Glaukos Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; filed May 4, 2016. Glaukos develops and sells ophthalmic medical devices, with revenue primarily from its iStent glaucoma device. Unless otherwise noted, financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Net sales | $23.1 million | $14.7 million |
| Gross profit / gross margin | $20.0 million / approximately 86% | $11.9 million / approximately 81% |
| Operating expenses | $19.4 million | $13.1 million |
| Operating income (loss) | $0.6 million | $(1.2) million |
| Net income (loss) | $0.9 million | $(1.5) million consolidated; $(1.0) million attributable to Glaukos |
| Net cash used in operating activities | $(0.9) million | $(1.0) million |
- Sales increased 57%. U.S. sales were $21.5 million, up from $13.6 million; international sales were $1.6 million, up from $1.0 million. Management attributed growth mainly to higher unit volume and an expanded U.S. sales force.
- Gross margin improved due to fixed manufacturing and amortization costs being spread over higher sales, the 2016–2017 medical-device excise-tax suspension, and certain iStent Inject sales with manufacturing costs expensed to R&D in 2015.
- SG&A rose 57% to $12.3 million, reflecting sales-force and international expansion, added administrative and marketing personnel, and higher stock compensation. R&D increased 35% to $7.1 million, largely from expanded clinical activity.
- At March 31, cash and cash equivalents were $10.4 million and short-term investments were $77.8 million, totaling $88.2 million. Current assets were $104.6 million versus current liabilities of $18.0 million.
- Total debt was $7.5 million, all classified as current, down from $9.7 million at December 31, 2015. The remaining secured GMP notes are payable through December 2016. The company reported no bank-facility debt.
- Cash and cash equivalents declined $11.2 million during the quarter. Investing cash use was $8.5 million, primarily net purchases of short-term investments; financing cash use was $1.7 million, including $2.2 million of note payments.
Material changes and comparability
- Glaukos reported its first quarterly net income in the periods compared, but operating cash flow remained negative. Accumulated deficit was $195.7 million.
- Revenue growth outpaced cost-of-sales growth, while operating expenses also rose substantially as the company expanded sales, marketing, and clinical programs.
- Per-share comparisons are not directly comparable: the 2015 quarter preceded the June 2015 IPO and preferred-stock conversion. Weighted-average basic shares were 2.4 million in Q1 2015 versus 32.3 million in Q1 2016. Q1 2016 diluted EPS was $0.03.
- The 2015 comparison included $0.5 million of DOSE Medical net loss attributable to noncontrolling interest; Glaukos acquired certain DOSE assets, including the iDose product line, and deconsolidated DOSE in June 2015.
Outlook, commentary, and risks
- No quantified sales or earnings guidance is provided. Management expects sales to grow with expanded global sales and marketing efforts, but cautions that results may vary seasonally with cataract procedure volumes.
- Management expects continued investment in sales infrastructure, clinical development, manufacturing capacity, and public-company administration; it says future net losses remain possible. It believes available cash, investments, interest income, and product cash generation can fund operations and liquidity needs for at least 12 months.
- Pipeline programs include iStent Inject and iStent Supra IDE studies and iDose, for which a U.S. Phase II trial began in early 2016. Clinical, regulatory, manufacturing, reimbursement, and commercialization outcomes remain uncertain.
- Key business risks include dependence on U.S. iStent sales, payer coverage and reimbursement, competition, reliance on a single primary manufacturing location and limited component suppliers, clinical and regulatory uncertainty, and intellectual-property exposure. The filing notes Medicare’s 2016 bundled payment for combined iStent and cataract procedures in hospital outpatient departments.
- Cost obligations include GMP-note payments and amortization of the associated intangible asset, plus a low-single-digit sales-based payment to the University of California with a $500,000 annual minimum, expected to continue until relevant patent expiry in 2022. The 2.3% medical-device excise tax is suspended through 2017 and, absent further legislation, resumes in 2018.
- Management reported no material legal proceeding or material reasonably possible loss contingency known to it. The filing also discloses operating leases and $1.6 million of noncancelable purchase commitments due within one year.
Most important facts for investors to verify
- Whether sales growth and gross-margin improvement persist, particularly after the excise-tax suspension and favorable cost timing effects.
- Whether operating cash flow turns positive as receivables and inventory grow, and whether cash and investments remain sufficient for planned spending.
- Progress, enrollment, results, and regulatory milestones for the iStent Inject, iStent Supra, and iDose programs.
- Effects of reimbursement changes, including the 2016 hospital outpatient bundled payment, on procedure adoption and pricing.
- Remaining GMP debt service through 2016, UC sales-based payments, and the effect of continued investment on the company’s ability to sustain profitability.