Glaukos Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; compared with the three months ended March 31, 2018. Glaukos develops and sells ophthalmic devices and therapies for glaucoma, with sales primarily from its iStent products. It reports one operating segment.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net sales | $54.0 million | $40.1 million | +35% |
| Gross profit | $46.9 million | $34.3 million | +37% |
| Gross margin | 87% | 86% | +1 percentage point |
| Operating expenses | $48.9 million | $38.1 million | +28% |
| Operating loss | $1.9 million | $3.7 million | Loss narrowed |
| Net loss | $1.3 million | $2.7 million | Loss narrowed |
| Basic and diluted loss per share | $0.04 | $0.08 | Loss per share narrowed |
| Cash from operating activities | $0.2 million | $(6.5) million | Improved |
U.S. sales were $44.2 million, up 32%; international sales were $9.8 million, up 50%. Cash, cash equivalents, restricted cash and short-term investments totaled $154.1 million at March 31, 2019. Working capital was $156.4 million. The balance sheet reports no borrowings or other debt; reported liabilities were $42.5 million, including $13.4 million in operating lease liabilities. Accumulated deficit was $206.5 million.
Investing activities used $1.7 million, including $0.7 million for property and equipment; financing activities provided $5.4 million, mainly from employee stock option exercises and stock purchases. Cash, cash equivalents and restricted cash increased $3.9 million during the quarter.
Material changes versus the prior period
- Sales growth reflected expansion of international direct sales, U.S. sales of iStent inject, and the withdrawal from the market of a competing MIGS device.
- SG&A rose 29%, primarily from higher employee costs, consulting and professional services—including enterprise systems implementation and patent litigation—and launch-related expenses.
- R&D increased 28%, including additional spending on iDose Travoprost Phase III trials.
- Cost of sales increased 23%, slower than sales growth; the company reported gross margin of 87%, versus 86% a year earlier. The prior-year period included $0.9 million of amortization on an intangible asset that was fully amortized in November 2018.
- Operating cash flow improved to slightly positive, although working-capital movements remained significant.
Outlook, commentary and risks
- No specific revenue or earnings guidance was provided. Management expected sales to increase with broader commercial reach and product adoption, while noting that first-quarter sales may be seasonally softer and fourth-quarter sales stronger in line with cataract procedure trends.
- Management expected increased investment in sales and marketing, R&D and clinical studies, and property and manufacturing capacity. It stated available liquidity and expected operating cash generation should fund operations for at least the next 12 months from public release of the statements; additional financing may be sought, with no assurance of acceptable terms.
- Pipeline programs include iDose Travoprost Phase III trials and IDE studies of iStent Infinite and iStent Supra; iStent SA and an intraocular-pressure sensor are also in development. In April 2019, Glaukos announced a multi-year agreement to distribute Santen’s MicroShunt in the U.S. if it receives FDA approval; a 2020 launch was targeted by Santen, subject to approval.
- Glaukos adopted lease accounting standard ASC 842 on January 1, 2019, recognizing a $12.8 million right-of-use asset and $13.4 million lease liability; management said adoption did not materially affect operating results or cash flows. The Aliso Viejo facility lease began April 1, 2019, after quarter-end, and carries $99.0 million of legally binding minimum payments for leases signed but not yet commenced, primarily for that facility.
- The company had $7.3 million of firm commitments for global enterprise systems implementation and $1.2 million of capital expenditure commitments. Restricted cash of $8.8 million secures a letter of credit associated with the Aliso facility.
- Glaukos is litigating patent claims against Ivantis concerning Hydrus; the court dismissed Ivantis’s counterclaims involving three acquired patents. Trial was anticipated around July 28, 2020. Further patent-review petitions were pending, and the company said it could not estimate a possible loss or range of loss; no amount was accrued.
- Key risks include reliance on iStent products and U.S. sales, growing MIGS competition, reimbursement and adoption uncertainty, clinical and regulatory execution, supplier and manufacturing concentration, and patent litigation. The company reported a $13.6 million gross unrecognized tax benefit and a full valuation allowance against deferred tax assets.
Important facts for investors to verify
- Whether sales growth and iStent inject adoption persist as competition and customer inventory dynamics change.
- Progress, cost and outcomes of iDose Phase III and other clinical programs, and regulatory timing for pipeline products and MicroShunt.
- Cash generation relative to planned R&D, commercial expansion, facility and enterprise-systems spending; confirm the full scope and timing of the Aliso lease commitments.
- Developments in the Ivantis litigation and related patent-review proceedings, including any subsequent loss assessment.
- Changes in reimbursement, product competition, supply capacity and the company’s ability to sustain profitability.