Glaukos Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Glaukos develops and sells ophthalmic medical devices and therapies, principally for glaucoma and corneal disorders, and is developing additional products for eye diseases.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net sales | $68.0 million | $55.3 million; up 23% |
| Gross profit / gross margin | $51.3 million / 76% | $22.8 million / 41% |
| Operating expenses | $63.1 million | $75.4 million; down 16% |
| Loss from operations | $11.8 million | $52.6 million |
| Net loss / loss per share | $16.5 million / $0.36 | $54.1 million / $1.24 |
| Cash from operating activities | $4.2 million | Used $13.1 million |
Revenue grew across glaucoma and corneal health products. Glaucoma sales were $53.7 million, up from $44.1 million; corneal health sales were $14.3 million, up from $11.2 million. Management cited recovering procedure demand, the iStent inject W launch and favorable foreign exchange as contributors, while COVID-19 continued to affect some markets.
Gross margin improved substantially, but the comparison is affected by prior-year items: Q1 2020 included $9.7 million of Avedro acquisition inventory fair-value amortization and $7.9 million of inventory write-offs and COVID-related reserves, neither of which recurred in Q1 2021. Operating expenses declined, including lower stock-based compensation and lower litigation and acquisition-integration costs. Higher interest expense on the convertible notes contributed to increased non-operating expense.
At March 31, cash and cash equivalents were $96.6 million, short-term investments $310.8 million and restricted cash $9.4 million—approximately $416.8 million combined. Working capital was $138.7 million versus $419.7 million at year-end, principally reflecting reclassification of convertible notes as current. The company reported total liabilities of $433.0 million and stockholders’ equity of $589.8 million. Property and equipment purchases were $17.2 million; operating cash flow less those purchases was approximately negative $13.0 million.
Material changes, outlook and risks
- Convertible notes: $287.5 million principal, bearing 2.75% interest and due in 2027. Following adoption of ASU 2020-06, the notes are presented as a single liability; their March 31 carrying amount was $279.0 million. A conversion condition was met, allowing holders to convert during Q2 2021; the company said it currently intends to pay principal in cash and any excess conversion value in shares. The notes’ current classification sharply reduced reported working capital.
- Accounting adoption: Early adoption of ASU 2020-06 reduced additional paid-in capital by $81.6 million, increased accumulated deficit by $5.5 million and increased the notes’ net carrying amount by $89.2 million, among other adjustments. Management expects lower interest expense in future periods under the new accounting.
- Outlook: No specific numerical revenue or earnings guidance was provided. Management expects 2021 revenue and near-term performance to reflect competition and continuing, uncertain COVID-19 effects. It believes available cash, investments, interest income and potential operating cash generation will fund operations for at least 12 months from the date the interim financial statements were made publicly available.
- Pipeline and operations: COVID-related clinical enrollment disruption delayed the expected potential FDA approval timeline for iDose to 2023. Glaukos also reported that Santen had announced a delay in FDA approval of the Preserflo MicroShunt, for which Glaukos is the exclusive U.S. commercial partner. The company expects continued investment in R&D, sales infrastructure and manufacturing capacity.
- Contingencies and subsequent event: Patent litigation against Ivantis over the Hydrus Microstent was scheduled for trial around September 28, 2021; the company could not estimate a possible loss and recorded no accrual. On April 22, 2021, Glaukos amended its Intratus licensing agreement to add presbyopia; it paid $5.0 million, expected to be expensed as in-process R&D in Q2 2021.
- Principal risks: Continued pandemic effects on procedures, supply chain and clinical trials; competition and product adoption; regulatory, reimbursement and clinical-development uncertainty; dependence on key manufacturing sites and suppliers; and liquidity demands if convertible notes are converted or become repayable. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether revenue recovery continues and how much growth comes from underlying demand, product launches, foreign exchange or pandemic-related comparisons.
- Underlying gross-margin trend excluding the unusual Q1 2020 inventory charges and acquisition-related amortization.
- Whether noteholders convert the $287.5 million principal and the resulting cash, dilution and working-capital effects.
- Progress and timing of iDose and other clinical programs, including the impact of COVID-19 and the Preserflo regulatory delay.
- Outcome and potential financial exposure of the Ivantis patent litigation, which the filing says cannot currently be estimated.