Glaukos Corporation (NYSE: GKOS) — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results; annual financial statements were audited. Glaukos develops and sells ophthalmic therapies, led by minimally invasive glaucoma surgery (MIGS) products, with expanding corneal and retinal businesses.
Financial performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Net sales | $237.0 million | $181.3 million |
| Gross profit / gross margin | $198.4 million / 84% | $156.2 million / 86% |
| Operating loss | $50.3 million | $13.0 million |
| Net income (loss) | $15.4 million | $(13.0) million |
| Cash from (used in) operations | $(0.4) million | $18.9 million |
| Cash and cash equivalents | $62.4 million | $29.8 million |
| Short-term investments | $111.6 million | $110.7 million |
| Working capital | $205.2 million | $146.2 million |
Sales rose 31%, reflecting U.S. iStent inject growth, international expansion, and $6.0 million in corneal-health sales included after the Avedro acquisition. Glaucoma sales were $231.0 million; U.S. sales were $192.5 million and international sales $44.5 million. The operating loss widened as selling, general and administrative expense increased 48% to $176.6 million and R&D expense increased 38% to $68.3 million.
Reported net income was driven by a $65.5 million income tax benefit, principally associated with the Avedro transaction and a partial release of the valuation allowance; it did not reflect operating profitability. The company used $0.4 million of operating cash, versus generating $18.9 million in 2018.
Fourth quarter: Revenue was $65.8 million, compared with $54.1 million in Q4 2018. Gross profit was $49.9 million (about 76% margin), down from $47.0 million (about 87%). Operating loss was $29.7 million versus operating income of $1.9 million. Net income of $36.6 million, compared with $1.8 million, primarily reflected a $65.8 million tax benefit.
Material changes and transactions
- Avedro: Acquired November 21, 2019 in an all-stock transaction for total consideration of $437.8 million. Glaukos issued shares and assumed replacement awards; it also paid $22.5 million of Avedro debt after closing. The acquisition added Photrexa and corneal cross-linking products, plus pipeline assets. Avedro contributed $6.0 million of sales and $0.6 million of net loss from acquisition through year-end.
- DOSE Medical: Acquired for $2.5 million cash, with possible future milestone and royalty payments, expanding sustained-release retinal drug-delivery development.
- Intratus: Licensed a non-invasive drug-delivery platform for an upfront $1.5 million, plus potential milestones and royalties.
- Santen agreement: Glaukos became the exclusive U.S. commercial partner for the Preserflo MicroShunt, which remained under FDA pivotal study and was not approved at filing.
- Restructuring: Post-Avedro plan includes an estimated 40-person headcount reduction. Glaukos accrued $4.1 million and expected total charges of about $5.6 million, with completion anticipated in 2021.
Liquidity, debt, and cash flow
At year-end, cash, cash equivalents, restricted cash and short-term investments totaled $183.3 million. Working capital was $205.2 million. Management stated available liquidity and expected operating cash were sufficient for at least 12 months from issuance of the financial statements, and concluded substantial doubt about going concern did not exist.
Glaukos paid $22.5 million of debt assumed in the Avedro acquisition. The balance sheet reported $58.4 million of finance-lease liabilities and $16.6 million of operating-lease liabilities; total contractual lease obligations were $147.2 million, including expected extensions. The filing reported no off-balance-sheet arrangements.
Outlook, risks, and unusual items
- No specific quantitative 2020 revenue or earnings guidance is provided. Management expected near-term results to reflect normal seasonality, end-of-2019 iStent promotional activity, Avedro integration, and disruption from COVID-19; the impact of COVID-19 was uncertain.
- Management expected R&D and clinical spending to increase as pipeline programs advance, alongside investment in sales infrastructure, facilities, and global enterprise systems. It cautioned that sustained profitability and cash generation were not assured.
- Pipeline milestones included an iStent Infinite IDE study enrollment completion and a planned 510(k) submission; Phase III trials for iDose; completion of enrollment in a pivotal epi-on keratoconus trial; and early-stage work in presbyopia and retinal disease. These candidates were not commercialized.
- Key risks include dependence on iStent products, competition, reimbursement and pricing changes, clinical and regulatory uncertainty, reliance on suppliers and manufacturing sites, and integration of acquisitions. The company also cited foreign-exchange exposure and potential COVID-19 effects.
- Glaukos’ patent suit against Ivantis was scheduled for trial in July 2020; the company could not estimate a possible loss and recorded no accrual. Merger-related stockholder suits were settled for immaterial amounts, with dismissals as to named plaintiffs.
- The auditor issued unqualified opinions on the financial statements and internal control. The internal-control assessment excluded Avedro’s controls, other than purchase-accounting fair-value adjustments.
Important facts for investors to verify
- How much of 2019’s 31% sales growth is sustainable and attributable to underlying glaucoma demand, versus competitor withdrawal, promotional activity, and the partial-year Avedro contribution.
- Whether gross margin recovers after Avedro inventory fair-value step-up charges and the addition of acquired product costs.
- The recurring operating and cash-flow impact of rising SG&A, R&D, stock-based compensation, restructuring, facility commitments, and enterprise-system spending.
- The assumptions, clinical progress, regulatory timelines, and commercial prospects behind Avedro’s acquired intangible assets and Glaukos’ pipeline.
- Future cash requirements and any financing needs, given minimal operating cash generation, lease obligations, and acquisition-related commitments.
- Developments in the Ivantis patent litigation, reimbursement and coding, supplier continuity, and COVID-19-related demand or operational disruption.