Earnings Call Transcript - GKOS Q2 2022

Operator, Operator

Welcome to Glaukos Corporation Second Quarter 2022 Financial Results Conference Call. Copies of the company's press release and quarterly summary document both issued after the market close today are available at www.glaukos.com. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. This call is being recorded and an archived replay will be available online in the Investor Relations section at www.glaukos.com. I will now turn the call over to Chris Lewis, Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Chris Lewis, Vice President of Investor Relations and Corporate Affairs

Thank you and good afternoon. Joining me today are Glaukos' Chairman and CEO, Tom Burns; President and COO, Joe Gilliam; and CFO, Alex Thurman. Similar to last quarter, the company has posted a document on its Investor Relations website under the Financials and Filings Quarterly Results section titled Quarterly Summary. This document is designed to provide the investment community with the 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 for guidance we may make. This document has been and will continue to be provided alongside the company's earnings press release, and it's designed to be read by investors before the regularly scheduled quarterly conference call. As such, for this call, we will make very brief prepared remarks and quickly transition into a question-and-answer session. It is our goal that this recently adopted format will make our quarterly process more efficient and impactful for the investment community going forward. 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, 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 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.

Tom Burns, Chairman and CEO

Thank you Chris. Good afternoon and thanks to everyone for joining us today. Today Glaukos reported second quarter net sales of approximately $72.7 million, down 5% year-over-year on a constant currency basis, but up 9% sequentially versus the first quarter on a constant currency basis. As a reminder, the second quarter represents a challenging year-over-year comparable for many in the MedTech industry, but in particular for Glaukos, we are raising our 2022 net sales guidance range to $275 million to $280 million versus $270 million to $275 million previously, given our solid execution globally, better than expected second quarter results, and latest board outlook. From a commercial perspective, we continue to be 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. With our U.S. glaucoma franchise delivering strong sequential growth of 13%. During the latter part of the first quarter, we launched our iAccess device, a novel instrument with features that allow customers to perform go anatomy procedures. Surgeon adoption and utilization of iAccess continues to grow and market feedback remains positive. During the latter part of the second quarter, we also commenced initial commercial launch activities for iPrime, our innovative new disco elastic delivery device. While we remain in the very early stages of iPrime controlled launch, this platform adds to our expanding portfolio of unique solutions designed to grow and improve treatment options for our surgeon, customers, and patients. Our international glaucoma franchise once again delivered quarterly record sales despite significant foreign exchange headwinds as we execute our strategies to drive deeper penetration and broader adoption of MIGS around the globe. And within our corneal health franchise, we continue to focus on access for keratoconus patients suffering from this rare disease. We're investing in additional commercial payer market access coverage in response to sporadic issues that have emerged in 2022. On the development front, we continue to advance our pipeline. Following the recent clearances and commercial launches of iAccess and iPrime, we're delighted to announce today that we have received FDA 510(k) clearance for iStent infinite, our novel three stent injectable system designed to provide foundational 24/7 IOP control for glaucoma patients. This FDA clearance represents a significant milestone for Glaukos and the MIGS market as the first-ever micro-invasive implantable device indicated for use as a standalone glaucoma treatment. Supported by strong pivotal data, highlighting favorable safety and effectiveness, we believe iStent infinite may provide surgeons with a compelling new treatment alternative in a standalone procedure for patients with open angle glaucoma uncontrolled by prior surgical and medical therapy. We are preparing to commence initial commercial launch activities for this promising technology later this year. Our clinical and regulatory teams also remain hard at work advancing pre-submission activities for iDose TR and Epi-AXA respectively and we expect to be in a position to announce topline Phase III data for iDose TR later this year. In terms of our earlier stage pipeline, we are happy to announce we completed patient enrollment in our iLution Phase II clinical trial for dry eye disease during the second quarter. We also expect to complete patient enrollment for our iLution Phase II clinical trial for presbyopia during this third quarter and we anticipate initial data readouts for each of these trials by early 2023. We are now in the midst of several new product launches and are planning for a robust cadence of new drop less platform and product introductions over the coming years that has 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. As such, we are continuing to invest in Glaukos to scale our team and to advance our mission to transform vision. We are excited about our prospects and confident in our ability to execute our plans in the years to come. So, with that, I'll open the call to questions.

Operator, Operator

Thank you. And we'll take our first question from Andrew Brackmann at William Blair.

Andrew Brackmann, Analyst

Hey guys. Good afternoon and thanks for taking the question. Maybe just to start here on iDose, appreciate all the commentary that you provided in your short remarks, Tom. But I guess as we sort of sit here, mid-September, 13 months after the last patient enrolled, that last term in the trial, can you just sort of level set up and how you're thinking about that pipeline opportunity and your confidence level that will be successful? And I guess, as a follow-up there, can you just talk about the scorecard that you're going to be looking at to evaluate the success beyond the topline data, anything in particular that you'll be looking at in this study? Thanks.

Tom Burns, Chairman and CEO

I'm happy to address your question. It's crucial to highlight the success of this product. Analyzing the recent Phase IIb data results, we observed that 70% of patients achieved good control with iDose while using the same or fewer topical IOP medications after 36 months. Many patients initially required two or three medications. The average IOP reduction for the iDose group ranged from 8.3 to 8.5 millimeters of mercury after 36 months, indicating significant sustained reductions in ocular pressure. We were very pleased with these outcomes. In comparison to Timolol, the iDose TR demonstrated similar efficacy in mean IOP reductions after 36 months but required far fewer topical medications. On the safety front, the product was extremely well-tolerated. We did not see ocular hyperemia or periorbital fat atrophy, and there was minimal clinically significant corneal endothelial cell loss when compared to the Timolol control. There was only one case of iris color change. These safety factors are quite impressive for this device. The marketplace has a substantial demand for a sustained release medication capable of providing continuous control of glaucoma, especially given the prevalent issue of non-compliance, which often accelerates the progression of the disease. This product marks a significant shift in how we treat glaucoma, as it can be administered through a simple injection as a standalone procedure. I believe it can address non-compliance issues, allergies related to the disease, and the need for ongoing use of topical agents that contain toxic preservatives. We envision various applications for this product, including its potential to complement cataract surgery for patients with comorbid glaucoma conditions. The response we've seen, particularly with Allergan's introduction of a derivative product, indicates a strong market appetite. Although it is an innovative product, it has some limitations; one of the conditions was its one-time use label due to higher rates of corneal endothelial cell loss. However, we monitored this aspect throughout the two-year Phase IIb clinical trial and noted no significant loss. We are also planning a study to evaluate the possibility of exchanging the iDose in situ, and the findings will be part of our NDA submission, which, if reviewed favorably, could allow for sequential use of the product over a longer duration after the initial medication is depleted. Many of you are conducting channel checks and discovering enthusiasm in the market, which provides us a supportive backdrop for our entry. Allergan has effectively set a precedent with their derivative products, which are designed to last approximately four months in the eye, with a market value over $2,000. This gives us a solid foundation for a well-priced introduction of our product. As I emphasized earlier, we plan to share the data by the end of this year or early next year. I'm pushing to have it available by year-end to ensure investors and analysts receive it promptly.

Andrew Brackmann, Analyst

Very, very helpful. Thanks for all the color. Maybe if I could just switch to iStent infinite quickly, congrats on the approval there. What can you tell us about some of the initial sort of commercialization efforts and market-building efforts that you'll be putting out there? And how should we be thinking about uptake later this year and into 2023 in light of that proposed facility, right, for 2023? Thanks.

Joe Gilliam, President and COO

Sure, Andrew. Its Joe. I'm happy to cover that obviously, we're excited about receiving the FDA clearance. As Tom mentioned yet another chance for us to pioneer the market with the first-ever micro-invasive implantable device for standalone glaucoma treatments. So, we're enthusiastic here about that launch. As it relates to timing, in anytime you receive an approval, you have a series of steps to finalize labels, sterile approved inventory, and training logistics and the formal launch plan. So, we've been hard at work for the better part of a year preparing for this moment. I would expect that for all intents and purposes, you'll see soft launch activities as we kind of exit the third quarter and head into the fourth. So, that should give you a sense of that timing. You referenced obviously, the facility fee and some of the proposals there. And I think on that, I'll just say that while we have work to do, we've been here before, and we're already hard at work on that front.

Andrew Brackmann, Analyst

Thanks guys.

Operator, Operator

We'll move next to Chris Cooley at Stephens.

Chris Cooley, Analyst

Good afternoon. Congratulations on a great quarter, and thank you for taking the questions. I have a follow-up to Andrew's inquiries. Tom, I appreciate the insights you provided on iDose. However, I was hoping we could delve a bit deeper into the reimbursement outlook and the pathway for that. Duresta offers a precedent in the early stages, but one would expect a longer duration of effect when considering high iDose TR. Could you outline that pathway for us and what we might anticipate regarding reimbursement for the device? Additionally, as I review this deck, which I must commend Chris for, it resembles a pharmaceutical company quite a bit. I'm curious about the next level of investment you plan to make. You've already expanded the R&D team, but what additional resources do you need to bring on board in sales and marketing, reimbursement, and clinical development? When will that start impacting the P&L? Thank you.

Tom Burns, Chairman and CEO

Yes, Chris, I'm happy to take your questions. The first one you mentioned was about iDose reimbursement. As you know, we've taken steps to establish a Category 3 code with the AMA CPT Committee, and we've been successful in getting that code set up. Currently, it falls under exclusion, so it isn’t reimbursed for those who provide data under that category in hospitals. We'll open up discussions with CMS just before the commercial launch. Similar to our approach with iStent infinite, we'll need to establish a different maximum crosswalk for the procedure of placing the standalone iDose device and align that to a comparable Category 1 product to secure the highest professional fee. We have done well with this in the past, and we will continue as we proceed with iDose. Regarding future payments at the APC level for the device, it will receive an APC assignment upon approval. Additionally, this will lead to the assignment of a J-Code specifically for iDose, which we will take forward in a specific manner. We'll apply for a miscellaneous J-Code at launch, which we expect to receive, and the HICS-FIX committees meet quarterly, so we will aim to formalize a J-Code at a price point we believe will best serve the marketplace after the launch. APC assignments will function similarly to iStent or iStent infinite; we'll receive an assignment and determine whether to engage further with CMS or stay put. It’s important to note that the facility will wholly own the APC assignment since iDose will be separated from that. This positions the facility well to achieve profitability with these devices. I believe I've fully answered your question regarding professional and facility fees for iDose. We’ve set the risk at around $2,000 intended to last for four months, and while I won’t imply any pricing based on the length of therapy, I see substantial opportunity for establishing a price point for iDose, which seems to show a prolonged effect based on Phase IIb data. As for your second question about the pharmaceutical business, I see the need to divide this new strategy into two parts: surgical pharmaceuticals, which would include iDose, iDose TREX, and iRock, if we successfully bring it forward, as well as products like cross-linking, which are fundamentally surgical pharmaceuticals. These are buy-and-bill pharmaceuticals that can be managed by our existing salesforce. This is where we expect to reap the benefits of investing in our salesforce and expanding by adding more products, both devices and surgical pharmaceuticals. The retail pharmaceutical side is quite different. For topical applications and transdermal methods like our iLution, which would go through pharmacy and wholesale channels, we will need a separate salesforce to market these products effectively. We've successfully done this in the past. We are confident in forming the best teams to launch products similar to our surgical devices and pharmaceuticals, but we will need distinct salesforces for different segments. I think that answers your question.

Chris Cooley, Analyst

Thank you.

Operator, Operator

We'll move next to Larry Biegelsen at Wells Fargo.

Unidentified Analyst, Analyst

Hi, this is Charles on for Larry. Thanks for taking the question. Just a couple on iPrime. First, I got to ask about looks like last year didn't get the device intensive in the rule area. Do you think that's possible that could change in the final rule? And then second, maybe just if you could talk a little bit about how long you might think that you're the initial controlled launch for iPrime might last? Thank you.

Joe Gilliam, President and COO

Sure Charles, this is Joe. I think like most things on reimbursement, we'd hesitate to speculate. It's clearly on the table up and through from the proposed rule through to the final rule. So, entirely possible that that could happen as a part of 66174. I think as it relates to the launch, as we mentioned, we've commenced the initial, very early commercial launch activities in the quarter with our customers, and we're going to continue down that path. I don't think typically in these situations, there's a single moment in time where it changes dramatically. It continues to sort of expand one wave at a time until we feel like our customers are proficient with this new option.

Unidentified Analyst, Analyst

Thank you.

Operator, Operator

We'll go next to Ryan Zimmerman at BTIG.

Ryan Zimmerman, Analyst

Thanks for taking the questions. Congrats on the quarter guys. Tom, I want to ask you a couple questions and maybe this one's more for Joe, but I also have some high-level questions. So, first, on guidance, I think about what you've done this year thus far, kind of about 50%-plus or so for the first half of the year. And when we look at guidance, you raised $5 million at the midpoint, but if you go back to 2019 and the seasonality that we've seen, particularly in the fourth quarter, it suggests a similar run rate as what we saw in the first half of the year in terms of your guidance. And so why doesn't stick out a little bit higher for the remainder of the year, particularly in the fourth quarter, just given where you have guidance today. Hopefully, that was clear, Joe.

Joe Gilliam, President and COO

No, it is a fair question, and I think it's important to consider the context you've mentioned. First, I'm not sure that the typical seasonality pattern is a reliable indicator for how to view our year, especially with the current marketplace dynamics and product launches. Foreign exchange has become a significant challenge for us and for others, especially as we move from the first to the second quarter and into the third. It's crucial to account for that in our considerations. Additionally, regarding the second half compared to the first, we have a great deal of respect for Alcon as a competitor, and we believe they will continue to strengthen their position both in the U.S. and internationally. Furthermore, we must consider ongoing impacts like the CMS pro fee cuts and the staffing issues that have been discussed in this earnings season, as well as volatility in the commercial payer landscape related to corneal health. Given these factors, we are pleased to raise the full-year guidance again and to reflect the strong performance we achieved in the second quarter, despite the various macroeconomic and specific challenges we are facing.

Ryan Zimmerman, Analyst

That was totally fair, Joe. I appreciate the commentary. And then Tom, for you, I mean, we've seen so much reimbursement change in the space, right? I mean, the start of this year with codes around stent-based treatments, to now the proposed fees for canal-based devices. And I really would just appreciate your view of where reimbursement – where the reimbursement landscape shakes out, how you think about the impact of all these moving components and Glaukos' philosophy given the multitude of devices that you now offer, how you navigate that in such a landscape that is in flux?

Tom Burns, Chairman and CEO

Well, it's a good question, Ryan, and it's something that I can assure you I think about almost daily. As we look at the shifting winds, a couple of things that are important is that some of the transitions passed, right? So now we've moved into a Category 1 procedural code with combination cataract procedures. We know now where we stand. We were really pleased. We were able to carve back what were some significant draconian cuts that happened last year. And we thought hard and I think the value we're able to really claw back, particularly on the APC side and be able to preserve a fundamentally profitable procedure for the providers to be able to use the iStent device. And so that's really important. Whenever you create new markets, we have to go through these growing pains with these new codes. And so we'll do so with iStent infinite within the next 6 to 9 months, clearly going into each of the next and be able to try to convince them to crosswalk this over to a light procedure that we feel appropriately represents the RVUs for the procedure. It's something that we believe we're good at, but it's something that takes a lot of time and muscle and patience. And there will be episodic setbacks in the process of doing this, much like there had been as we built the MIGS marketplace. We'll see the same thing with iDose on the professional fee side. Although I think that once we settle on a iStent infinite, I expect that to be more streamlined and efficient moving forward, but that will be kind of a sideshow to the approach that we take with getting the J-code for the device. The J-code really is subject to our own procedural pharmacoeconomics with what we think is a fair and position on pricing in the marketplace where we think we can favorably represent and stand behind. And once we do present that, we will then get that through – and get a formal J-code that's not subject to review. I want to remind everybody as well, with the TREX product that follows, because the TREX has substantially more API on board, approximately twice the amount, the way that CMS works is they will pay by basically the microgram of the product that's resident in the can of the iDose device. So that gives us legs as we move forward on payments and, I would say, consistency and predictability for investors as we think about that going forward. So this is something that when you build new marketplaces, these are the growing pains that you go through and that you take. We're a leader. We're the pioneer. We're at the front end. We are creating this marketplace. We'll create a sustained marketplace for iDose therapy. We're creating a new marketplace in keratoconus with cross-linking and at subsequent generations. We become good at it. It's a difficult process, but we're at it every day. And we think the payoff is there, and we're already seeing the payoff as we build value in this marketplace.

Ryan Zimmerman, Analyst

Thanks, Tom. appreciate it.

Tom Burns, Chairman and CEO

Okay. Thank you so much all of you for your time and attention today, and we hope everyone is staying safe. And we also thank you for your continued interest in Glaukos. Goodbye.

Operator, Operator

And that does conclude today's conference. Again, thank you for your participation. You may now disconnect.