Glaukos Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Business context and reporting period
Glaukos develops and commercializes ophthalmic medical technologies and therapies for glaucoma, corneal disorders and retinal disease. Sales are primarily from glaucoma products, including iStent, and corneal health products, including Photrexa and KXL systems. The company reports one operating segment.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $72.7 | $78.1 | $140.4 | $146.1 |
| Gross margin | 75% | 77% | 75% | 76% |
| Operating expenses | $91.6 | $74.6 | $132.4 | $137.7 |
| Operating loss | $(36.8) | $(14.2) | $(27.0) | $(26.0) |
| Net loss | $(45.5) | $(17.5) | $(40.2) | $(34.0) |
| Basic and diluted loss per share | $(0.96) | $(0.38) | $(0.85) | $(0.74) |
- Q2 sales decreased 7% year over year; six-month sales decreased 4%. U.S. glaucoma sales fell 18% in Q2 and 16% for the first half. International glaucoma sales increased 9% and 18%, respectively. Corneal health sales increased 8% in Q2 and 11% for the first half.
- Higher Q2 SG&A (up 10%) and R&D (up 31%) contributed to the wider quarterly operating loss. Six-month operating expenses were lower year over year largely because a $30.0 million Ivantis settlement payment reduced expenses in Q1 2022.
- Other expense, net was $5.9 million in Q2 and $6.8 million for the first half, with increases primarily attributed to unrealized foreign-currency losses on intercompany loans. Six-month interest expense was $6.8 million.
- Operating cash flow was $(2.4) million for the first half, versus $11.6 million provided in 2021. Investing activities provided $3.7 million and financing activities provided $1.5 million. Capital expenditures were $16.0 million.
- At June 30, cash and cash equivalents were $102.6 million, short-term investments $288.6 million and restricted cash $9.1 million; the company reported working capital of $401.6 million. Cash, equivalents and short-term investments totaled approximately $391.2 million.
- Convertible notes had $287.5 million principal, a 2.75% coupon and a June 2027 maturity; carrying value was $280.7 million. No conversion conditions had been met at quarter-end. Finance lease liabilities were $72.5 million and operating lease liabilities were $29.4 million.
Material changes versus the prior comparable period
- U.S. glaucoma sales weakened amid the 2022 CMS physician-fee reduction and customer trials of competing products. The prior-year Q2 also benefited from a post-vaccine rebound in procedures.
- Growth in international glaucoma and corneal health sales partly offset U.S. glaucoma weakness; unfavorable foreign exchange rates tempered international sales.
- Gross margin declined two percentage points in Q2 and one point for the first half, mainly reflecting a mix shift toward lower-margin international sales.
- R&D spending rose 31% in Q2 and 29% for the first half, driven by expanded R&D staffing and facility costs. The company also recorded a $10.0 million iVeena upfront license payment as in-process R&D expense.
- Unrealized investment losses were $4.9 million for the first half, primarily due to interest-rate changes; the company reported no credit-loss allowance and did not expect to be required to sell the investments before recovery.
Outlook, management commentary and risks
- No quantified revenue or earnings guidance is provided in the supplied filing text. Management said it expects the CMS reimbursement impact, competitive dynamics, COVID-related disruption and macroeconomic uncertainty to affect near-term performance; the full effects are uncertain.
- Management cited inflation and supplier labor/material constraints, longer lead times and partial or delayed deliveries, and expects supply challenges may continue through the remainder of 2022. These could affect product shipments, pipeline timing and costs.
- The company stated it believes existing cash and investments are sufficient to fund operations for at least 12 months from public release of the quarter’s financial statements. It cautioned that sustained profitability and future operating cash generation are not assured.
- On August 2, 2022, after quarter-end, FDA cleared iStent infinite; Glaukos planned a commercial launch in the second half of 2022. Proposed 2023 Medicare rules did not materially change the facility rates, while the physician fee for the standalone procedure remained undetermined.
- FDA issued a Non-Approvable determination for the U.S. PRESERFLO MicroShunt application in April 2022; Glaukos said it was evaluating alternate regulatory pathways. The iVeena global exclusive license requires a $10.0 million upfront payment and may involve future milestone and royalty payments.
- Other key risks include reimbursement adequacy and coverage, competition, reliance on suppliers and manufacturing sites, regulatory and clinical-development uncertainty, foreign exchange, and potential cash requirements if convertible notes become convertible. The company reported no legal proceedings under the filing’s Legal Proceedings item.
Important facts for investors to verify
- Whether U.S. glaucoma procedure volumes and sales stabilize or continue to be affected by lower physician reimbursement and competitors.
- Commercial launch timing, uptake and reimbursement for iStent infinite, including the physician fee set by Medicare administrative contractors.
- Progress on alternate U.S. regulatory pathways for PRESERFLO and development, milestones and potential royalties under the iVeena license.
- Cash burn, operating cash flow, capital spending and liquidity as R&D and commercial investment continue.
- Supplier constraints, inflation, foreign exchange exposure and the impact of unrealized investment losses.
- Convertible-note conversion triggers and any resulting cash, dilution or working-capital consequences.