Glaukos Corporation (NYSE: GKOS) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 2, 2023. Amounts below are in U.S. dollars. Glaukos develops and commercializes ophthalmic therapies and devices focused on glaucoma, corneal disorders, and retinal diseases.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $80.4 million | $72.7 million | $154.3 million | $140.4 million |
| Gross profit / margin | $60.3 million / 75% | $54.9 million / 75% | $116.1 million / 75% | $105.5 million / 75% |
| Operating expenses | $89.4 million | $91.6 million | $178.2 million | $132.4 million |
| Operating loss | $29.1 million | $36.8 million | $62.1 million | $27.0 million |
| Net loss | $32.8 million | $45.5 million | $67.4 million | $40.2 million |
| Basic and diluted loss per share | $0.68 | $0.96 | $1.40 | $0.85 |
- Q2 sales increased 11% year over year; first-half sales increased 10%. Q2 sales growth included U.S. glaucoma sales up 4%, international glaucoma sales up 25% (27% in local currencies), and corneal-health sales up 11%.
- Gross margin held at 75% in both comparable periods. Q2 operating expenses declined 2%, reflecting lower acquired in-process R&D expense, while first-half expenses increased 35%.
- First-half selling, general and administrative expense rose 14% to $106.8 million; research and development expense rose 17% to $68.4 million. First-half R&D included a $3.2 million payment associated with the iDose NDA.
- Q2 net loss narrowed 28% year over year. First-half net loss widened 68%, with the comparison affected by a $30.0 million Ivantis settlement payment recorded as a reduction of operating expenses in first-half 2022. The 2023 period had no corresponding settlement benefit.
- Cash used in operating activities was $38.9 million in the first half, versus $2.4 million in 2022. The 2023 outflow reflected the net loss and a $9.5 million decrease in accounts payable and accrued liabilities, among other working-capital movements.
- Cash, cash equivalents, and short-term investments totaled $303.8 million at June 30, 2023; restricted cash was $5.9 million. Working capital was $337.4 million, down from $371.5 million at year-end 2022. Cash, cash equivalents, and restricted cash declined $25.9 million during the half.
- Debt included $287.5 million principal amount of 2.75% convertible notes due 2027, carried at $282.1 million net of issuance costs. Operating and finance lease liabilities were $30.8 million and $71.0 million, respectively. No note-conversion conditions had been met at June 30.
Material changes and business developments
- Glaucoma products generated $61.9 million of Q2 sales, versus $56.1 million a year earlier; corneal-health products generated $18.5 million, versus $16.6 million. International glaucoma growth was strong, while unfavorable exchange rates reduced reported dollar sales.
- U.S. glaucoma growth was partly offset by reduced CMS physician reimbursement for procedures using trabecular bypass stents, which management says continued to affect customer ordering and competitive-product trials.
- Q2 2023 included $3.0 million of acquired in-process R&D expense tied to an intellectual-property acquisition paid for with common stock. The agreement may also entail future clinical or regulatory milestone payments and, if commercialized, royalties and sales-based milestones.
- On July 17, 2023, Glaukos entered an agreement to become the exclusive U.S. sales agent for Radius XR’s wearable patient-engagement and diagnostic system.
Outlook, risks, and contingencies
- Management expects the reimbursement-related impact on U.S. combo-cataract glaucoma sales to continue through the remainder of 2023; the full effect on revenue, gross profit, and losses is uncertain. CMS’s 2024 proposed rules would increase certain facility fees, but do not materially change physician fees; final rates were still pending.
- Management stated that existing cash and investments, together with available cash from operations, should fund operations, capital expenditures, working capital, and known obligations for at least the next 12 months and the foreseeable future. This is an expectation, not a guarantee; the company cautions that future profitability and operating cash generation are uncertain.
- Supply-chain constraints, component availability, labor shortages, and inflation have increased some costs and may continue through 2023. Delays or shortages could affect shipments and development timelines. Management expected capital expenditures to moderate as manufacturing-capacity expansion neared completion.
- Other key risks include reimbursement and coverage changes, competition, foreign-exchange movements, product development and regulatory approval uncertainty, dependence on suppliers and manufacturing sites, and the company’s history of losses. The filing notes that Photrexa’s orphan-drug exclusivity expired in April 2023.
- The filing reports no legal proceedings under Item 1. It lists commitments and contingencies and notes possible future payments associated with the new IP acquisition; no liability for that transaction was accrued at June 30.
- Disclosure controls and procedures were assessed as effective at a reasonable-assurance level, with no material change in internal control over financial reporting identified during the quarter.
Important facts for investors to verify
- Whether sales growth can continue, particularly in U.S. glaucoma, given reimbursement pressure and competing products.
- Whether 2024 CMS final payment rates and MAC coverage decisions improve or further constrain reimbursement for Glaukos procedures and products.
- Cash burn and liquidity trends: operating cash use increased substantially year over year, despite $303.8 million in cash and short-term investments at quarter-end.
- Progress, timing, and costs for iDose and other pipeline programs, including Epioxa, for which the filing says a second pivotal confirmatory study was planned following FDA discussions.
- Potential conversion, cash-settlement, dilution, and working-capital effects of the 2027 convertible notes if conversion conditions are met.
- Future milestone, royalty, and commercial obligations under the 2023 IP acquisition, and the commercial and financial terms of the Radius XR arrangement.