Glaukos Corporation — Form 10-Q Summary
Business context and reporting period
Quarter ended September 30, 2020; comparisons are with the third quarter and first nine months of 2019. Glaukos develops and commercializes ophthalmic therapies and devices, including glaucoma products and, following its 2019 acquisition of Avedro, corneal-health products. Its portfolio also includes products in development for glaucoma, corneal disorders and retinal disease.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net sales | $64.8 million | $58.5 million | $151.7 million | $171.1 million |
| Gross profit | $46.9 million | $50.8 million | $79.6 million | $148.5 million |
| Gross margin | 72% | 87% | 52% | 87% |
| Operating loss | $12.4 million | $12.4 million | $112.2 million | $20.6 million |
| Net loss | $15.7 million | $13.5 million | $109.7 million | $21.2 million |
| Basic and diluted loss per share | $0.35 | $0.37 | $2.48 | $0.58 |
- Q3 revenue increased 11% year over year; nine-month revenue declined 11%. Q3 glaucoma sales were $51.9 million versus $58.5 million, while corneal-health sales contributed $12.9 million. For the nine months, glaucoma sales were $121.0 million and corneal-health sales were $30.7 million.
- Lower gross margins reflected Avedro-related inventory fair-value step-up amortization and acquired intangible amortization, lower-margin product mix, COVID-19 impacts and, year to date, inventory write-offs and reserves. Nine-month cost of sales included $24.7 million of acquisition inventory adjustment amortization, $16.6 million of acquired intangible amortization and $4.3 million of net inventory write-offs and reserves.
- Q3 operating expenses were $59.3 million, down 6%; nine-month operating expenses were $191.8 million, up 13%. Nine-month R&D rose 33% to $64.1 million, while SG&A rose 9% to $127.6 million.
- Net cash used in operating activities was $33.6 million for the first nine months, compared with $3.8 million generated in 2019. Investing activities used $201.6 million, largely reflecting purchases of short-term investments; financing activities provided $253.9 million.
- At September 30, cash and cash equivalents were $81.0 million, short-term investments $307.4 million, and restricted cash $9.3 million—approximately $397.8 million combined. Working capital was $407.8 million.
- In June 2020, Glaukos issued $287.5 million principal amount of 2.75% senior unsecured convertible notes due 2027. Net proceeds after issuance expenses and capped-call costs were $242.2 million. Balance-sheet carrying value was $186.7 million, net of unamortized discount and issuance costs. Finance lease liabilities were $60.7 million.
Material changes, outlook and risks
- COVID-19 restrictions on elective procedures materially reduced demand, especially in late Q1 and early Q2. Management reported recovery toward more normalized cataract and keratoconus procedure levels beginning in May, continuing through Q3 and into early October, but emphasized that future effects remain uncertain.
- Management expected Q4 2020 revenue and near-term performance to reflect competition and continued COVID-19 disruption; the filing gives no numerical revenue or earnings guidance. It expected available liquidity and operating cash, if generated, to fund operations for at least 12 months from public release of the statements.
- COVID-19 disrupted clinical-trial enrollment, particularly for iDose, potentially delaying its timeline. Management continued to assess a potential 2022 FDA approval timeline. The company launched iStent inject W in Q3 2020.
- Management reinstated temporary salary reductions and other cost-saving measures by the filing date and began resuming deferred capital spending. It cited expected continued investment in sales, R&D, clinical programs and infrastructure, while noting no assurance of future profitability or operating cash generation.
- Key risks include renewed procedure restrictions, competition, clinical and regulatory delays, product supply and manufacturing interruptions, reimbursement uncertainty, and the company’s accumulated deficit. A patent-infringement trial against Ivantis was scheduled for around March 9, 2021; outcome and potential loss were not estimable, and no accrual was recorded.
- Post-Avedro restructuring was expected to finish in 2021, with approximately $5.3 million of total charges expected; $4.9 million had been paid and $1.1 million accrued as of September 30. The company also reported approximately $3.8 million of firm enterprise-systems commitments.
Important facts for investors to verify
- Whether procedure volumes and sales continued recovering after early October, and how renewed COVID-19 restrictions affected demand.
- How much of revenue and gross margin reflects underlying product economics versus Avedro acquisition accounting, inventory reserves and product mix.
- iDose enrollment progress and any change to the potential 2022 approval timeline; also monitor other clinical and regulatory milestones.
- Cash consumption, liquidity runway, future capital spending and the cash, dilution and refinancing implications of the convertible notes.
- Progress and outcome of the Ivantis litigation, restructuring costs, and realization of expected Avedro integration benefits.