Glaukos Corporation — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing is an annual report, not a standalone fourth-quarter filing; unaudited Q4 results are noted below. Glaukos develops and sells ophthalmic devices and drug-delivery therapies for glaucoma. Its commercial business was primarily based on iStent, a minimally invasive glaucoma surgery (MIGS) device used with cataract surgery in the U.S.
Financial performance and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Net sales | $159.3 million | $114.4 million |
| Gross profit / margin | $138.2 million / approximately 87% | $98.2 million / approximately 86% |
| Operating income (loss) | $(2.3) million | $4.2 million |
| Net income (loss) | $(0.1) million | $4.5 million |
| Cash from operating activities | $25.5 million | $12.3 million |
| Capital expenditures | $6.3 million | $6.3 million |
- Revenue increased 39%. U.S. sales were $140.9 million, up 34%; international sales were $18.4 million, up 95%. U.S. sales represented approximately 88% of total sales.
- SG&A rose 49% to $96.3 million, while R&D rose 33% to $38.9 million. Operating expenses included a $5.3 million in-process R&D charge tied to the IOP Sensor System asset purchase from DOSE Medical.
- Q4 2017 revenue was $41.7 million and net income was $1.0 million. Q4 included the $5.3 million IOP Sensor System charge in operating expenses.
- Year-end cash and cash equivalents were $24.5 million and short-term investments were $94.5 million, totaling $119.0 million. Net working capital was $122.7 million; total liabilities were $27.6 million. The company reported no outstanding debt at year-end; its GMP notes had been fully repaid by December 2016.
- Operating cash flow improved to $25.5 million from $12.3 million. The filing attributes much of the 2017 reconciliation from net loss to cash flow to $17.6 million of stock-based compensation and $5.5 million of depreciation and amortization.
Changes, outlook and material items
- Growth reflected higher unit volumes, U.S. average selling price increases associated with Medicare reimbursement, and expansion into international markets. Gross margin increased from approximately 86% to 87%.
- Despite revenue growth, the company moved from 2016 net income to a small 2017 net loss as SG&A, R&D and the DOSE-related IPR&D charge increased. Management said it could not assure sustained profitability.
- Glaukos submitted a U.S. PMA for iStent Inject in 2017 after completing its pivotal trial. It completed enrollment in the U.S. pivotal iStent Supra study; follow-up was expected to continue through 2019. An IDE application for iStent Infinite was submitted in early 2018.
- The 154-patient Phase II study of iDose Travoprost was completed in 2017. Management intended to begin U.S. Phase III trials in the first half of 2018. The IOP Sensor System acquired from DOSE remained in development; the purchase included up to $9.5 million in performance-based milestone payments.
- Management expected R&D spending to increase with clinical trials and product development, and anticipated additional investment in manufacturing capacity. It stated that available cash, investments, interest income and cash generated from iStent sales were expected to fund operations for at least 12 months from public availability of the 2017 financial statements.
- Reimbursement remains a key uncertainty. Australia replaced a suspended surgeon-fee code with a temporary code for iStent and iStent Inject, scheduled to expire December 31, 2018; a permanent code request was pending. Medicare reimbursement changes, including lower physician payments in some areas, could affect adoption and sales.
- Key risks include reliance on iStent and the U.S. market, new MIGS competitors, uncertain reimbursement and product adoption, regulatory and clinical-trial outcomes, dependence on a single San Clemente manufacturing site and limited suppliers for components, and intellectual-property and product-liability exposure.
- The medical-device excise tax was suspended through December 31, 2019 under legislation cited in the filing; absent further action, management noted it could return in 2020. The Tax Cuts and Jobs Act reduced the federal corporate tax rate, but accounting for some effects remained provisional at year-end and the deferred-tax remeasurement was fully offset by a valuation allowance.
Important facts for investors to verify
- Progress and FDA review outcome for the iStent Inject PMA, and whether approval timing or labeling differs from management expectations.
- Clinical-trial progress, results and funding needs for iDose, iStent SA, iStent Supra, iStent Infinite and the IOP Sensor System.
- Whether growth in U.S. and international sales and cash from operations continues as competition and operating expenses rise.
- Changes to Medicare, commercial and international coverage, payment levels and coding, including the status of Australia’s permanent reimbursement code.
- Supply continuity, manufacturing capacity, and the terms and status of DOSE-related milestone obligations and related-party governance.
- The filing reported unqualified audit opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective. No material legal proceedings or subsequent events were reported.