Glaukos Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Business context and results
Glaukos develops and commercializes ophthalmic therapies for glaucoma, corneal disorders and retinal disease. Its commercial products include iStent glaucoma devices and Photrexa corneal health therapies. The company reported one operating segment.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $78.1 | $31.6 | $146.1 | $86.9 |
| Gross profit | $60.3 | $9.9 | $111.7 | $32.7 |
| Gross margin | 77% | 31% | 76% | 38% |
| Operating loss | $(14.2) | $(47.2) | $(26.0) | $(99.8) |
| Net loss | $(17.5) | $(39.9) | $(34.0) | $(94.0) |
| Basic and diluted loss per share | $(0.38) | $(0.90) | $(0.74) | $(2.13) |
Financial position and cash flows
- At June 30, cash and cash equivalents were $118.3 million, short-term investments $300.3 million, and restricted cash $9.4 million; combined, these were approximately $428.0 million.
- Six-month operating cash flow was positive $11.6 million, versus cash used of $24.0 million a year earlier. Investing activities used $23.3 million, including $28.5 million of property and equipment purchases; financing activities provided $33.8 million.
- Total assets were $1.044 billion and total liabilities $459.4 million. Stockholders’ equity was $584.3 million; accumulated deficit was $349.6 million.
- The $287.5 million principal amount of 2.75% convertible notes due 2027 was classified as current at quarter-end because holders could convert during the following quarter. Carrying value was $279.3 million, net of issuance costs. The company said it currently intends to settle principal in cash and any conversion value above principal in shares.
- Working capital fell to $141.1 million from $419.7 million at year-end 2020, largely reflecting the convertible notes’ reclassification to current liabilities. Management said available cash and investments, interest income and any operating cash generation should fund requirements for at least 12 months from the financial statements’ public availability.
Changes versus the prior comparable period
- Q2 sales increased 147%; six-month sales increased 68%. Management attributed recovery primarily to more normalized procedure volumes as markets reopened and COVID-19 vaccines rolled out, as well as the iStent inject W launch and higher realized prices for corneal health products. Sales increased in both U.S. and international markets.
- Sales growth was measured against periods materially affected by pandemic-related procedure disruptions. Management noted that normal seasonal patterns were not evident in 2020 and 2021.
- Gross margin improved substantially, partly because the Avedro acquisition inventory fair-value adjustment that burdened 2020 cost of sales was fully amortized by year-end 2020. Higher sales relative to the depressed 2020 comparison also contributed.
- Q2 SG&A rose 19% to $45.3 million as spending returned toward normal levels; six-month SG&A decreased 2% to $87.2 million, reflecting lower replacement-award compensation, integration and litigation costs, partly offset by restored spending.
- Six-month R&D increased 4% to $45.5 million. Interest and other non-operating expense increased, principally due to convertible-note interest and foreign-currency losses. The 2021 periods recorded income tax provisions, compared with tax benefits in 2020.
Outlook, management commentary and notable items
- Management provided no specific numerical revenue or earnings guidance in the supplied filing text. It expected 2021 and near-term performance to remain affected by COVID-19 and competition, and said it expected continued investment in sales infrastructure, R&D, clinical programs and facilities.
- CMS proposed lower 2022 physician fees for trabecular bypass stent procedures and proposed facility-fee changes that would reduce ASC reimbursement and slightly increase hospital reimbursement. Glaukos estimated about 80% of U.S. procedures using its trabecular micro-bypass technologies occurred in ASCs. If finalized, the changes could reduce procedure volumes, U.S. pricing, glaucoma revenue, gross profit and net income; final rates were expected later in 2021, effective January 1, 2022.
- COVID-19 remained a material uncertainty, including possible new variants, procedure disruptions, clinical-trial delays and supply constraints. Vendor shortages of raw materials and personnel could affect manufacturing or product development.
- Enrollment in iDose clinical trials was completed in June 2021; management said the delay caused by the pandemic shifted potential FDA approval to 2023.
- The Intratus license amendment added presbyopia to the drug-delivery platform’s potential uses. Glaukos paid $5.0 million, recorded as in-process R&D expense because management found no alternative future use for the technology.
- A new Santen agreement granted Glaukos specified territorial development and commercialization rights to PRESERFLO MicroShunt. No signing payment was made; regulatory approval would trigger a milestone payment, with potential royalties and further milestones.
- A patent infringement trial against Ivantis was scheduled to begin around September 28, 2021. The company could not estimate a probable loss or range and recorded no accrual.
- Early adoption of ASU 2020-06 changed convertible-note accounting, reducing additional paid-in capital by $81.6 million and increasing accumulated deficit by $5.5 million, among other balance-sheet adjustments. Management expected lower future interest expense under the new accounting.
Important facts for investors to verify
- Whether CMS finalizes the proposed reimbursement changes, and their actual effect on iStent volumes, pricing and margins.
- Whether procedure demand and supply availability remain stable as pandemic conditions and variants evolve.
- Progress and regulatory timing for iDose and other pipeline programs, including the stated potential 2023 iDose approval.
- Convertible-note conversion activity, cash settlement requirements and any resulting share dilution; confirm the notes’ classification in subsequent filings.
- Results of the Ivantis patent trial and any resulting financial exposure.
- Whether operating cash flow and liquidity remain adequate as Glaukos funds R&D, facility investment and commercialization needs.