Glaukos Corporation (NYSE:GKOS) Q1 2024 Earnings Call Transcript

Glaukos Corporation (NYSE:GKOS) Q1 2024 Earnings Call Transcript May 1, 2024

Glaukos Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to Glaukos Corporation’s First Quarter 2024 Financial Results Conference Call. Copies of the company’s press release and quarterly summary document, both issued after the market closed 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. [Operator Instructions] This call is being recorded, and an archived replay will be available online in the Investor Relations section at www.glaukos.com. I will now turn the call over to Chris Lewis, Vice President of Investor Relations and Corporate Affairs.

Chris Lewis: 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 prior quarters, 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 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 is designed to be read by investors before the regularly scheduled quarterly conference call.

As such, for this call, we will make brief prepared remarks and transition into a question-and-answer session. To ensure ample time and opportunity to address everyone’s questions, we request that you limit yourself to 1 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, products, pipeline technologies and clinical trials, U.S. and international commercialization, market development efforts, efficacy of our current and future products, competitive market position, regulatory strategies and reimbursement for our products, financial condition and results of operations as well as the expected impact of general macroeconomic conditions, including foreign currency fluctuations 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’ll 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.

Tom Burns: Okay. Thanks, Chris. Good afternoon and thanks to all for joining us today. Today, Glaukos reported record first quarter consolidated net sales of $85.6 million, up 16% versus the year ago quarter. As a result of our strong start to the year, we are increasing our full year 2024 net sales guidance to range to $357 million to $365 million versus $350 million to $360 million previously. These record results were broad based with 20% year-over-year growth achieved in both our U.S. and international glaucoma franchises, where we continue to accelerate efforts to expand access to interventional glaucoma tools for the benefit of physicians and patients. Our goal to advance and improve glaucoma care by driving earlier intervention continues to build momentum as we lead and work closely with surgeons and thought leaders globally to organically drive this broader evolution in the standard of care.

These efforts were on full display at the AGS conference in late February and more recently at the ASUS meeting last month where the interest and excitement levels for interventional glaucoma and our technologies were palpable. Within our U.S. glaucoma franchise, we delivered first quarter sales of $42 million on strong year-over-year growth of 20% driven by iStent infinite and our overall iStent portfolio. Market receptivity and adoption of iStent infinite remains strong as we continue to pioneer and lead the interventional glaucoma paradigm shift. In parallel, we continue to advance key market access initiatives to support consistent and dependable professional fee payment with five of the seven MAX now including CPT code 0671T on the latest fee schedules.

During the first quarter, we also commenced the initial phases of our controlled launch plan for iDose TR, our revolutionary microinvasive injectable therapy designed to lower intraocular pressure in patients with open angle glaucoma or ocular hypertension. iDose TR is a first of its kind intracameral procedural pharmaceutical designed to deliver glaucoma drug therapy for up to three years. I could not be more pleased with how the early stages of this launch have gone. Our initial target wave of 15 surgeons all successfully completed their iDose, initial iDose TR procedures during the first quarter and the early feedback and outcomes have been very positive. As a reminder, these early access surgeons provide valuable insight to our training and field teams that helps to optimize training and skills transfer to our sales force and surgical community, supporting our expanded training and broader launch efforts over the course of 2024.

In addition to training, a key element to the stage gating of our iDose TR commercial launch is market access, where there have been several recent positive have been several recent positive reimbursement developments designed to support fulsome coverage and payment for the iDose TR procedural pharmaceutical over time. So first, CMS assigned a unique permanent J-code for iDose TR J7355 set to become effective on July 1, 2024. This new J-code once effective is expected to increase patient access here in the United States and should provide more streamlined, consistent and dependable coverage and payment for iDose TR as we advance and ultimately accelerate our initial commercial launch activities. Second, CMS has signed the CPT codes that are designed to be used to cover the procedural component of iDose TR 0660T and 0661T to Ambulatory Payment Classification or APC 5492 effective April 1, 2024.

This translates into a national average facility fee of nearly $3,900 in the HOPD setting and more than $2,000 in the ASC setting. Third, we have participated in several initial education meetings with Max as part of our efforts to secure professional fee coverage and payment over the course of 2024. And fourth, we successfully entered into the Medicaid Drug Rebate Program or MDRP. And finally, fifth, we have successfully commenced early initiatives to secure coverage for commercial and Medicare Advantage plans, efforts that we plan to accelerate in the second half of 2024 after the J-code is effective. So in summary, the response we received from surgeons in the broader ophthalmic community since FDA approval and the more recent initial commercial launch activities has been overwhelmingly positive and reaffirms our view that with the launch of iDose TR, we are pioneering a brand new category of procedural pharmaceuticals that has the potential to reshape glaucoma management as we know it today.

We are excited to now be building the strong foundation of bringing this transformative technology to market and expand the treatment alternatives for patients suffering with glaucoma and ocular hypertension. Moving on, our international glaucoma franchise delivered record sales of $25.2 million on year-over-year growth of 20% on a reported basis and 21% on a constant currency basis. This strong growth was once again broad based, as we continue to scale our international infrastructure and execute our plans to drive MIGS forward as the standard of care in each region and every major market in the world. We remain in the early stages of expanding our IG initiatives globally ahead of what we hope will be supported by a healthy cadence of new product approvals and expanding market access in the years to come.

And finally, our Corneal Health franchise delivered sales of $18.4 million on 4% year-over-year growth, including Photrexa sales of $15.1 million on a year-over-year growth of 7%. These first quarter results do include in particular the impact of our entry as a company into MDRP. These dynamics were anticipated and will continue to impact Photrexa realized revenues going forward. Shifting gears, we continue to prudently invest in and successfully advance our pipeline of novel promising platform technologies that we believe have the ability to significantly expand our addressable markets and fundamentally transform our company over time. This includes Epioxa, our next generation corneal cross linking therapy for which we continue to progress towards trial completion in the second Phase 3 pivotal trial and remain on track for data readout in the second half of this year supporting our targeted NDA submission by the end of 2024.

We continue to make enrollment progress in several important clinical trials, including One, a PMA pivotal trial for iStent infinite in mild to moderate glaucoma patients. Two, a Phase 2a study for iLution Travoprost with an initial data readout expected later this year. Three, Phase 2 trials for our iLink third generation therapy. And four, a first in human clinical development program for GLK-401, our intravitreal multi-kinase inhibitor retinal program in wet AMD patients. We also remain on track to commence a Phase 3 study for iDose TREX, our next generation iDose therapy by the end of 2024. Beyond these clinical activities, our development teams continue to pursue potential game changing early stage programs across the areas of glaucoma, retina and rare disease.

So in conclusion, I’m pleased with the strong start to the year given our team’s solid execution. I’d like to thank the nearly 1,000 Glaukos employees who remain dedicated to their work and advancing our strategic plans. We look forward to continuing to sustain and build upon the growing momentum in our business over the coming quarters and years. Our foundation is strong and our teams are energized as we are ideally positioned to continue transforming vision for the benefits of patients worldwide. So with that, I’ll open the call for questions. Operator?

See also Republicans are Buying These 10 Oil and Gas Stocks and 10 Stocks with Latest Dividend Increases.

Q&A Session

Operator: [Operator Instructions] Our first question will come from the line of Tom Stephan with Stifel.

Tom Stephan: Maybe I’ll start on the guide. Can you maybe talk about what the changes are to the constructs of the full year revenue outlook, if we can begin there? And then is there any more color or I guess parameters you’d be willing to provide on what’s baked in for iDose?

Joe Gilliam: I’ll start off with the guidance. Obviously, we had a stronger than expected start to the year and we were pleased to be able to raise the full year guidance accordingly here just a couple of months after setting it for the year. I’ll call it a couple of key considerations I think that are worth highlighting and then kind of hopefully draw some conclusion in terms of expectations by the franchise. First, it obviously is very early in iDose launch with the vast majority of the contribution expected in the latter part of the year. That hasn’t changed everything that we’ve been doing so far in the first quarter is on track and on target and we can I’m sure talk about that more later. Some of the stent growth that we saw in the first quarter, which was very strong from a year-over-year basis is partially driven by the timing of the infinite launch activities last year, which really accelerated in the second quarter.

So I think as we move into the second and third quarters, the comp from a standpoint gets starts to get a little bit more difficult. Third, obviously we all know that FX rates and the strengthening dollar have been moving against many of us from a U.S. reporting standpoint. So we see an incremental 200 basis points of growth headwind on the international side as we move forward throughout the year based on the spot rates as they exist today. And then lastly, as Tom mentioned in the prepared remarks, we do expect the MDRP entry related headwinds to persist for our Corneal Health franchise throughout the year. So when you put all that together, I think we’re landing in place where we our expectations for the Corneal franchise are low to mid-single-digit growth for the year.

The international glaucoma business, we tick up a little bit. I think the expectations there should be low to mid-double-digit percentage or teens growth for the year. And that’ll land you somewhere for the U.S. glaucoma business in that high-teens to maybe in the top end 20% type growth year-over-year. So hopefully that gives you a sense of kind of the drivers of where we’re at. On your second question around iDose TR. I think at this point, we’re obviously quite early. We were very pleased to see that in mid-February as we told you we were we’ve kept going. And so in the second half of the quarter, we were able to get kicked off with the early access phase of our iDose launch. And as Tom mentioned, really pleased to see our initial 15 surgeons be able to complete their case cases in Q1 in coordination with our sales and training and market access teams.

And that’s how we’ll continue to methodically launch and slowly expand in Q2 ahead of obviously the J-code being established in Q3 and the ASP publication in Q4, where we start to expect a meaningful acceleration in the iDose related activities and volumes.

Tom Stephan: And then maybe switching to the pipeline. Tom, you alluded to this a bit, but we did see in your proxy that the company is developing iDose TR, which appears might be an in office version of the implant. If you’re willing to share, can you elaborate a bit product, maybe the key details, sort of the portfolio fit, I guess, and then any timelines or milestones?

Tom Burns: So I think it’s inevitable as we look at the evolution of the pipeline that we’ll continue to figure out ways and develop ways to have an even more minimally invasive and fast aisle procedure. So having said that, I think it’s incumbent upon us to develop a product that will be able to be even more micro invasive than the current iDose design and have an applicator that will be able to really be able to put the iDose product through an incision side that’s going to be able to be in the range of a 1.2 to 1 millimeter incision, which really gives us then the opportunity to create a cell ceiling construct or a temporal clear corneal incision. And that’ll be important, particularly as surgeons move to in office procedures, which we know that they will do and which is a compelling part of our strategic plan over the course of the planning period.

So we are in the process of developing an applicator that will accomplish and achieve those goals. I would say in the timing, we’d be looking forward be probably in late 2025 for a potential introduction. And I think that will then be timely with the effect of how we’ll be moving forward to give surgeons the opportunity to be able to exercise the site of service in office as well as the ASC.

Operator: Your next question comes from the line of Ryan Zimmerman with BTIG.

Ryan Zimmerman: I want to follow-up on Tom’s questions that I’m sure a lot of people will be asking about iDose, but you gave us a little detail here on 15 surgeons kind of completing initial iDose TR cases. Now many of us have been diligencing this and it would seem as though there may be more surgeons out there or at least there’s a lot of excitement out there. Just to confirm, have you put iDose in the hands of more than the 15, number one? And then two, kind of how do you think about expanding that beyond that initial wave of the 15% in the second quarter until kind of that J-code is effective? And are you gating adoption in any way or kind of holding demand before that J-code is effective?

Tom Burns: I think the answer to the number of surgeons who’ve had access, I think a little bit you’re reacting to the number one, the overall enthusiasm for iDose TR and some of the pent up demand for folks to get trained and get going with it over the course of the year. But the direct answer is, yes, now that we’re sitting here on May 1, of course we continue to expand, we’re past that the 15 number from a surgeon training perspective was as of the end of first quarter. So you would expect us to continue to be slowly expanding that and providing more access to folks. At the same time, we’re going to do so methodically. As we’ve talked about from the outset, I think even back to the iDose call in December, the way we will launch this product is those early access physicians expanding that very slowly and methodically over the course of the second quarter and then really starting to open that more broadly as we get into the second half of the year with the J-code being established.

At the same time and in parallel, we are working with these accounts. And so simply because the surgeon maybe they haven’t completed their first case does not mean that they’re not in the funnel or if you’re doing channel checks, expressing their enthusiasm because they’re being trained, their back office administrative staff are being trained. And so we’re continuing to make progress really on all those fronts as we move forward into what we think will be a pretty exciting certainly second half and most notably fourth quarter for this year with iDose.

Ryan Zimmerman: And then kind of dovetailing off that, Joe, I mean, if you are in those accounts, I’m curious what impact or pull through are you seeing as a result of the iDose efforts on the base business? And if you could kind of tie it to this infinite growth particularly in the U.S., I mean, I would venture to guess that the market is not growing anywhere near 20%. And so are you taking share? Are you — is the market growing faster now because you are spending more time in accounts? Just maybe you could elaborate on kind of the core MIGS business and the resulting impact from your efforts on iDose?

Joe Gilliam: So I’ll provide a little bit of color. I think we’ll help you triangulate in around the breakdown of the results of Q1 for the U.S. glaucoma business. We did see our overall stent portfolio including iStent infinite grow in the mid-teens on a year-over-year basis. So the majority of what you’re seeing now obviously we did have iDose TR and some of the early launch activities, but the majority of the growth that you’re seeing the tune of mid-teens growth is coming from our stent portfolio. I think it’s of course very hard to dissect that down to individual percentage breakdown. But I do think it’s a little bit of all of those things that you mentioned, Ryan. I think that we are growing the market because of as Tom mentioned, we put a lot of muscle and effort into the interventional glaucoma paradigm shift that’s not something new we’ve been working on that hard over the course of the last 15, 18 months in particular.

And I think you’re starting to see some of the benefit of that in terms of growing the overall market certainly faster than it would be if it was still restricted to the combination cataract setting. But at the same time, I also do think we’re taking a little bit of market share. And I think the fact that we’re in there with multiple new exciting technologies that help expand the portfolio of alternatives for these surgeons, you can’t help but benefit a little bit from that in the context of a halo obviously associated with the overall portfolio. And so I think that that is playing out a little bit as we make our way through the year so far.

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

Larry Biegelsen: So Joe, you raised the guidance at the midpoint by I think the amount of the beat, why not more and the Q2 to Q4 growth implied or implied growth is actually below the Q1 growth, I think at the midpoint. Just lastly on this, how should we think about Q2? Are you comfortable with consensus of, call it, $88 million?

Joe Gilliam: Yes, Larry. So I think in the — I’ll try to think of the order in which you asked it, but the context of why not more than the beat. Well over the course of the two months, I’m not so sure since our original guidance that things have changed markedly versus the expectations and what we saw coming into the year. We’ve executed on everything we expected to and done a little bit better than that. And so we want to make sure that that was reflected in the raised guidance. But when you think about getting ahead of that so much of that obviously is driven by expectation around iDose in particular. And as I’ve said and we’ve said for some time now, that’s for the most part a second half phenomenon that we expect to play out.

So I’m not sure sitting here today, we would make a significant change to our expectations around iDose and what it will do in the second half. But we certainly continue to execute against realizing that opportunity at that point in time. As you think about Q2, I alluded to this a little bit in the question around the guidance. Our first quarter did benefit a bit from two things. One, on the international side, currency was a little bit more favorable than it’s going to be going forward. We see an incremental 200 basis points or 2% of headwind on that international growth number as we enter the second quarter than what we experienced in the first given the strengthening of the dollar. And second, we really more forcibly launched iStent infinite in the second quarter of last year.

So from a year-over-year comp standpoint, it gets a little bit more challenging as we enter the second quarter and beyond than it was in the first from a growth standpoint. So I think you put those things together and you’ll see why and where we landed. The last thing I’ll say on that is from a seasonality standpoint, when you kind of think about the overall guidance, as you know, we expected our typical seasonality patterns to be a bit disrupted this year by the growing iStent infinite standalone and of course, iDose utilization in the second half. And the net effect of that is obviously to shift a bit more the contribution of the year to the second half and in particular the fourth quarter. And if I were trying to put percentages around that I might do something like the following 23%, 24% in Q1, 24% to 25% in Q2 and Q3, and 26% to 28% of the year in Q4.

I think if you follow that, you’ll get to a pretty good place in the context of the seasonality expectations that we have for 2024.

Larry Biegelsen: And Joe, just a follow-up on the iDose ramp. I mean, how should we think about the ramp? And what’s going to cause that inflection in Q4? Is it the J-code, coming into effect July 1 until we’ll see an inflection in Q3. It sounds like the contribution in Q1 was relatively small. How do you see, what’s going to drive the adoption through the year?

Joe Gilliam: Yes. I mean, obviously our expectations I think would be that the contribution in the first quarter was relatively small. I mean we launched it in mid-February and gave early access and we’re on schedule with all that. I think we’ll continue to expand that over the course of Q2. But to the heart of your question, there are really but to the heart of your question, there are really two significant unlocking events, if you will, from an adoption perspective. The first happens on July 1st when you have the J-code come into place. There’s obviously a lag effect there in terms of procedures being scheduled and the execution towards that J-code. But then as you get into the Q4 and the ASP is also published. At that point you have a much more cost automated payment system from a Medicare standpoint when you have the established J-code and a published ASP, it really enables a much more normalized process for reimbursement at the account level.

And we expect that to be pretty important in the unlocking obviously of surgeons really be able to run and do iDose in all the patients that they think are appropriate for the technology.

Operator: Your next question will come from the line of Matt O’Brien with Piper Sandler.

Matt O’Brien: Maybe just to follow-up a little bit on Larry’s question there on the performance of iDose in Q1 and yes, you’re going to get a 1 million iDose questions on the call. But, if I look at — if I think about the base business maybe growing somewhere in the mid-teens, if I back that out, I’m looking at somewhere around something like a seven figure performance in the first quarter, as said another way, over $1 million. Is that about the right number and that’s just on 15 docs, right? Just kind of trialing it, trying to figure out the J-code, is that in the ballpark?

Tom Burns: I’m not going to get too specific in endorsing any one number, but obviously you’ve got the overall growth of the U.S. glaucoma franchise and you’ve got the iStent portfolio grew in the mid-teens from a year-over-year standpoint. So you as you’ve done can do the applied math on that. I’ll just reiterate what we said. I mean, at the end of the day, there were 15 implanting surgeons in the first quarter. They had about a half of a quarter to do those based on the timing of our launch. And it was encouraging to see both, most importantly, the enthusiasm for the outcomes for those patients after they’ve done their initial implantations of iDose. And they managed to provide us exactly what we need, the kind of pearls and information that help us dial in our training and ultimately establish confidence with our sales force as they execute on a growing basis over the course of the next several quarters.

Matt O’Brien: And then the follow-up is just on the profitability side. So I think you said historically, once you guys launch that profitability, the gross margin was good this quarter. Should we expect that to dip a little bit as iDose ramps and then improve meaningfully going forward or nicely going forward? And then the spend also was much better than we were expecting just given all the activities around iDose here in the quarter. So can we start to see profitability start to ramp pretty meaningfully over the next maybe 18 months?

Alex Thurman: So we’ll start with gross margin. Yes, we were pleased with the 83% in the quarter for sure. But as we mentioned on the last call and I’ll say it again, as you know, when you launch a new product, it’s bound to see some inefficiencies in the operations as you start to ramp up that product and the manufacturing and the all the costs that are associated with that. So what we would tell you or what I would guide you to is some level of a range. We’ve always said 83%, 84%, we hope to continue to play in that range this year. But there should be and could be some volatility as we go through the next couple of quarters and iDose gets ramped up. And then we think about the margin being accretive over time with iDose for sure, and we look forward to that accretion and seeing some of that next year.

On the operating side, you’re right we were pleased with the $92 million if I back out the IP R&D charge of $11.7 million so that was nice. But one thing I’ll just say on the expense side is I’ll just say on the expense side is that in Q1 of last year, the R&D spend was much higher than normal because we had all of the iDose pre-NDA activities that were happening as well as the large PDUFA fee payment that needed to be made. And so that kind of explains a little bit of the slowdown if you’re comparing on year-over-year basis.

Operator: Your next question comes from the line of George Sellers with Stephens.