Glaukos Corporation — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Glaukos develops, manufactures and sells ophthalmic devices for glaucoma; substantially all revenue came from iStent products. Figures below are in U.S. dollars, millions, except per-share data.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Net sales | $40.4 | $29.6 | $117.6 | $81.2 |
| Gross profit / margin | $34.7 / 86% | $25.7 / 87% | $101.2 / 86% | $69.9 / 86% |
| Operating income (loss) | $0.7 | $1.0 | ($2.8) | $3.8 |
| Net income (loss) | $1.3 | $1.2 | ($1.1) | $4.4 |
| Diluted EPS | $0.04 | $0.03 | ($0.03) | $0.12 |
| Operating cash flow | Not presented by quarter | $13.6 | $9.0 |
- Q3 sales increased 37% year over year; nine-month sales rose 45%. Growth reflected higher unit volumes, increased U.S. ambulatory surgery center pricing associated with Medicare reimbursement, and expansion in international markets.
- U.S. sales were $35.6 million in Q3 and $104.6 million for nine months; international sales were $4.8 million and $13.0 million, respectively. Nine-month international sales grew 102% year over year.
- Nine-month SG&A was $70.3 million, up 59%, and R&D was $28.4 million, up 30%. Stock-based compensation increased to $12.7 million from $6.1 million.
Financial position and material changes
- At September 30, cash and cash equivalents were $19.3 million and short-term investments were $89.5 million, totaling $108.8 million. Current assets were $137.2 million and current liabilities $19.8 million.
- Total liabilities were $20.5 million; the balance sheet reports no borrowings. Glaukos said it paid off secured notes in 2016. Accumulated deficit was $193.2 million.
- Cash increased by $12.8 million during the first nine months. Investing activities used $4.7 million, including $4.5 million for property and equipment; financing activities provided $4.2 million, primarily from employee equity-plan activity.
- Year-to-date net loss included a $5.3 million in-process R&D charge for the April acquisition of DOSE Medical’s IOP Sensor System. Total consideration included $5.5 million upfront and up to $9.5 million in development, clinical and regulatory milestone payments. The acquisition was accounted for as an asset acquisition.
Outlook, commentary and risks
- Management expected sales to increase with continued commercial expansion and said available cash, investments, investment income and operating cash generation should fund operations and liquidity needs for at least 12 months from public release of the statements. This is not a specific revenue or earnings forecast.
- Management expected continued investment in global sales and marketing, clinical studies and product development, with SG&A and R&D expenses expected to rise. Profitability and positive operating cash flow are not assured.
- Pipeline progress included completed U.S. pivotal-trial enrollment for iStent Inject and iStent Supra; the U.S. iStent SA initial-trial enrollment was also complete. Enrollment was completed in a U.S. Phase II iDose study. The IOP Sensor System remained in development.
- Australia suspended the existing surgeon-fee reimbursement code for iStent effective May 1, 2017; an interim code was provided through the end of 2017 while an application for a replacement code was pending. The filing also notes that the 2.3% U.S. medical-device excise tax was scheduled to resume January 1, 2018 absent further legislative action.
- Key risks include dependence on iStent and U.S. sales, growing MIGS competition, reimbursement changes, clinical and regulatory uncertainty for pipeline products, reliance on a single principal manufacturing site and limited suppliers, and the possibility of renewed losses. The company highlighted DOSE-related director and shareholder overlap; it reported no material legal proceedings or known material reasonably possible legal-loss contingency.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether sales growth and the U.S. reimbursement benefit persist, including the outcome of Australia’s reimbursement-code process.
- Progress, timelines, costs and regulatory outcomes for pipeline programs, particularly iStent Inject, iStent Supra, iDose and the acquired IOP Sensor System; also assess potential milestone payments to DOSE.
- Whether expense growth, stock-based compensation and clinical investment allow sustainable operating profitability and cash generation.
- The effect of the scheduled medical-device excise-tax reinstatement and any changes in reimbursement or competitive dynamics.
- Manufacturing and supplier concentration, and the company’s transition from emerging-growth-company status, including auditor attestation of internal controls beginning with fiscal 2017.