Glaukos Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Glaukos develops and sells ophthalmic devices and therapies for glaucoma. Sales were primarily from iStent products.
Financial results
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Net sales | $40.1 million | $35.9 million | +12% |
| Gross profit / margin | $34.3 million / 86% | $30.7 million / 86% | Margin unchanged |
| Operating expenses | $38.1 million | $30.4 million | +25% |
| Operating income (loss) | $(3.7) million | $0.3 million | Turned to loss |
| Net income (loss) | $(2.7) million | $0.9 million | Turned to loss |
| Operating cash flow | $(6.6) million | $2.3 million | Turned to outflow |
- U.S. sales rose 5% to $33.6 million; international sales rose 62% to $6.5 million. International growth was driven mainly by Brazil, Germany, Japan and the U.K.
- SG&A increased 26% to $27.2 million, principally reflecting $4.4 million of higher compensation and related employee costs and $0.9 million of increased foreign-subsidiary costs. R&D rose 22% to $10.9 million, primarily from higher compensation and consulting costs.
- Basic and diluted loss per share was $0.08, versus basic earnings of $0.03 and diluted earnings of $0.02 a year earlier.
- Cash, cash equivalents and short-term investments totaled $113.8 million at quarter-end, including $15.6 million cash and $98.2 million short-term investments. Working capital was $128.7 million. Total liabilities were $20.3 million; the filing reports no borrowings on the balance sheet.
- Quarterly cash use included $6.6 million from operations and $5.1 million from investing; financing provided $2.8 million. Cash and cash equivalents decreased $8.9 million to $15.6 million. Capital expenditure commitments were approximately $0.8 million.
Changes, outlook and significant matters
- Sales growth reflected higher worldwide unit volumes, a modest benefit from the prior-year U.S. iStent price increase and expansion into international markets. The company reported an operating and net loss as operating expenses grew faster than sales.
- Management expects sales to benefit from global commercial expansion, while noting typical seasonality, with first-quarter cataract procedure volumes generally softer and fourth-quarter volumes stronger. No specific quantitative revenue or earnings guidance was provided.
- Management said available cash, investments, interest income and expected operating cash generation should fund operations and liquidity needs for at least 12 months from the filing’s public availability. It cautioned that continued profitability and operating cash generation are not assured.
- Planned development included seeking U.S. approval for iStent Inject, advancing iStent SA and iStent Supra studies, and beginning Phase III trials for iDose Travoprost in the first half of 2018. The company also submitted an IDE application for iStent Infinite. These are plans, not assurances of regulatory or commercial success.
- Key risks include increasing MIGS competition, reliance on iStent and U.S. sales, reimbursement changes, regulatory and clinical-trial uncertainty, and dependence on suppliers and a primary manufacturing site. Australia’s temporary reimbursement code for iStent implantation was set to expire December 31, 2018; a permanent code request was pending.
- On April 14, 2018, Glaukos sued Ivantis, alleging its Hydrus Microstent infringed two Glaukos patents; it seeks unspecified damages and injunctive relief. The outcome and potential financial impact were not stated.
- The medical-device excise tax suspension was extended through December 31, 2019; the filing notes it could return in 2020 absent further legislation. Accounting for the Tax Cuts and Jobs Act remained incomplete, although the provisional $25.2 million deferred-tax remeasurement was fully offset by a valuation allowance.
- Glaukos adopted ASC 606 on January 1, 2018 using the modified retrospective method; the cumulative effect was immaterial. The company expected the forthcoming lease standard to result in recognition of most lease commitments as lease liabilities and right-of-use assets.
Important facts for investors to verify
- Whether sales growth continues to outpace expense growth and supports a return to profitability and positive operating cash flow.
- Progress, trial results and regulatory decisions for iStent Inject, iStent SA, iStent Infinite, iStent Supra and iDose Travoprost, including whether stated development timelines were achieved.
- Changes in competitive adoption, U.S. and international reimbursement, and the status of Australia’s permanent reimbursement code.
- Cash and investment levels, spending needs, and the assumptions behind management’s stated 12-month liquidity outlook.
- Developments in the Ivantis patent litigation and any material costs or consequences.