Glaukos Corporation — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. Glaukos develops and sells ophthalmic devices for glaucoma; substantially all revenue came from iStent products, approved in the U.S. for use with cataract surgery in certain adults with mild-to-moderate open-angle glaucoma.
Financial performance
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Net sales | $71.7 million | $45.6 million |
| Gross profit / margin | $58.7 million / approximately 82% | $34.2 million / approximately 75% |
| Operating expenses | $69.0 million | $47.3 million |
| Loss from operations | $(10.3) million | $(13.2) million |
| Net loss | $(38.3) million | $(14.1) million |
| Net loss attributable to Glaukos | $(37.2) million | $(12.1) million |
| Operating cash flow | $(2.2) million | $(7.1) million |
- Sales rose 57%; U.S. sales were $67.7 million, about 94% of total, and international sales were $4.0 million. Management attributed most growth to higher unit volume and an expanded U.S. sales force.
- SG&A increased 56% to $44.0 million, and R&D increased 30% to $25.0 million, reflecting commercial expansion, public-company costs, and increased clinical activity.
- FY 2015 results included a $25.7 million loss on deconsolidation of DOSE. Without this unusual charge, reported net loss would have been substantially lower; the filing does not present an adjusted net-loss measure.
- Fourth-quarter sales were $20.3 million versus $14.1 million a year earlier. Q4 operating loss was $2.0 million versus $5.0 million; net loss was $2.3 million versus $5.3 million. Q4 2014 cost of sales included a $2.6 million University of California-related charge.
Liquidity, debt and capital resources
- At year-end, cash and cash equivalents were $21.6 million and short-term investments were $69.6 million, totaling $91.1 million. Net working capital was $83.8 million; total assets were $116.7 million and total liabilities were $21.5 million.
- Net cash used in investing activities was $85.6 million, including $69.8 million of short-term investment purchases and $15.0 million paid for the iDose product line. Net cash provided by financing activities was $107.1 million, including $113.6 million of net IPO proceeds.
- Total debt was $9.7 million at year-end, comprising secured GMP promissory notes; $8.9 million was classified as current. The bank credit facility was repaid and terminated in July 2015.
- Management said available cash, investments, and expected product-sale cash flows were sufficient for at least the next 12 months. The company had an accumulated deficit of $196.6 million and expected continuing losses and negative cash flows.
Business developments, outlook and risks
- The iStent had been launched in the U.S. in 2012; the company reported more than 140,000 devices sold worldwide. Medicare and many commercial payors covered the procedure, though reimbursement and adoption remained important dependencies.
- Pipeline: iStent Inject and iStent Supra were in U.S. IDE studies, including pivotal trials; iDose received FDA permission to proceed with a Phase II trial, which management planned to start in early 2016. The filing provides no revenue or earnings guidance.
- Management expected R&D spending to increase as clinical trials and regulatory work advanced, and anticipated continued net losses for the foreseeable future. It also planned to expand sales, marketing and manufacturing capacity.
- Effective January 1, 2016, Medicare bundled cataract and MIGS facility reimbursement for procedures in hospital outpatient departments. Glaukos did not expect a material effect on 2016 utilization, but noted possible pressure on customer margins, adoption and device pricing.
- A 2.3% U.S. medical-device excise tax was suspended for 2016–2017 and, absent further legislation, was due to resume in 2018. A low-single-digit royalty on certain product sales, with a $500,000 annual minimum, is payable to the University of California under an agreement expected to run through 2022.
- In October 2015, Glaukos settled patent litigation with Transcend: Glaukos granted a covenant not to sue over specified CyPass products and is entitled to 1% of future net sales, capped at $6.0 million through April 2022. Glaukos owes the University of California 33% of those receipts.
- Key risks include dependence on iStent and the U.S. market; reimbursement changes; competition from larger medical-device companies and other MIGS developers; clinical and regulatory uncertainty; manufacturing concentration and reliance on limited suppliers; and patent, product-liability and compliance risks.
Investor facts to verify
- Whether sales growth and surgeon adoption continue, particularly given reliance on iStent and U.S. reimbursement.
- Progress, enrollment, timing and results of iStent Inject, iStent Supra and iDose trials, and any resulting regulatory decisions.
- The effect of the 2016 hospital-outpatient reimbursement bundling on procedure volumes, customer economics and pricing.
- Cash burn, the current portion and repayment schedule of GMP debt, and whether management’s stated liquidity runway remains adequate.
- Manufacturing capacity and supplier continuity, including qualification of alternative sources for critical components.
- Actual Transcend royalty receipts and ongoing University of California royalties and minimum payments.