Glaukos Corporation — FY2018 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2018; quarterly figures below identify the three months ended December 31. Glaukos develops and sells ophthalmic devices and sustained drug-delivery therapies for glaucoma. Its commercial business was primarily iStent products; the FDA approved iStent inject in June 2018, and the U.S. launch began in September. iDose Travoprost entered Phase III trials during 2018.
Key financial metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Net sales | $181.3 million | $159.3 million |
| Gross profit / gross margin | $156.2 million / approximately 86% | $138.2 million / approximately 87% |
| Operating expenses | $169.2 million | $140.5 million |
| Operating loss | $13.0 million | $2.3 million |
| Net income (loss) | $(13.0) million | $(0.1) million |
| Operating cash flow | $18.9 million | $26.1 million |
| Cash, cash equivalents and short-term investments | $140.5 million | $119.0 million |
| Working capital | $146.2 million | $122.7 million |
| Total liabilities | $33.1 million | $27.6 million |
FY2018 U.S. sales were $151.7 million, up 8%; international sales were $29.6 million, up 61%. Cash, cash equivalents, restricted cash and short-term investments totaled $149.3 million at year-end, including $8.8 million of restricted cash securing a lease letter of credit. The filing does not provide a separate debt balance in the presented balance-sheet summary.
Fourth-quarter snapshot: Net sales were $54.1 million versus $41.7 million in Q4 2017. Gross profit was $47.0 million; operating income was $1.9 million; and net income was $1.8 million, compared with $1.0 million net income in Q4 2017.
Material changes versus prior period
- Annual sales increased 14%, driven by international direct-sales expansion, the iStent inject launch, and the withdrawal of a competing MIGS device.
- Gross margin decreased about one percentage point to approximately 86%.
- SG&A rose 24% to $119.5 million, principally reflecting higher employee costs and other commercial, professional-services and launch expenses. R&D increased 28% to $49.7 million, including costs for iDose Phase III trials.
- The operating loss widened to $13.0 million from $2.3 million. The company reported a $13.0 million net loss after near break-even results in 2017 and net income of $4.5 million in 2016.
- Operating cash flow fell to $18.9 million from $26.1 million. Financing cash flow was $21.6 million, primarily from employee stock-option exercises and the employee stock purchase plan; investing activities used $26.4 million.
Outlook, commentary, risks and unusual items
- Management expects sales to benefit from growing product adoption and expanded global commercial infrastructure, while noting seasonality aligned with cataract procedures. The filing provides no numerical revenue or earnings guidance.
- Management expects R&D, clinical and commercial investment to continue increasing and cautions that sustained profitability is uncertain. It believes available liquidity and operating cash generation can fund requirements for at least 12 months from public release of the financial statements.
- Key risks include dependence on iStent products and the U.S. market; increased competition, including FDA-approved Hydrus; reimbursement and pricing changes; clinical or regulatory setbacks; and reliance on limited suppliers and a single principal manufacturing site.
- Alcon withdrew its competing CyPass suprachoroidal implant in August 2018 over post-approval safety concerns. Glaukos cautions that this could lead regulators and physicians to apply greater scrutiny to its investigational iStent Supra and could constrain that product’s market.
- Glaukos and Ivantis are pursuing patent litigation and related patent-review proceedings. Both sides seek unspecified damages and injunctive relief; the company says the outcome and any reasonably possible loss cannot be estimated, and no amount was accrued.
- The company entered a 13-year Aliso Viejo lease beginning May 2019. Contractual obligations totaled $95.8 million, including $74.4 million of operating lease obligations and $21.4 million of firm purchase commitments. The medical-device excise tax suspension was extended through 2019; management noted it could resume in 2020 absent further legislation.
- The FY2018 financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Most important facts for investors to verify
- Whether iStent inject adoption sustains sales growth and whether launch-related training, sampling or inventory effects affect subsequent quarters.
- Whether expense growth, particularly R&D and SG&A, can be supported by sales growth while maintaining margins and improving profitability.
- Progress and clinical, regulatory and reimbursement milestones for iDose Travoprost and the iStent Infinite, Supra and SA pipeline.
- Updates on the Ivantis litigation, the new PTAB petitions and potential financial or commercial consequences.
- Liquidity and cash use against the Aliso lease, capital commitments, clinical-trial spending and ongoing operating needs.