pharmaceutical opportunity to our pipeline portfolio through a licensing agreement with Attillaps Holdings. Under this agreement, Glaukos has secured global exclusive rights to develop, manufacture and commercialize Attillaps' proprietary library of investigational pharmaceutical compounds to target the eradication of Demodex mites. Demodex mites are the root cause of Demodex blepharitis, often associated with meibomian gland dysfunction and related ophthalmic diseases. Demodex blepharitis and Demodex-driven meibomian gland dysfunction are caused by an infestation of these mites, the most common ectoparasite found on human skin. Demodex blepharitis is characterized by eyelid inflammation and irritation, resulting in eyelid redness, discomfort and debris, and Demodex-driven meibomian gland dysfunction is characterized by decreased lipid secretion into the tear film and is the leading cause of dry eye disease. Attillaps' lead compounds have demonstrated promising in vitro results in preclinical settings. This licensing agreement adds a promising therapeutic class that expands to focus our emerging corneal health franchise into new and globally underserved disease indications and represents a highly synergistic fit within our ongoing corneal health R&D initiatives. While this program and other earlier-stage opportunities remain in preclinical developmental stages, we are encouraged with the initial progress we're demonstrating within these platforms and are hopeful to advance a number of these programs into the clinic over the next 12 months. In conclusion, I'd like to reiterate our commitment to challenge the conventional way of thinking by driving meaningful innovation for the benefit of patients as we aspire to build a world-class company. I am confident we have the right people, strategy, infrastructure, pipeline and balance sheet to execute our plans and deliver on our future aspirations. So with that, I'm going to turn the call over to Joe to discuss our third quarter 2021 financial results. Joe?

Thanks, Tom. I will discuss our financial performance using non-GAAP or pro forma metrics and will later summarize our GAAP performance. I encourage you to review our GAAP to non-GAAP reconciliation found in today’s press release and on our website. Glaukos' global consolidated net sales for the third quarter of 2021 were $74.7 million, showing a year-over-year growth of 15% and a 7% increase compared to the third quarter of 2019, accounting for our acquisition of Avedro. Our third quarter results show improvement in market conditions compared to 2020, although we faced global challenges this quarter due to COVID-19, especially in July and August. We have noted encouraging recovery trends in September and October, though we remain cautious about pandemic-related volatility, especially as we approach winter. Focusing on our U.S. glaucoma franchise, our third quarter U.S. glaucoma sales were about $43.4 million, marking an 11% year-over-year increase. We believe this reflects pandemic-related dynamics and the impact of the previously proposed CMS reimbursement changes on customer ordering and competitive activities. Internationally, our glaucoma franchise achieved third quarter sales of around $15.1 million, an 18% year-over-year increase and 38% growth compared to the third quarter of 2019. This growth is driven by increasing global demand, tempered by pandemic challenges in key European and Asia Pacific markets and ongoing issues in Latin America. In corneal health, third quarter net sales reached $16.2 million, reflecting a 26% increase year-over-year and 47% growth compared to 2019, adjusted for our Avedro acquisition. This growth was bolstered by U.S. Photrexa record sales of $12.8 million, showing a 23% year-over-year increase or 52% compared to pro forma 2019, alongside healthy new U.S. account starts benefiting from our continued commercial integration. Regarding our P&L, our non-GAAP gross margin for the third quarter was approximately 87.1%, up from 84.9% in the same quarter last year and 84.4% in the second quarter of 2021. This increase reflects strong gross margin performance in corneal health and glaucoma and a nonrecurring allocation of costs to R&D this quarter. If these costs were excluded, our non-GAAP gross margin would have been about 85.3%. It’s important to note that our non-GAAP adjustments to COGS include significant amounts linked to Avedro acquisition accounting. Our overall non-GAAP operating expenses for the third quarter were around $69.9 million, a 3% sequential increase from the second quarter, reflecting our commitment to expanding spending as recovery allows, a trend we anticipate will continue. Our non-GAAP SG&A expenses were approximately $41.2 million in the third quarter, down 6% sequentially, with stable commercial spending countered by lower administrative costs. Our non-GAAP R&D expenses were estimated at $28.7 million, a 19% sequential increase from the second quarter as we prioritize core R&D spending, earlier-stage pipeline programs, and workforce investments. Our third quarter GAAP operating expenses included a one-time R&D charge of $5 million related to the Attillaps Holdings licensing deal and a $30 million payment connected to the Ivantis litigation settlement. We ended the third quarter with a non-GAAP operating loss of $4.9 million and a non-GAAP net loss of $9.7 million, or $0.21 per diluted share. Our GAAP net income was $6.2 million, or $0.13 per diluted share, for the third quarter of 2021. We invested around $9.9 million in capital expenditures during the third quarter, a figure that remains elevated compared to historical levels as we progress with enhancements and expansions of our facilities in Southern California and Boston to support our growing needs. As of September 30, 2021, we had approximately $438 million in cash and equivalents, up from $414 million at the end of 2020 and $428 million at the end of the second quarter. Looking ahead, particularly concerning COVID-19, we faced incremental global challenges in the third quarter with some recovery in September and October. We advise caution regarding potential impacts on elective procedures for the remainder of 2021 and into 2022, especially during winter. Regarding CMS and reimbursement for our combination cataract products in the U.S., we are pleased with many updates in the recently released final rule, but we anticipate continued disruptions in customer ordering and competitive activities stemming from the original proposed rules will affect our fourth quarter results. Our 2021 net sales guidance remains unchanged at $285 million to $290 million, reflecting our typical seasonality, COVID-related trends and risks, and possible U.S. combo cataract glaucoma headwinds. Looking ahead, we will conduct a thorough evaluation of any effects from the reduced 2022 CMS physician and ASC facility fees on our U.S. combo cataract glaucoma franchise in 2022 and will incorporate those estimates in our overall guidance during our fourth quarter call in late February.

All right. Thanks, Joe. So in closing, I'd like to reiterate our conviction in our long-term vision. We are continuing to invest in Glaukos, scaling our team and driving true innovation. We believe these are the foundational pillars to long-term value creation for all of our stakeholders. We have pioneered the combo cataract MIGS and iLink markets, and we are just beginning. The funding from these franchises has enabled us to build a pipeline with a breadth of magnitude that may be unmatched in this industry. And we believe we are at the dawn of a robust cadence of new product launches over the next several years, assuming FDA approval, including iStent Infinite, iPrime, PreserFlo MicroShunt, iDose TR, Epi-On, and potentially other exciting new complementary technologies. The investments we committed over the last decade have materialized into a potentially transformational period for our company in the years to come. We would encourage investors to evaluate closely our self-funded pipeline and our highly leverageable global commercial infrastructure, along with the growth and scale of our glaucoma and corneal health franchises, and we are confident that many of you will come to the same conclusions and enthusiasm we have for the future of Glaukos. So with that, I'm going to open the call to questions. Operator?

Hey guys, good afternoon and thanks for taking the questions. Sorry for any background noise here. Maybe to start here first on your updated sort of reimbursement post the final decision earlier this week. Certainly, I appreciate that you don't want to talk necessarily specifics about 2022. But maybe just conceptually, can you give us an idea about how you're thinking about some of the different variables that are in play here and how that's changed now that this is kind of final?

Yes, thank you, Andrew. It's Joe. As we consider the recent changes, we've just received these rules two days ago, so we will take our time with our assessment of their implications. We’re encouraged by the increase in the facility fee reimbursement and the adjustment of the professional fee to $135 from its previous proposal. However, it's important to note that this is still significantly lower than the reimbursement rates we have historically received for professional fees. We will take all of this into account, carefully analyze the details with our customers, and provide an update during our fourth quarter call along with our guidance for 2022.

Completely understandable. And maybe secondly, on the pipeline here. I don't think it comes as much as a surprise that Infinite is getting pushed to the first half of next year. But maybe as we sort of think about the opportunity for that in the stand-alone opportunity, and when you couple that with iPrime, can you just sort of talk about at a high level why those two products sort of make sense as you move into that stand-alone opportunity and why a hybrid model might be compelling to do?

Sure, Andrew. It's Chris. Let me start off by just saying the stand-alone opportunity is certainly bigger than the combo cataract. And having both iPrime and Infinite gives us an opportunity to play in that stand-alone segment. And there is a trend of utilizing these products in combination with each other. So by having these products in our bag, we're better able to position ourselves and play in that big stand-alone market.

Good afternoon. Thanks for taking the questions. And congratulations on the progress you made with CMS. Maybe just one on reimbursement and then one when we think about core business growth. On the reimbursement side, I realize you want to take some time to digest what the combo cataract market looks like. But I think maybe one of the more surprising data points was the reimbursement for iStent Infinite. And while I know that the pro fee has to be set by the MACs, I was curious kind of what you thought you had to see there to make that economically viable. And similarly, your take on the facility fee, which was actually lower than what was initially proposed. Just thinking about how that may or may not impact your thoughts on commercialization once that device is most likely approved in the first half of next year. And then I've got a follow-up.

Yes, Chris, I'm happy to take that question. I mean we gained so much ground during the commentary period and the final rule in the aspects with regards to combination cataract surgery. And we are disappointed with the initial position of CMS with regards to how they have approached the APC for the stand-alone use of trabecular bypass devices. And so if you think about it, they've always conditioned and translated the iStent products into APC 5492. And for some reason, they have taken a position that it will be now translated into 5491. We think that that decision was made in error, and we'll be looking at their commentary on why they made that decision. We'll be working with CMS over the course of the next several months, much like we have here to gain ground in combo cataract to see if we can't upgrade the payment for that transitional pass-through as we move forward. So I would say this is the position that they've taken. We'll work hard, much like we have done with patient advocacy groups and with our industrial or our industry societies to be able to take another bite at the apple to be able to move that code up.

Super. So the starting point, if I hear you correctly, and you'll basically work to see how that gets resolved going forward. If I shift gears just to the core business today in corneal health, in particular, record Photrexa sales during the course of the quarter. And that's despite still seeing some COVID-related challenges in markets across the U.S. Just curious if you would kind of assess where that franchise is today relative to where you had expected it pre-COVID. And what type of growth you think the existing installed base here in the States can really kind of sustain going forward? Just trying to get a better feel for how that business normalizes as we maybe normalize post-COVID.

Chris, I'll take the first part of that. And we're pleased with what we've been able to accomplish, and that is certainly a result of all the different initiatives that we put into place mostly around early detection of corneal conditions and referral patterns of getting these patients into iLink customers, good integration of the Avedro and Glaukos team and the power that we have of working together. So I'm not surprised by the record sales of Photrexa in the third quarter, but there is still a big opportunity ahead of us. And we're working to capture more of that opportunity. Pleased that it's growing. Pleased that we've made progress, but optimistic about the future of this product portfolio and what we can do with it.

I think, Chris, as we think about the growth prospects of this, and Chris is alluding to it, the first phase of our integration was all about increasing access to the technology, making sure that as many of our customers that are in this business or potentially in this business get access to the technology. And quickly, you turn your attention to the second phase, which is increasing utilization, driving additional awareness of the condition, driving that additional foot traffic from the optometrist into the corneal specialists that do these procedures. And that's something where, as we go on the other side of COVID, we hope we'll really start to gain increase our access to those accounts in person and really increase those overall utilization trends. But sitting here today, we're still focused on both those. And as we move forward here, we'll increase our efforts around the utilization side substantially.

This is an analyst on for Matt. I guess I just kind of wanted to maybe touch on the reimbursement update here. So given the improvement in the facility fee, does that mean that you no longer will need to take maybe as deep of a pricing cut as you guys were initially anticipating to take in 2022?

Sara, it's Joe. I'll start. And if Tom and Chris want to add anything, they can. I'd say we don't obviously get into our pricing deliberations on a public call like this. If you look back at what we talked about in the second quarter call, we did assume given the substantial decreases that we might have to share in that pain with our customers. So clearly, the improvement in the ultimate outcome here is a net positive for us from a pricing standpoint as we go into 2022.

Okay. And maybe touching on that previous kind of outlook you guys gave on the last call. Maybe how much of that was related to pricing versus share loss? I think you guys had lowered numbers by about $70 million for the year. So is there an update on that? And can you speak to that split?

Sure, Ciaran. First, I want to remind you that we didn't lower anything. The $90 million to $110 million estimate for the U.S. combo cataract was based on calculations that followed analyst commentary related to the initial 2022 proposals. We've been asked about the various inputs from different analyst estimates, and generally, the proposed rule incorporates an over $800 price decrease. We mentioned that a significant portion of that reduction could result in lower pricing. Regarding professional fees, analysts provided a range of estimates about the potential impact, spanning from 25% to 50% based on the proposed rules. We considered multiple scenarios since about 80% of our business operates in the ASC setting, with roughly 80% of that being Medicare-related. When everything is taken into account, we concluded that our estimates centered around the $90 million to $110 million range at that time.

Yes, I'm happy to address the iDose question. As I have mentioned before, we are very pleased with the 2-year data from the Phase IIb study that I have shared with the investment community. I plan to share the 3-year data with the investment community in the first half of 2022.

Perfect. Thanks, guys, good afternoon. The first question might be more of a Wall Street concern than real world. But the company really faced a lot of uncertainty over the past four months prior to earlier this week. And can you just talk to your sales force and the ability to keep the strong reps that you had prior to the preliminary fee, do you feel like it cost you any talent among the reps when the company had some uncertainty over the past three to four months? And then I've got a follow-up.

Sure. John, it's Chris. We've been dealing with potential loss of reps for a long time. We've got a very good sales organization, and it's not uncommon for competitors to try and pick off our people. So it's something that we've dealt with, and we have a tremendous track record of keeping our talent. So it's in line with where we've been. We've lost a couple of people here and there, but nothing out of the ordinary. And I think they're really excited about our pipeline and where we're headed. It's a wonderful cadence of new products coming out over the next couple of years, and they see that. And I think it's also important that they have trust in the management team and what we're trying to do here. And we just have a really low attrition rate here. So all in all, we're doing well.

Perfect, Chris. That's very helpful. And maybe to shift gears, I'll try to maybe jam in two questions. Just on the competitive trialing, Joe, that you called out. Have you seen anything so far? In other words, someone tries a competitive device and any defections or loss of share in that account that's trialing the competitive procedures? And then sort of the bolt-on, but imminently separate question is just, can you remind us of the percent of your doctors that own an ASC or have an equity ownership in ASC? I think it's very high. And clearly, that's the case it would better shield you guys from just a step down in the pro fee because they'd be looking at the overall economics of pro fee versus ASC where the percentage drop is much lower than pro fee alone. Hopefully, that made sense.

Yes, it is, John. I'll answer, and Chris wants to add in there. We've talked in the past, and I'm not sure it's meaningfully changed that about 75% of the docs who operate ASCs have some degree of equity ownership in the overall practice. Some own it fully outright, some in partnership with others, some in partnership with private equity, but they have an equity stake in the business itself. The second part of your question, maybe the first part of your question was around loss of share. I'd say it's a little premature for that, right? I mean if you think about this, the July was when the proposals came out. The reaction there in some accounts were they want to be prepared for a worst-case scenario and try and trial other products, that takes place over the course of August, September, October. It's a little early to say whether that is indeed a share shift, and we look forward now to re-engaging with many of those folks now that the final rules are out.

Great, thanks for taking the questions. One on just market conditions and then a follow-up on reimbursement. And I guess they're interrelated. So A, just on market conditions, we're hearing a lot about staffing and just wondering how that's playing out in the ophthalmology world and then specific to glaucoma. And then second, there on the final ruling, CMS hospital outpatient goes higher, ASC is lower. We have an 80% mix to the ASC. There's an incentive then to shift to the outpatient setting. Do you envision that could happen, but we also have to consider that they're now dealing with shortages. So it's almost as if they've incentivized some shift in behavior just at the wrong time. So the last one would be if this kind of backfires, do you see a potential reversal in 2023, 2024? I know I threw a lot at you there, but wanted to get it all in.

That's all right. Anthony, this is Chris. Yes, we're seeing staffing issues at ASCs, hospitals, and in the clinics. And the system is stretched a bit. And it does, at times, affect capacity and then certainly the ability to do the number of procedures and see the number of patients that these doctors would like to do. That's not all across the board. In some areas, we're actually seeing practices where the volumes are up, and it's a mixed bag. But I consistently hear that labor and staffing is a challenge in all of those areas, hospitals, facilities, and the practices as such. In terms of the reimbursement, hospitals have always consistently had a higher reimbursement and a lot of times they get a higher percentage increase. I think that's more of a function of the inefficiencies and costs that you see within the hospital system versus an ASCs. Given that 80% to 85% of these procedures are done in ASCs and given that all those procedures, 75% of them have the physicians have an equity position within the ASC, it's very unlikely that you will see procedures move from surgery centers to the hospital market.

Okay. Well, I want to thank everyone for your time and attention today. We do hope that everyone is staying safe, and thank you for your continued interest and support of Glaukos Corporation. Goodbye.

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect. Thank you.