Glaukos Corporation (NYSE:GKOS) Q3 2023 Earnings Call Transcript

Glaukos Corporation (NYSE:GKOS) Q3 2023 Earnings Call Transcript November 1, 2023

Glaukos Corporation beats earnings expectations. Reported EPS is $-0.5, expectations were $-0.56.

Operator: Hello, and welcome to Glaukos Corporation’s Third Quarter 2023 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. [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 Quarter 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 effects 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 one question and one follow-up. If you still have additional questions, you may get back into the queue. Please note that all statements other than statements of historical facts made on this call that address activities, events or developments we expect, believe, or anticipate will or may occur in the future are forward-looking statements. These include statements about our plans, objectives, strategies and prospects regarding, among other things, our sales, products, pipeline technologies and clinical trials, US and international commercialization, market development efforts, 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 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 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 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 Chairman and CEO, Tom Burns.

Tom Burns: Okay. Thanks, Chris. Good afternoon, and thank you all for joining us today. Today, Glaukos reported third quarter consolidated net sales of approximately $78 million, up 10% versus the year ago quarter. These third quarter results reflected continued strong performance and execution across our key franchises globally. Given these results and our latest forward outlook, we are raising our 2023 net sales guidance range to $307 million to $310 million versus $304 million to $308 million previously. From a commercial perspective, strong execution of strategies within each of our core franchises drove the solid performance. Within our US glaucoma franchise, we delivered sales of $38.1 million on growth of 2% year-over-year as we experienced more pronounced seasonality headwinds in August, offset by continued strength in July and September.

Consistent with prior quarters, we continue advancing iStent Infinite ahead of establishing formal MAC coverage and payment. On that front, just last week, WPS one of the 7 MAX published in updated MIGS LCD with a future effective date of December 24, 2023, that provides coverage for iStent infinite consistent with FDA approval and our reconsideration request. We are pleased with the final outcome as it relates to iStent Infinite, but we’re disappointed in other aspects of the LCD that severely restricts clinical decision discretion for surgeons fighting a site treating disease. Looking ahead, the remaining 6 MAXs have all taken preliminary steps to assess iStent if coverage, including four through proposed LCDs and two with local coverage articles.

We continue to monitor the various MAC processes and policies as they advance and are ultimately finalized in the future as we remain supportive of expanding broad access to intervention of glaucoma tools for physicians and for patients. While we await the release of CMS’ 2024 final rules, we remain encouraged that as part of the 2024 proposed rule the CPT code used to cover iStent Infinite in stand-alone procedures, 0671T was lifted to ABC-5492 and APC assignment for combined cataract plus trabecular bypass procedures, 66 989 and 66 991 was proposed to move to a newly restructured ATC-5493. If finalized as proposed, we do believe these changes, while positive for our customers and our procedures may create some transient disruptions to ordering patterns in late 2023 ahead of becoming effective on January 1, 2024.

Moving on. Our international glaucoma franchise delivered sales of $20.3 million on strong broad-based year-over-year growth of 23% on a reported basis and 20% on a constant currency basis. The strong growth was once again broad-based as we continue to scale our international infrastructure and execute our plans to drive MIGS forward as a standard of care in each region in every major market in the world. While we focus on our near-term execution, we are also accelerating efforts to support one of our founding missions at Glaukos which is to advance glaucoma care by driving intervention of therapies earlier in the treatment paradigm for glaucoma disease and, in turn, pioneering a new stand-alone market over time. We continue to lead and work closely with surgeons and thought leaders globally to organically drive this broader revolution in the standard of care, including through numerous events at the ESCRS annual meeting in Vienna in September and the interventional glaucoma consortium in Salt Lake City in October.

These efforts will once again be on full display at the upcoming AAO Annual Meeting being held in San Francisco this weekend. And finally, our Corneal health franchise delivered record sales of $19.7 million on 12% year-over-year growth, including Photrexa record sales of $17 million on a year-over-year growth of 18% as key strategic initiatives implemented throughout the past year continue to take hold in support of this important business. Similar to our U.S. glaucoma franchise, our U.S. Corneal Health business experienced more pronounced seasonality headwinds in August, offset by strength throughout the remainder of the quarter. Shifting gears to the development front, we continue to prudently invest and successfully advanced our robust 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.

Starting with iDose. We continue to be encouraged as we work closely with the FDA in their ongoing NDA review process. During the third quarter, we successfully completed the required pre-approval inspection, or PAI, of our new state-of-the-art hybrid pharmaceutical manufacturing facility, notably with no 483 observations. For a company going through this type of rigorous pharmaceutical review for the first time, I could not be more pleased with this unblemished outcome and would like to recognize our operations, development and quality teams that drove this result. Based on our productive mid-cycle review meeting with the agency held in August, we remain confident in the agency’s decision by the PDUFA date of December 22, 2023. Alongside this, our teams are increasingly advancing preparation and planning efforts to support the iDose commercial launch targeted for early next year, including a robust set of peer-reviewed literature expected to be published over the remainder of this year and into 2024.

Our robust publication plan includes four manuscripts that have already been submitted to leading journals and at least five others that are planned for submission. Shifting gears to Epioxa, our next-generation corneal cross-linking therapy, we continue to advance patient follow-up in the second Phase 3 pivotal study and remain on track for our targeted NDA submission by the end of 2024. The iDose and Epioxa, we recently commenced a PMA pivotal study for iStent infinite in the mild to moderate glaucoma population and expect to begin first-in-human clinical development for one of our retina programs along with a Phase 2a study for dilution Travoprost by year-end, respectively. So as you can see, we have a lot to be excited about when it comes to the significant potential value that we believe our pipeline programs may create.

At the same time and as we have discussed, we continue to prioritize the cadence of our investments as we strive to strike the right balance of risk-based spending and our capital position now and in the future. We are pleased to see evidence of this again in the third quarter as our non-GAAP SG&A and R&D operating expenses grew at a modest 1% sequentially, reflecting some of the adjustments we’ve made in our earlier-stage pipeline programs as we continue to prioritize our resources ahead of the anticipated iDose commercial launch early next year. So in conclusion, I am pleased with the continued execution and performance in our business as we continue to successfully advance our mission to truly transform vision by pioneering novel Glaukos platforms that can meaningfully advance the standard-of-care and improve outcomes for patients suffering from site-threatening chronic eye diseases.

Our foundation is strong, and we are well positioned as we enter into what should be a transformational period for our company in the years ahead. So with that, I’ll open the call to questions. Operator?

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Q&A Session

Operator: Perfect. Thank you. [Operator Instructions] All right. Our first question comes from the line of Tom Stephan. Tom, please go ahead.

Tom Stephan: Great. Hey guys. Thanks for the questions. I want to start off with the LCDs. Maybe if we assume the remaining formal MAC aligned with WPS, can you guys just talk first about the way the company from a strategic perspective is aiming to capitalize on any of the changes or just potential uncertainty that probably will ramp in the market next year? And then maybe a qualitatively, how should we be thinking about any sort of net tailwind for Glaukos next year from LCDs?

Joe Gilliam: Tom, thanks for the questions. It’s Joe. I’ll start off on this one. From a macro standpoint, I think really, I would reiterate some of what Tom said in the prepared remarks. First and foremost, at least in the first LCD that we’ve seen from WPS and what we would likely expect to see from at least the other 4 MACs that seem to be in a similar place is, most importantly, coverage for iStent infinite. For us, it really starts there, and that was the totality of our efforts around this and trying to make sure that patients were getting access to iStent infinite as intended. And thankfully, on that front, WPS and hopefully the other LCDs establish that proper coverage that we requested for iStent infinite. Beyond that, obviously, we’re disappointed in the context that the activity or the final LCD as drafted, really takes a step towards removing that clinical decision-making from the clinician’s hands.

And so in our — for us, that’s going to be something that we have to work on for some time, try to make sure that we can play our part in getting those decision-making capabilities back in the hands of the surgeons who are making the call on behalf of their patients. As you think about it, for us, you asked quantitatively how we think about it. I think in 2023 and the remainder of this year, we expect some short-term ordering volatility, headwinds, if you will, in December, especially as some accounts may prioritize non-stent based procedures ahead of the final effective dates for a variety of reasons. But most importantly, is probably burning off any inventory that they have on their shelves ahead of a change in policies like this. And as we turn into 2024, what I’ll say is we’re evaluating the impact, and we’re going to continue to do so as these other LCDs are finalized.

I think I would — I’d probably just say I’d caution investors in the interim as the WCS LCD, it does contain a lot of puts and takes as it relates to our product portfolio, and we really have to go through the totality of that before we can comment with any more specificity on what it may or may not mean for 2024 and beyond.

Tom Stephan: Got it. And maybe one quick follow-up. When you talk about kind of the short-term volatility, are you starting to see that? Or I guess, what’s informing that view? And then maybe I can get one more quick follow-up.

Joe Gilliam: Yes, I wouldn’t say that we’re seeing it in that way. This is more of an anticipation thing. I think anytime you go into a change in reimbursement policy like that, and we’ve seen this in the past where things have adjusted. Obviously, the customers themselves have to adjust what their either treatment algorithms are, or the stock they have on their shelves, most are not going to sit around and hold that inventory past those effective days what you’d expect. And so as they get closer to that date, we certainly would anticipate that they’ll use that inventory up, they’ll go to more of a just-in-time ordering process, and then they’ll adjust as the new year starts to unfold and they’ve changed whatever algorithm they have from a treatment perspective.