Glaukos Corporation (GKOS) Earnings Call Transcript & Summary

Good morning everyone. I'm happy to introduce our first medical device company of today. I'm Robbie Marcus, med-tech analyst at JPMorgan. Very happy to introduce Tom Burns, CEO of Glaukos.

Good morning. Our mission at Glaukos from our inception has been to transform glaucoma therapy. But our vision has always been broader and more aspirational. And over the last several years, we've been building the foundation to create the next formidable, comprehensive eye care company in ophthalmology. We are building a world-class ophthalmic company, and we've accomplished quite a bit since our IPO in 2015. As you can see, from a revenue standpoint, we've grown the business nearly 40% year-on-year over the planning period. We've increased our gross margins from the mid-70s to the mid-80s, and we've funded a number of organic programs. And in doing so, we've been able to generate positive cash flow and create a healthy balance sheet. We've transformed ourselves from a North American company into a world-class leader. We now have 17 direct presences in 17 markets worldwide. And we've grown substantially from an employee base. We now have over 600 employees, over 250 of which are engaged in commercial enterprises across the globe. And we focus as well on building a really powerful R&D team in terms of breadth and depth, and I think that's paid off handsomely. In 2015, when we did our IPO, we had 4 publicly disclosed products that were in evaluation. Today, we have 13. We're going to talk about a number of those today. And we also have several that are under the hood. We also see ourselves as a science company. In 2015, we had 33 peer reviewed publications. As of today, we have nearly 300 with the recent acquisition of Avedro. In 2019 alone, we had several major achievements that strengthened our long-term growth potential. We're building our in-line business, and we've been able to secure several assets that we think will be able to realize our vision of becoming a unique vision care leader. We launched iStent inject successfully in 2018 and have carried that through, through 2019. We've made substantial progress in being able to enroll the clinical trials -- Phase III clinical trials for a game-changing device, a drug delivery system called iDose TR. We finished enrollment of our iStent infinite, and we're hoping for approval in 2021 for refractory open-angle glaucoma. And we've had several major notable achievements in the commercial realm, including the recent commercial approval of iStent inject in Japan. On the business development front, we've forged a commercial agreement with Santen to be able to market their PRESERFLO device here in the United States. We've acquired DOSE Medical, which has several embryonic promising products for the treatment of retinal disease. We've in-licensed a very proprietary topical cream from Intratus, which shows really promising results in dry eye, and we think can be a platform for the treatment of glaucoma and other ophthalmic disease states. And we've been able to consummate our acquisition of Avedro, which will present -- be a cornerstone for our entry into the corneal health care marketplace. So we've made substantial progress in transforming glaucoma therapy. Now we're turning towards to transform the treatment of chronic eye diseases with novel therapies that provide sustainable solutions to important unmet clinical needs. And we're going to focus on 3 major areas, that happen to be the 3 largest markets within ophthalmology, where we think we can create thriving commercial enterprises; glaucoma, corneal health and retinal disease. And in doing so, we're going to focus on creating platforms that we hope will yield a font of successive products to be able to create these thriving enterprises within these marketplaces, and we'll focus on sustained pharmaceuticals, microsurgical devices and implantable biosensors. And finally, in doing so, we're going to exploit what we believe are our core competencies, which are having the pioneering discipline and the courage to enter new marketplaces to understand and to create them, skilled commercialization in terms of seasoning, unique understandings of reimbursement, skills transfer and market positioning. And we think we've already established ourselves with a legacy of creating pipeline development. Our first major area of focus and continued focus is going to be in glaucoma. This is where we initially envisioned, we pioneered, we created, and we currently lead the MIGS marketplace. This is a very big market, estimated $13 billion worldwide. There are 8 million eyes that are diagnosed with either ocular hypertension or glaucoma in the United States alone. But glaucoma, as you know, is a progressive, irreversible blinding disease that can only be treated by reducing hypertensive patients into normotensive ranges. So we've focused on creating a full portfolio of products that serve the full range of glaucoma from incipient glaucoma all the way through refractory disease. And our promise and our challenge and opportunity is to be able to create products that best provide the best benefit-to-risk calculus at every stage of disease stage severity. And you can see just the plethora of products that we have in our glaucoma portfolio when you look at microsurgical devices, our sustained pharmaceuticals and implantable biosensors. So let's first look at our portfolio of microsurgical devices. You're aware of the 2 major products that we have, iStent and iStent inject. These products are used in combination with cataract surgery for the treatment of open-angle glaucoma here in the United States. The game-changing opportunity. We'll be able to use these devices in a stand-alone indication independent of cataract surgery for the treatment of glaucoma. And we have 3 principal programs to get us there, iStent SA, iStent Infinite and the PRESERFLO device that we are commercially marketing with Santen. We know topical therapy is the mainstay of treatment, but topical therapy is subject to rampant noncompliance, and even patients who are on topical therapy progress towards blindness even though they are under treatment. And so we've focused on creating sustained pharmaceutical therapies that will provide 24/7 therapy for several months to perhaps several years. And we're very, very proud of the iDose TR, which, by the way, is now a validated name from the FDA, which is a tiny depot mechanism that contains an uber concentrate of travoprost oil to be able to control intraocular pressure on a 24/7 basis. This tiny depot is injected into the eye and is able to allude a micro-elution rate, which is behind the cornea to create therapeutic index and be able to serve these patients for many months. I was privileged 2 years ago to present this data from the Phase IIb interim cohort, and we can see substantial reductions in intraocular pressure on the order of 30-plus percent through 1 year with a single injection with this device. Both cohorts, the fast- and the slow-eluting stents, achieved this milestone, so we see efficacy out to 12 months. And importantly, safety has been prolific. We saw 0 instances of hyperemia in this clinical trial through these 2 elution cohorts, and we saw only 1 case of hyperchromia. And you may have noticed recently on an earnings call, I gave some late-breaking news that talked about this product lasting 2 years in providing durable reductions in intraocular pressure and reductions in drug burden. So we're very excited with what we see in this interim cohort data. So we think we have a game-changing device. But it was incumbent upon us to be prescient and come up with a successor product that would extend the life of this implant even longer. So we've created a successor device that's called iDose TR extended, or iDose TREX. And this form factor, which looks very similar to its predecessor, holds nearly twice the amount of travoprost as its predecessor device. And so we expect this product to last significantly longer in the eye. And you can see, just look at the scale of these devices on the finger in the center of the slide. You can see how small these devices are and yet they're able to hold several months to several years of therapy with a single injection into the eye. It was incumbent upon us, once we optimize the platform, to seek additional classes that could be used in conjunction with the iDose platform. And so we're focusing in on ROCK inhibitors as the next class that we want to bring forth. ROCK inhibitors have been shown, when used in conjunction with prostaglandins, to show a powerful incremental effect in reducing intraocular pressure. So we hope to create a very powerful combinatorial therapy for the treatment of glaucoma in the near future. And we forged a research and development agreement with D. Western, a Japanese company, which is an excellent purveyor of these market classes. They've already developed 2 ROCK inhibitors, one that's out-licensed and commercially approved in Japan, a second that's in Phase II. And we currently are assessing multiple compounds as we speak, which are showing positive reduction, good reduction in rabbit models, and we're establishing prototype implants development for the lead candidates. But the beakers continue to swirl in the bottles of our organization as we seek for highly uber-potent, highly insoluble compounds that can be used in conjunction with this device, where we think they have potential for reduced side effects versus topical therapy for a host of ophthalmic diseases. And so take a look at our glaucoma portfolio in summary. Over the course of the next decade, we'll have a replete cascade of products that carry us through 2020, commercially arguably into the 2030s. And what's important to us, as investors and as a management team, is that we are increasing our total addressable market from $600,000 annualized to $4.3 million, a sevenfold increase within the planning period alone. So our next major focus is going to be in corneal health, a very large market with significant unmet commercial need and clinical need, and we're going to focus initially on keratoconus. There are 1.1 million eyes that are prevalent in the United States today with 32,000 eyes that enter annually. Keratoconus is thinning of the central cornea. And when that happens, you start to see a peak form in the central cornea, where it should be a dome, and it robs patients of vision. It is a sight-threatening disease. This disease is -- afflicts patients who are in their early teen years through early adulthood. So you can imagine having your son or daughter be afflicted with this disease. 20% of patients who are afflicted with keratoconus must have a corneal transplant during their lifetime. When they have a corneal transplant, 72% of those fail within 20 years, nearly 100% within 30 years. And we think we have a very, very positive solution to this afflicting disease with the acquisition of the Avedro technology, which is now going to be competing in a $3 billion marketplace. iLink is the proprietary name of our cross-linking procedure, and we expect to command a presence and make it a standard of care in keratoconus. We're going to modulate the beam, the UVA beam, to be able to reshape the cornea in fashions that we see fit to treat refractive disorders in the future. And the first refractive disorder we're going to approach and to be able to treat is presbyopia, which is a $15 billion marketplace. I'll talk more about that in the next couple of slides. And then finally, we're going to compete in the dry eye market, which is a $4 billion current revenue market globally by in-licensing and bringing forth novel entities for treatment. Avedro has been a powerful acquisition for us. We recently completed the acquisition. It's the cornerstone for our treatment into corneal health. And we see this as a perfect commercial fit for us. The product is disruptive. It's paradigm changing. It's governed under an orphan drug designation, which gives us open field running all the way through 2023 to 2024 to be able to drive adoption. It's covered by J-code, which was approved in January of 2019 for commercial payers. And it's highly complementary with where we're going. Of the 1,100 targeted accounts, we are currently calling on 700 as we speak. So it's a perfect complementary fit for us. It's going to accelerate our growth trajectory, and we expect this transaction to drive accretive operating earnings and cash flow in 2021. It furthers our hybrid strategy and gives us additional font for organic development and growth to create shareholder value. Photrexa is the main therapy associated with the cornerstone for this product, and it's the first bioactivated drug for the treatment of anterior segment disease. A single application of this bioactivated drug shuts down keratoconus and treats these patients for many, many years. In fact, the studies have been done, a single application lasts over 10 years in the vast majority of patients. And you can see through the pictorial on this slide, this procedure is done with a simple debriding of the corneal epithelium so that a technician can then be able to apply this topical bioactive drug onto the surface of the cornea, where it's supersaturated. A UV light is focused on the drug. The drug biochemically activates, releases free oxygen radicals and that causes reordering of the collagen fibrils within the stroma, which increases biomechanical strengths, flattens the cornea and provides care for many, many years for these patients. This has been shown to have an excellent safety and efficacy profile. Again, a single application in the vast majority of patients lasting over 10 years. And our current J-code now has a 95% plus covered lives with commercial carriers. We think this is exceedingly important, but we're equally enthusiastic about the next-generation product. This is Epi-On therapy. So if we take this riboflavin solution and we add a surfactant to it and irradiate it in a more powerful complex, we're able to drive the solution into the stroma without having to remove the top layer of the cornea. So this truly will be a single application of a bioactivated drug to halt a sight-threatening disease. A pair of Boost Goggles are placed on the eye during the procedure, which perfuses oxygen over the surface of the eye to be able to drive oxygen into the stroma, where it is then resonant to be able to create the free radicals, which drive the biomechanical strengthening of the cornea. We think we can modulate the beam to preferentially treat the eye. And so we're looking at presbyopia as the next cornerstone of treatment. Presbyopia is a refractive disorder that occurs typically after the age of 50, where we no longer have the ability to accommodate. And so we have to turn to reading glasses for near vision. And this -- the concept behind here would be able to create a central ring outside of the central optical access, which would steepen the central cornea to be able to make it more aspheric and be able to improve near vision without compromising distant vision. This is a very powerful opportunity for us. We're currently in Phase IIa examination and finishing a trial, and we expect to have data by the end of the year. And finally, we have in-licensed a proprietary topical cream from Intratus, which has shown extreme promise in early clinical pilot studies. This is applied to the eyelid, which we think will be far more convenient and drive better compliance for patients. This is also resident near to the lacrimal gland, where it needs to function and provide a depot effect. And we see this product and this platform as an excellent opportunity to enter into the dry eye space, perhaps into glaucoma and to other corneal disorders for treatment. So corneal health already, just since we've entered, we have 4 distinct programs that are treating 3 disease states and refractory disorders, and we expect this to give us a bountiful growth proposition through the 2020s. Finally, we have in-licensed or we've acquired DOSE Medical, which has a number of embryonic powerful retinal programs that are in early stage. Retinal disease is the most largest opportunity and market within ophthalmology. It's a $13 billion global market. 29 million patients have retinal disease. 90% have either age-related macular degeneration or diabetic eye disease. And our goal here is, we know right now, the standard of care is to inject anti-VEGF proteins every month or 2 to be able to shut off the weeping in the back of the eye in age-related macular degeneration. Our goal is to pursue the development of multiple microinvasive, bio-erodible drug delivery programs that will focus on AMD, diabetic macular edema and other retinal diseases. Our first major opportunity is with triamcinolone acetonide. Triamcinolone acetonide is a powerful proven steroid. And you can see in the corner, we've already developed a matrix and be able to fashion this into a viable implant by extrusion. And we very much like what we see in terms of the release rate. We see a near 0 release rate nearing 6 months, as you can see from the data, and this is what we're after, an implant with a single injection in the back of the eye that will last 6 months and be able to make meaningful entry into this $300 million worldwide market. We also have 2 major programs that are focused on early activities for the treatment of wet AMD. We've been able to hire some world-class scientists from major ophthalmic companies, which lead this effort. And our goal is to create an implant of an anti-VEGF biologic that will last up to 6 months, and we're on our way to doing so. We developed sustained-release products with cross-linked hydrogel extracellular matrices, which will stabilize these proteins and allow them to last for significantly longer periods of time. And we've already been studying the release rate of these anti-VEGF proteins and verify them in translational models of persistent retinal vascular leakage. We like what we see. It's very early stage. It's terribly promising and terribly early. And yet, we have another program focused on small molecules, where we've already been able to create a 4-month implant, which has shown tremendous activity in a translational retinal leakage model, and we currently are working hard with this multi-kinase inhibitor to develop a 6-month implant for the treatment of age-related macular degeneration. So we're creating a unique vision care leader. We're moving out from beyond combo cataract surgery to drive long-term growth and profitability. Look at the plethora of products we have that are currently in the planning period and beyond. We have 3 major products that we're commercially marketing today, 4 major products that we expect and targeting for approval within the next 2 years, PRESERFLO, iStent infinite, Epi-On, iDose TR. And with the latter part of the planning period and another 2 additional products, iStent inject SA, iDose TREX. And we look at beyond from the mid-2020s through the latter half of the decade, we see that we have iDose Rock, IOP Sensor, PiXL, dry eye therapy, retinal disease programs. So a company that's had an obsessive focus on transforming glaucoma therapy has now transformed itself into a unique, formidable, comprehensive eye care company. Thank you very much.