Glaukos Corporation (GKOS) Earnings Call Transcript & Summary

Okay. I want to thank everyone for being here in the last session today on Tuesday. My name is Allen Gong. I'm on the medical supplies and devices team here at JPMorgan. I'm really excited to be introducing members of the Glaukos management team and especially Tom Burns, who will be kicking us off with some prepared remarks before we bring on more members for the Q&A. All yours.

Thank you. Well, good evening, and thank you for joining us this evening, and I'm happy to give you an update on the progress that we're making at Glaukos. From the inception of our business, our mission has been to transform glaucoma therapy, but our aspirations have always been higher. And so today, we seek to elevate the standard of care across 3 major therapeutic areas, glaucoma, corneal health and retinal disease. Innovation is at the core of everything we do here at Glaukos. And we've taken on this mantra of the company of "We'll Go First". And that statement, to me, is a statement less of aspiration that is a statement of fact. If you think about it, we're the first company to conceive, develop, create and build an entirely new marketplace called MIGS on a global basis. We're the first company to develop an intracameral drug delivery device called iDose for the long-term treatment of glaucoma. We're the first company to develop and invest in a platform called corneal cross-linking for the treatment of keratoconus, a sight-threatening disease, which afflicts very young people. And we're the first company to conceive, develop and create a proprietary transdermal formulation, which we think may disrupt the entire topical drug treatment paradigm within ophthalmology. And finally, we have the temerity to believe we can build a retinal business, and we're among the first to develop bioerodible implants, which incorporates small molecules, tyrosine kinase inhibitors to be able to treat retinal diseases like age-related macular degeneration, diabetic macular edema and retinal vein occlusion. Our core strategy centers around creating dropless therapies to deal with ubiquitous rate of noncompliance within ophthalmology across several disease states. And in doing so, we're focused on creating novel technology platforms, each of which can yield and throw off successive generations of products to be able to make impact into these disease states. These technology platforms are chasing big ideas with significant unmet clinical need, and they're going to feed a formidable global commercial presence where Glaukos is now established and vertically integrated in 17 global countries around the world. If we look at our operating success, we had quite a successful 2022, strong execution in spite of some heavy headwinds. We've moved the down markets in several areas. We launched 3 major products during the course of the year, iAccess, iPrime and iStent infinite. We announced the seminal data for iDose, which we've been waiting for a while, which should become a game-changing device within ophthalmology, and our NDA is set for filing early in 2023. We started and completed our iLution transdermal proprietary cream looking at dry eye and presbyopia, and we completed those clinical trials this year, and we're advancing a host of other preclinical candidates. We've established an entirely new campus in Aliso Viejo, California. We've rebuilt a facility, a corneal innovation center outside of Boston, and we've established a world-class novel hybrid pharmaceutical manufacturing facility in San Clemente, which we'll be able to reach scale with the production of the iDose implant. And we continue to perform, I think, superbly leading the global MIGS execution. And I think even despite the headwinds, we've been able to overperform and exceed both our internal expectations and the expectations of Wall Street. And we've lapped some of the draconian cuts that CMS imposed on us last year with the reductions in professional fees. 2023, expect more of the same. We will be able to file our 2023 -- our early NDA for iDose early in 2023. We're going to move into a Phase IIb clinical trial for iLution, from some of the data that you just saw where we had some very promising results in a Phase IIa study. And we've already begun to enroll patients in a Phase III confirmatory study for Epioxa. We'll complete that study targeted for the end of this year and have that product conceivably available in the U.S. market by the end of 2025. We continue to commence clinical trials across the board. We're going to put iLution with the travoprost incorporated within that proprietary cream into a Phase IIa study this year. We're going to expand with a new IDE, the claims for iStent infinite, which will then extend into mild and moderate open-angle glaucoma. And we're going to be able to place these retinal implants, these bioerodible implants into humans by the end of the year. So significant movement across the board with our portfolio. But most important, we're going to be looking to develop the stand-alone MIGS marketplace. And this is a marketplace that's orders of magnitude bigger than the combination cataract MIGS marketplace. It's a marketplace that we're going to be able to use the same strategies that we use to convince surgeons that our MIGS devices were superior clinically to anything that they could achieve with topical medications across the range of disease stage severity, so all the way down to the earlier-stage patients. Our campaign will be led and anchored by iStent infinite and iDose with a conceivable approval at the end of 2023. And because these are so prolific and benefit-to-risk ratios of what these products have been able to demonstrate, we think that they'll radically change the current standard of care for the treatment of glaucoma. And as you look at the current treatment plan and paradigm for treating glaucoma needs reformation, it's broken. Surgeons right now and clinicians, when patients are diagnosed, begin them on a topical medication. When that fails, they go to 2 medications. When that fails, they go to 3, each time giving ground. And when you look at the peripheral vision on the perimetry, each time that, that happens, these patients are losing peripheral vision and going towards blindness. When they've gone and exhausted their therapeutic opportunities, they then look at these draconian end-stage procedures like trabeculectomy and aqueous shunts, which basically is a hole in the eye to be able to release aqueous humor and lower intraocular pressure. The paradigm is not working. Even patients that are diagnosed and treated with this paradigm undergo progression over several years. One study out of Minnesota shows that patients using this treatment paradigm, that in 6 years' time, 13% of them have gone blind in one eye. And the principal, we think, offender of this, is the noncompliance rates. Look at the data on the left hand of the slide. Current study show that 90% of patients are nonadherent to glaucoma medications. 50% of those are discontinuing, intentionally discontinuing therapy at 6 months. So our contention is that these drugs don't work very well if patients don't take them. And that seems to be what's happening in the marketplace and particularly when surgical intervention by many NEI studies shows that if I intervene once, if you have glaucoma, I give you 24/7 control and can arrest the progression of glaucoma without having to put you on eye drops and the millstone of that therapy for life, there needs to be a better way. And we think our MIGS approaches, with iStent infinite and iDose, will be that way. And we're going to build this marketplace and challenge the current conventional wisdom and standard of care. Why? Because this has been our founding principle from the start. This is the reason that I came over here to build this company with an initial 4 employees in 2002, to where we are today because this is a meaningful addition to the glaucoma treatment paradigm. And the success we've had in combination glaucoma or in combination cataract surgery using MIGS devices will transcend and will carry over. Why? Again, because a simple surgical implantation is going to provide 24/7 control. It's like an umbrella policy, insurance policy for compliance. Once this is implanted, it's working over time during the course of its therapy, with the prosthetic iStent infinite, for several years and with iDose, until the drug is depleted. It's benign in nature. You're going to see some of the safety data here. I think you're going to be convinced that if you were diagnosed with glaucoma and had the opportunity of either having a lifelong consignment to topical medications or have a simple procedure to be able to straightforwardly be able to put a bullet in it and arrest progression, I would suspect that you're going to come to the right decision. Noncompliance isn't limited to glaucoma as we know. It goes across all the therapeutic indications. And so we're developing platforms across many different areas, 5 distinct platforms in glaucoma, corneal health and retinal disease. This small company has invested $400 million directly into R&D. And from the time where many of you were with us when we went public, where we had 4 disclosed programs. Today, we have 14, and we have several that are under the hood. And as I like to say, the beakers continue to swirl in the bowels of the organization. This is what that has been, the compilation of our success then. You look at this array of products for the treatment of glaucoma. The important point here is that not only do we have an unmatched portfolio, there's no competitor that comes close to being able to offer what we offer at every stage of glaucoma disease, stage severity. But we believe we provide the best benefit to risk calculus from early manifestation of glaucoma all the way through late-stage refractory disease. And what this allows is the surgeon to take a look at this portfolio and to customize therapy based upon the disease stage severity. What anchors this is our iStent infinite, which many of you become aware of. This is the first ever microinvasive implantable device for the treatment of a stand-alone glaucoma. And in our U.S. clinical study, think about this, patients who had already failed on 3 medications already failed on 2 surgical procedures were then implanted with iStent infinite. And 76% of those patients saw mean reductions of intraocular pressure of greater than 20%. 50% had mean intraocular pressure reductions of greater than 30%. This is phenomenal data and surprising data from our standpoint. But we believe by placing 3 stents, we get access to almost the full array of collector channels to be able to establish a fully developed physiologic outflow and to lower glaucoma principally. And then clearly, the next major addition to the intervention of glaucoma arsenal is going to be our iDose device, which as many of you know, it's a tiny, tiny vessel, which contains a proprietary uber concentrate of the prostaglandin travoprost, and releases that through a membrane in a Fickian distribution way and a 0 order way over several months. The data that came out of the U.S. pivotal trial was outstanding. We were tasked with being able to show that the iStent or the iDose device was noninferior to the current standard of care, gold standard, which is topical timolol used twice a day, and we more than met that criteria at 3 months, and we think that puts us in an exceedingly appropriate and advantageous position for our U.S. NDA filing. I think, very importantly, though, what surprised me most, for many of you who have been following us for years, I've said that with the iDose device, I needed to have 6 months of therapy. If I had a year, it would be ideal. And the data that we're now incorporating now is extending far beyond our initial aspirations. In our Phase IIb clinical study, we're showing that nearly 70% of patients at 3 years are controlled with a single implantation of iDose using the same or lower numbers of topical medications. This is extraordinary. And this is something that we think is going to serve us well, will allow us to get the payment that we need from payers, both in the commercial marketplace and with MACs, and we think will become an outstanding addition to the surgical arm [ in material ]. Interestingly, the Phase III pivotal results that we see that have just come out track almost identically to what we see with the iDose Phase IIb studies. So we're very hopeful that we'll see the same type of duration in our Phase III studies for the iDose that we've seen with the iDose Phase IIb study, so. And I think importantly as well and very important, with the iDose pivotal study, even though over 20% of patients were on 2 or more medications when they came into the trial, over 80% of them were medication-free with a single injection in a year. So these are powerful different templates that will bring into the marketplace and value propositions. Clearly, from the Phase IIb study at 3 years, iDose performed far better than topical timolol. That's going to be an exceedingly important value proposition for surgeons. But for patients or for us, us consumers in the audience, if we were faced again with being diagnosed glaucoma, would you rather have 2,190 drops of timolol placed in your eyes over 3 years? Or a single injection of iDose? Again, I think you'll come to the right conclusion and many will as well. Safety has been the other major pivotal aspect of the strength of the iDose device. When you look at this device, it's entirely safe across the board. We had no adverse events of periorbital fat atrophy. We had no incidence of corneal endothelial cell loss in the data and very low instances of conjunctival hyperemia and iris color change. And yet look what happens when you use topical prostaglandins, which are the standard of care. Extraordinary rates and adverse events across all these areas. And so not only is this entirely effective for an entirely long period of time, but it is entirely safe. And I think this is the data that we just presented and that just came out in a press release, which I think many of you will allay any concerns you had on the ability to use iDose in a safe and effective way and exchange it over time. This is extraordinary. We followed patients from our Phase IIb study, and we showed that with an exchange, over a 5-plus year period, that there were no clinically meaningful changes in corneal endothelial cell or cones, none. And no patient in the study exhibit an adverse event of corneal endothelial cell loss greater than 30%. If you look at comparable data by historical control, you guys have seen MIGS, the devices in the past, both suprachoroidal devices and a trabecular bypass competitive device, which had high rates, relatively high rates of corneal endothelial cell loss of greater than 20% at 5 years. So this is extraordinary and extraordinarily in our favor in a value proposition for clinicians and patients. And so the data suggests high efficacy, high safety. The exchange trial now confirms that we can go ahead and be able to place and replace this product. We'll file that data as part of our NDA and seek that ability. And then what was self-evident to us should become self-evident to you over time, that this product can be done and implanted in the office, and we had multiple surgeons elect to do that as part of our clinical trial. We'll follow those patients in a preliminary assessment of that data. We think it'll replicate quite handsomely, the safety and efficacy data that we see in our Phase III clinical trial. So look at this interventional glaucoma portfolio. You look at the stuff that we have on the marketplace today, look what's coming, both in the near term and the planning period and over the course of this decade. And again, none of this stuff is chalkboard stuff. It's all high traction, all in full development and in clinical trials, many of which are in clinical trials, and we expect to dominate this area over the course of the year and to build it. It will take time, but we are the company that built the MIGS marketplace within combination cataract surgery, we'll build it here within stand-alone environment. Let's turn our thoughts a little bit to what we're doing in corneal health. We are the first company that has come out with and has the only approved bioactivated pharmaceutical therapy shown to halt the progression of keratoconus. Keratoconus is thinning of the cornea. Typically, that first happens in teenage years, where it becomes kind of conal in the central focus area and patients will lose vision or become blind over a period of time. In fact, 20% of patients who are diagnosed with keratoconus need to have a corneal transplant during the course of their life. And when they do have a corneal transplant, 73% of those will fail in 20 years and nearly 100% at 30. This is a devastating disease. And with a simple application of this riboflavin saturation into the cornea that's bioactivated to create oxygen-free radicals, we're able to reorder the cornea, strengthen it and to reduce this thinning and progression that we see in keratoconus. We've demonstrated this already. In our Phase III clinical trial, we met the clinical endpoints that have been negotiated with the FDA, which is a one-day after difference of treatment in Kmax, the -- kind of the peak of the cone versus a placebo control, where the Epioxa improved Kmax by 0.2 diopters while we saw degradation in the placebo arm of 0.8 diopters. Interestingly, when patients were asked at 6 months if they wanted to cross over, 98% chose to have the Epioxa procedure. So again, it bodes well for the future of this procedure and this device and technology. And then we talk about iLution. This is a new transdermal topical cream. And you can imagine we all -- when we talk about our parents, we have trouble putting in eye drops or have tremors or some of them are afflicted with Parkinson's, et cetera, or they have multiple eye drops during the course of the day. You can imagine if we had a simple cream that could be placed in the morning just by a movement across the lid and use that cream as a depot mechanism, not only the cream itself, but in order to get into the fatty tissue of the islet where it's then resorbed into the eye, and we believe that this can treat a variety of ophthalmic diseases without having to bombard the cornea with preservative toxicity and deliver a sequelae to patients over time. And so we're looking at this platform against a variety of disease states, dry eye, presbyopia, blepharitis and glaucoma itself, incorporating the compound travoprost. And this is exciting for something that, like all things we bring to the marketplace, initially faced high skepticism, we're finding that this product is working. It's working in dry eye. We see that in an initial Phase IIa study. We saw a marked improvement in quality of tear film, and we found a marked improvement in quality of vision when we looked at 218 dry eye patients against the placebo control. We're excited about this. And again, it has to be confirmed in a Phase IIb clinical study, but we're on our way. And we think this becomes a great validation of the initial concept as we move forward into multiple disease states. And again, an attempt to disrupt the entire topical drug treatment paradigm. And finally, in retina, we're targeting these biodegradable small molecule implants that incorporate a tyrosine kinase inhibitor. And this is an area that's the big kind of kahuna within ophthalmology. It's the biggest marketplace, but patients here as revolutionary as the anti-VEGF protein injections have been, patients need to use them, as you all know, every couple of months to get substantive therapy and management of the disease. And because of that, nearly 40% of patients have come off this therapy at 2 years by a recent study. We want to be able to eliminate that onerous treatment regimen and provide a small molecule option that will last for several months. And I'm pleased to show this data, this is a persistent retinal vessel leakage model using rabbits, which is really highly translational to what we see in humans, and we're now running out to 20 months with a single injection of 2 forms of this TKI. So this is, as I like to say, terribly exciting, terribly early, but we plan to introduce this into patients before the end of this year and to move forward to create a whole new market in the retinal space. So I think we've delivered operationally as well across the board since our IPO. You've seen us grow substantially in many different areas, and we've grown at a compound average growth rate of greater than 20%. We've actively looked to diversify our product offering and now have nearly 50% of our revenues coming from corneal health or from international glaucoma. We continue to enjoy and to maintain high gross margins, and we've been able to build this entire array of products in the pipeline while maintaining a healthy balance sheet. But we're looking for scale. We're looking to take this company to the next level. And so we continue to grow. We've gone from 65 commercial people in the United States and North America in 2015 to approaching 300 now as we speak today, and again, active and vertically integrated in 17 global markets. And we're going to scale as well on the operations side. So a company that had -- again, had the temerity as a medical device company to transition into a pharmaceutical company now has created a world-class pharmaceutical facility down in San Clemente that is currently producing the iDose implant that you are looking at the data today. So we spent considerable time looking at disrupting treatment paradigms with dropless therapies. You see the tip of the iceberg of what we have today, but you know that there's so much more under the hood. And this is just the beginning for how we grow the company. When we look at what we have in array against glaucoma, cornea and retina, it's the reason I get up in the morning. I think we're at an inflection point for the company. I'm entirely pleased with where we are, but I'm entirely enthusiastic about where we're going as a company as we truly bloom into the next major strategic competitor within ophthalmic space. So with that, we can convene and take some questions.

Okay. Thank you for those prepared remarks. I also want to welcome Joe Gilliam, company's COO as well as Alex Thurman, CFO, to the stage. Just to kick us off, there's clearly a lot to really be excited about in the pipeline, both near term and longer term. But before we get to the more exciting stuff, I do have to touch on the more boring mundane topic, which is fourth quarter. When we look at your guidance, I think it implied sales of roughly like $16 million in fourth quarter. You obviously haven't preannounced. So I don't want to push you there. But when we think about some of the dynamics that you highlighted on the third quarter call to really keep in mind how those really progressed through fourth quarter and into the start of 2023.

Yes. I think it's a fair question. Obviously, we're somewhat limited in what we can say given the lack of an announcement coming into this. But on the third quarter call, we really called out 3 or 4 things. You referenced the COVID dynamics. Obviously, there are a lot of folks that are more well-schooled in what's sort of transpired there. And I think you've probably been hearing a lot about those dynamics over the course of this week. But in general, I think the COVID dynamics have played out relatively favorably. It's obviously a relevant consideration for anybody running a business, but one that we seem to be navigating quite well this time through the cycle. I think the other key things are the economics associated with the reimbursement. That's not going away. As Tom mentioned, we look forward to sort of lapping some of those considerations as we move into 2023, but still very relevant as we try to navigate and continue to stabilize the core there in the face of the CMS cuts. We also called out foreign exchange. And clearly, as we entered that call, FX, I think, was probably at its trough in the context of the U.S. dollar, and we've seen some relief from that, not -- albeit not back to where things were at entering into 2022, but we have seen some relief over the course of the quarter. And so with all that, I think that sets up the way the fourth quarter has played out.

Got it. And there are quite a few puts and takes as we head out to 2023 as well. You talked about how you're now finally lapping the very severe reimbursement cuts that you saw over the course of 2022. So that should be a nice benefit for your core business. You're also launching quite a few products, some of which you had launched last year, but you're working through some reimbursement dynamics that should hopefully become more meaningful through 2023. So while those -- some of the challenges to your core business aren't going away, how should we think about the -- kind of the tension between the tailwinds and headwinds heading into this year? And what kind of growth do you think you can really put up now that we're in more of a normalized environment post COVID, post reimbursement?

Yes. I'll probably stop short of talking specifics in terms of the growth, but I'll take it in the context of each of our core franchises. I think we've shown a pretty consistent growth pattern, for example, in corneal health, albeit even with some of the challenges that we had from a reimbursement perspective in 2022. But you've seen there a pretty stable cadence of growth, and we have no reason to believe that won't continue as we move forward into 2023 within that franchise. I think on the international glaucoma side, our local currency performance has been terrific and it's continued to be terrific. And really, I think the story there is much more about predictions and assessments of FX than almost anything else in the way we see the -- turning the corner into 2023. And within the U.S. glaucoma, you really -- you hit it. There are a lot of puts and takes. I think obviously, we feel good about the fact that the CMS cuts, from an analytical perspective, are in the rearview mirror. That doesn't change the fact that you're not still out having economic conversations every day or that competitors are trying to have conversations around the relative economics of the different procedures, and we have to combat that, right? We have to combat that in the field, both in the context of what we believe is the optimal risk and benefit profile of our products. But then also now bringing in additional portfolio opportunities and really getting our sea legs and launching those. Some of those dynamics around that are market access or reimbursement related. But we feel confident about our ability to sort of bring those forward and really take that whole portfolio into the customers' account.

So on the reimbursement front, I think there definitely has been, even past the formal cuts, I think there's just been a lot of noise in the environment, especially when it comes to, come out, plastic going out. I mean, where you've just launched iPrime, iAccess ,relatively small players there yet. But even when it comes to the core iStent franchise, even when CMS originally made the cuts, they talked about how they were maybe a little worried that the cuts were a little too severe and were something that they would have to revisit. So there are a lot there, but, like, just to kind of clear the air, provide a baseline for the reimbursement environment that we're going to be heading into in 2023. Do you have any kind of comments there?

I think -- well, first of all, whenever you pioneer a new category, you're going to go through periods where there's an adjustment related to reimbursement, right? These things come out, there are T codes or there's varying degrees of data that support the various technologies. You've seen some of that play out, right? In the course of -- over the course of 2022, you saw the original pioneer in the category of trabecular bypass go through the CMS process to become a Category I code and what that meant. You also saw some of the other devices or categories that have less sort of data and less level 1 evidence behind them, enter into periods where the MACs and various authorities were questioning the reimbursement associated with those products, too. In some ways, that's why when you think back to the -- and sort of zoom out a bit, we feel good about the fact that we have the entire portfolio, right? So the goal there is to have the best-in-class products regardless, to meet the needs of that patient -- the patient's needs or the surgeons' algorithm. And as these things ebb and flow from a reimbursement perspective, which happens, and we certainly know that in medical device land, that we're somewhat insulated from that in the context of our overall portfolio. And that's really where we're heading, both for the patient, the surgeon and really for our business.

Any questions from the audience? So I guess, like, talking about your portfolio, right, I couldn't help but notice that today, it seems like the focus for the near term really seems to be on infinite and iDose, right? But you did, again, launch new products like iPrime, like iAccess that really have helped give you one of the more comprehensive portfolios on the market compared to the competition. So the contribution from those new products were small last year. For infinite, you were working to establish reimbursement. So when I think about 2023 and then beyond, how should I think about the roles of these products in the portfolio given the kind of emphasis you put on infinite in today's presentation?

Do you want to do it? Okay. No, go ahead. You're on a roll.

Yes, merely. Merely. Yes, I think it could be a meaningful contributor. I think if you think about each of those individually, especially iPrime, iStent infinite and then ultimately, obviously, iDose down the line. But in the context of the near term, I think both the iPrime and iStent infinity can be relatively meaningful contributors to our business. I think the timing of that, right, obviously, we'll go through the MAC process on iStent infinite. So I think as the year progresses, it'll become a more meaningful contributor as we move along. And then with iPrime, as we've talked about, as we address some of the supply chain challenges and really stand that product up, I think it has the potential for being a best-in-class solution in that category, and that really can benefit our overall business. So I do feel like we're entering into 2023 with multiple potential drivers of growth, and the question will be exactly the timing in which those start to contribute more meaningfully over the course of the year.

Got it. So the competitive side of the story has definitely been really important for understanding the trajectory of Glaukos over the last few years. I think the 2 most people think of are probably Hydrus, which is more of a traditional competitor to your combo cataract side and then Omni, which I guess has kind of come on to the scene more recently. And there's definitely been some developments there with Alcon acquiring Hydrus, with Sight going public. So we have a little bit more visibility in those products. But when we think about the competitive landscape, right, there is though, it's -- your visibility there is definitely better than ours. What steps have the competition taken since they view that you are building out your portfolio, launching new products? And to what extent do you feel confident now that you do have a good kind of foundation to really compete against them and to hold them, maybe even take back some share?

Well, I think it helps us sort of take each one of those perhaps a little bit of a silo. And so you think about within the trabecular bypass space, we really only face Hydrus in the combo cataract setting. And for that, the product's now been on the market approaching 5 years, 4.5 years, I think, now at this point. So most surgeons and clinicians know what that product profile looks like and if and how they would use that in their clinical algorithm. I think with Alcon taking on, obviously, we called that out coming into 2022 as a potential consideration. And you've heard us over the course of year talk about relative stability in that dynamic. We have a ton of respect for Alcon. Have no misconceptions they're going to quit trying. They'll continue to build that product in that part of their portfolio. But we feel good about our relative positioning and sort of where we're at in that battle, if you will. I think as you think about other products, it's a little more straightforward. I think a lot of the conversation there, perhaps not surprisingly, is focused on the relative economics associated with those devices. And I think the way we think about that is, is have the full portfolio to counter that. Many of those dynamics tend to be more near-term oriented than long term. And as you heard Tom talk, we wake up every morning trying to think about, obviously, both the short term, but really the long-term build of our business and it comes to those categories, that's how we think about it.