Glaukos Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports fourth-quarter results. Glaukos develops and sells ophthalmic therapies, principally glaucoma devices and corneal-health products, and is developing products for glaucoma, corneal disorders and retinal disease.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $225.0 million | $237.0 million |
| Gross profit / gross margin | $133.2 million / approximately 59% | $198.4 million / approximately 84% |
| Operating expenses | $256.8 million | $248.7 million |
| Operating loss | $123.6 million | $50.3 million |
| Net income (loss) | $(120.3) million | $15.4 million |
| Cash used in operating activities | $23.0 million | $0.4 million |
At year-end, cash and cash equivalents were $96.6 million, short-term investments $307.8 million, restricted cash $9.6 million, and working capital $419.7 million. The company reported $287.5 million principal amount of 2.75% convertible senior notes due 2027; their balance-sheet carrying amount was $189.4 million after discounts and issuance costs. Total liabilities were $338.1 million and stockholders’ equity was $667.4 million.
Fourth quarter: Net sales were $73.2 million, gross profit $53.6 million, operating loss $11.4 million and net loss $10.6 million. In Q4 2019, sales were $65.8 million and net income was $36.6 million, including a substantial income-tax benefit.
Material changes versus the prior comparable period
- Annual sales fell 5%. U.S. glaucoma sales declined approximately 28% to $133.7 million, largely due to COVID-19 disruption; international glaucoma sales increased approximately 5% to $45.6 million.
- Corneal-health sales rose to $45.6 million from $6.0 million, reflecting a full year of Avedro operations after its November 2019 acquisition. Glaucoma products remained the larger franchise, at approximately 80% of 2020 net sales; iLink therapies contributed approximately 20%.
- Gross margin fell to approximately 59%, primarily reflecting $24.7 million of acquired inventory fair-value adjustment amortization and $22.1 million of acquired technology amortization, as well as product mix. The inventory adjustment was fully amortized by year-end.
- R&D expense increased 25% to $85.4 million. SG&A declined 3% to $171.4 million, including both Avedro’s full-year costs and lower spending on certain activities.
- Net loss and operating cash use widened materially. In June 2020, Glaukos issued the convertible notes and received $242.2 million in proceeds after fees and capped-call costs. Year-end cash, investments and restricted cash totaled $413.9 million, versus $183.3 million a year earlier.
Outlook, commentary and risks
- Management expects 2021 revenue and near-term performance to reflect competitive dynamics and ongoing COVID-19 disruption; it provided no specific revenue or earnings guidance in the supplied filing text.
- Management expects potential FDA approval of iDose TR in 2023; trial enrollment was disrupted by COVID-19. Potential approval of iLink epi-on is also expected in 2023, with timing affected by a change in contract drug manufacturer.
- Management said COVID-19 materially reduced demand for elective procedures, with the sharpest impact in the latter part of Q1 and early Q2 2020. A recovery toward more normalized cataract and keratoconus procedure levels began in May and continued through Q4, but future effects remain uncertain.
- The company reported an accumulated deficit of $310.1 million and said sustained profitability is uncertain. It believes available liquidity is sufficient to fund operations for at least 12 months from the financial statements’ public release date.
- Key risks include procedure-volume and pandemic uncertainty, competition, clinical and regulatory delays, reimbursement and coding changes, reliance on suppliers and manufacturing sites, product quality, intellectual-property disputes, and potential dilution or cash demands associated with convertible-note conversion or repurchase.
- A patent-infringement case against Ivantis remained pending; trial was scheduled for around September 28, 2021. The company said it could not reasonably estimate a possible loss and recorded no accrual. Avedro merger-related securities suits were dismissed as to named plaintiffs after additional disclosures and immaterial settlements.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls; management and the auditor concluded internal control over financial reporting was effective as of December 31, 2020.
Important facts for investors to verify
- Whether procedure volumes and glaucoma sales recover, and how competition affects adoption and pricing.
- Progress and regulatory timelines for iDose TR, iLink epi-on and other pipeline programs, including any further enrollment or manufacturing delays.
- Future gross margins after the acquired inventory step-up was fully amortized, including the continuing effect of acquired technology amortization and product mix.
- Convertible-note terms and conversion conditions, potential cash settlement needs, dilution exposure, and the capped-call protection and its limits.
- Reimbursement and coding outcomes for iStent-related procedures, including the transition from temporary to permanent CPT coding.
- Updates on the Ivantis patent litigation, supply-chain continuity, and any material changes to liquidity or cash burn.