Glaukos Corporation (GKOS) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. Welcome back. I'm the -- I'm Larry Biegelsen, the medical device analyst at Wells Fargo. And it's my pleasure to host this session with the management team from Glaukos. With us, we have Joe Gilliam, President and Chief Operating Officer; Alex Thurman, CFO; and Chris Lewis, Vice President of Investor Relations. In terms of format, it will be a fireside chat. If anybody has a question, please raise your hand and we will call on you. Joe, Alex and Chris, thanks for being here.

Thanks for having us, Larry. Good to be here.

So Joe, I wanted to start with kind of a big picture question. You guys have had good growth in the first half of this year. You're on the cusp of launching some important new products. At a high level, where is Glaukos today? What's the outlook for Glaukos over the next few years?

Yes. I think that in many ways, we're finally on the cusp of realizing the founding promise of the company. I mean, take a step back, over 20 years ago when Glaukos was first created, the idea was, how do you transform vision in glaucoma care through interventional glaucoma procedures. And obviously, we took a 20-year side track through combination cataract and all the various things that have led us to where we're at today. But when you look at the totality of the opportunities, whether it's iStent infinite, whether it's iDose or just generally unlocking this much bigger opportunity, I think we're really on the cusp of driving interventional glaucoma for the benefit of patients. And ultimately, it's just -- it's a much more significant opportunity for us as a company and for our shareholders as well as obviously, we believe we're on the path with Epioxa on the corneal side as well. So, so much of our time is spent in making sure that we've got the right infrastructure and investments in place to support what we think is going to be a period of a pretty profound growth.

That's helpful. [ AV ], gentlemen, excuse me, back of the room. I don't have a timer here. Okay.

You got a free question right there.

That was the strategy.

Yes, exactly. It's well played.

All right. So Joe, let's jump into the new products. Infinite, can you talk about the early traction you've gotten? Where are you seeing more adoption in combo cataract or stand-alone?

I think the adoption we're seeing is really as indicated by the product and the way it was studied. I look at it more like the way -- where we've seen adoption is for those more advanced patients who are failed on medical and surgical therapy. And so whether or not those patients present themselves in the setting where they've got comorbid cataract or whether it's stand-alone, they're being treated with iStent infinite. And so if you can imagine, we've had -- depending if you look at it, 1 to 2 hands tied behind our back out of the gate as often is the case where you're establishing coverage in our case with the MAC's as we go through that. And so knowing that we have not even yet have a final LCD that covers the procedure, we've been really pleased with the adoption so far with the technology. I think it speaks to both the need as well as the product itself. And so we've been pretty encouraged by that so far.

That's helpful. And can you talk about the proposed reimbursement changes, the facility fee into a higher APC from $1,600 to $3,300 rounding and then the $2,200 to $4,000 in the hospital. In the past, you've actually been able to raise price when you had a big jump in reimbursement. Last time it happened, device-intensive is 50-50. You gave half to the doctor or the facility and you took the other half. How are you thinking about that?

Well, I think, first, it's important to note that the proposed rule for 2024 is consistent with where we always expected the reimbursement to land. You'll think back, Larry, some of the conversations we've had. And so we always felt like the geometric mean and the various calculations supported the assignment APC-5492, which is where it now is. So a lot of the strategy and the launch pricing dynamics that we had was under the assumption that this is ultimately where this would move. CMS chose largely because they could with lack of data to park it in 5491 for a year and create that challenge for us. But ultimately, we're happy to see that get fixed. I think the difference in the context of the examples you gave, when -- back when we made the adjustment and reimbursement change in combination cataract in 2017 going into 2018, the iStent was really the only stent player that was there. And so now we have to think about the competitive landscape. We aren't pricing in a vacuum. And while I think it provides us with a little bit of tailwind, certainly, as you think about the macro, it's not something that I would say should be a cornerstone of any investor's thesis that somehow there's going to be a significant pricing shift in the market with infinite in line with the kind of statistics that you were citing.

In terms of a cornerstone in investors' thesis and the next question, I think in the past, you've talked about infinite potentially doubling your U.S. glaucoma business. Ballpark, 100,000 iStent combo cataract procedures done today. What's the -- how did you come up with that number and over what time frame?

Yes. Well, I think it's pretty well documented that in the U.S., there's about 150,000 in-stage procedures done a year. A combination of trabeculectomies to procedures, XEN from Allergan and hopefully, at some point in the future PreserFlo from us. And so at any given time, you have about 200,000 eyes, if you will, that are progressing towards that in stage. And from our perspective, the risk/benefit calculus of iStent infinite is why not? Why would you not? You're already intervening at that stage, go with such a benign procedure to hopefully hold off the far more invasive alternatives that come with the side effect profiles, as you can imagine from those other procedures. So that's really where we think about the opportunity set. When you think about doubling, it's saying, over time, can you get half of those eyes with an iStent infinite. And we feel pretty good about our chances to do that. The timing of that is an interesting question, and it's hard to sort of put a line in the sand out there saying it's going to be x amount of time, partially because you do have a competition for resources. If we were just launching this product, I'd be pretty bullish about the pace at which we could deliver that. But launching at the same time that you're doing iDose and other things, means that there's going to be a competition for time. And I think the reps as they're out in the field, we'll have to manage that accordingly. And so I think it will be a journey over the course of many years.

That's helpful. What's the latest on the MAC's proposed LCDs for canaloplasty and goniotomy. I think the comment period ended in late July. When are we going to -- what's the next major update? And how do you think this is ultimately resolved?

Well, I like to think of it as the MAC's proposed LCDs for iStent infinite because that's what we're focused on, and it can't happen soon enough. We put in the LC reconsideration request for iStent infinite back in December. And for a while, we were a little perplexed to why it was taking so long. And then, of course, when they put the draft proposals out, we found out why they were obviously focused on a different part of the market. And as we move forward here, there is no statutory time line. I think there might be an outside date of a year. But I think within that, there's no statutory time line in terms of expectations. All I can say is that I hope it happens soon. And as it relates to the other elements that are proposed within it, I think it's hard to really comment on that. This is work being done inside of the MACs associated with the 21st Century Cures Act and what they deem to be appropriate evidence to support. And I just wouldn't armchair a quarterback that from my seat. We're prepared either way. And ultimately, our #1 focus is just supporting clinicians making clinical calls and not payers. So maybe perversely in the mind of some, we're quite hopeful that it stays where doctors get to make these decisions and not payers.

My understanding is each -- there's 5 MACs, each MAC is going to come out with their own update. It's not going to be all at once. Would you expect this to be staggered?

I think so. I mean who knows, but it seems that they were all working together. And with that, they put out their drafts at different time lines. So one might expect them to put out their finals in a similar fashion where it's not all at once. But candidly, it's hard to say that definitively.

And have you sized the opportunity if the noncoverage proposal for canaloplasty and goniotomy stick. How big of an opportunity is that for Glaukos?

I think in the near term, it would be -- clearly, if it was finalized as proposed, it would be a material tailwind, not just us, probably also to Alcon, Hydrus and some of the other procedures heading into 2024. There'd be a statutory period until it was actually effectively final, they would go there. I think for investors who are focused on the long term, I don't think that this should be all that material to how you view the long-term model. I feel like our strategies and where we're trying to drive the company, we feel confident about the outcome 2 to 3 years from now anyway. But clearly, it could be a near-term tailwind to our revenues.

I'm curious why it wouldn't affect long term? I mean if these MACs aren't pain for canaloplasty and goniotomy indefinitely, I would think that's a long-term benefit to...

Well, I think over the long term, these things have a way of working themselves out anyway. And ultimately, procedures go through reevaluation periods on a periodic basis, as you know. And ultimately, we feel very good about how our procedures stack up relative to any competitive one when it comes down to just the clinical call of efficacy and risk in the ratio there. And so it's hard to predict whether that's a 2-year process or a 5-year process of where it might be. But when we think about the long haul, we think we've got the right products for the patient, and that will win the day in the long run.

And when you have the reimbursement change for iStent on a physician fee before it went into place, there were some doctors that were already kind of making changes. You talked about that in earnings calls. Now you have some reimbursement changes that potentially both all in your favor. Are you starting to see doctors kind of change clinical practice for any of them yet?

I think it's too early for that. I can't say with absolute certainty, but I think it's a little early for that. I think that if a doctor is practicing based on whatever they believe is the right call, that probably won't change until and if there was a change in that reimbursement where it was no longer considered to be covered.

And so then switching gears to iDose.

Took you a while.

We got some extra time. So we're getting closer to the PDUFA date, and you're targeting, which is December 22. What kind of work and investments do you need to make before the launch?

A lot. And they've been going on for years, but you can imagine they're now at a fever pitch. And it really runs across all elements of our business, from operations, clinical, medical affairs, market access, sales and of course, the marketing side. So many individual work streams that have had a long tail and now they're at full go. I could go into each one of those. But you can imagine, there's a lot of the relative training elements that are being put together and finalize the support, educating the sales force and the right set way around all these various areas. There's the clinical and med affairs activity supporting the publications of which I'm sure you'll ask me about because that's one of your favorite topics and the timing associated with that. There is full-scale marketing development, the final touches of the campaign, primarily focused more on the HCP. There's the payer marketing efforts that go into launching a product like this. All of it's really -- it's fun in many ways for myself and others and Tom to watch all this effort kind of coming together in support of the launch.

You're talking about medical affairs or a publications?

I'm saying combination of [indiscernible] apparatus driving it. I was saying publications, yes, I'm sure you're going to ask.

I was going to ask some medical affair.

Fair enough. The folks in our organization would be very happy if you did that.

Still no panel? FDA panel?

It's not our expectation. I think DURYSTA was -- didn't have a panel. We haven't really seen it around the drugs in the space. It's following the 505(b)(2) pathway, and there's been no indication from the FDA that, that should be something we'd expect.

And I will ask about the publication because -- on the Q2 call, I believe, you talked about published data coming out later this year. It wasn't clear it was going to be before or after approval. Any additional color?

Well, this is really driven by the journals themselves. So we put together all of the -- management put the drafts or the authors do in coordination with our team and you submit those and they go through the various processes. And so all I will say is that over the next 6 months, you should expect a significant amount of activity on the peer view publication front from us covering all the subjects that we've talked about, most of which we've already discussed at a top line basis and given the punchline, but obviously, all those underlying details should be out there. And it's something that we expect to be fully available as a part of the launch support, really to make sure it supports the payer conversations, that's the most thing -- important thing overall.

So the Phase IIb and the 2 Phase III studies, those are the main publications?

Phase IIb, Phase III exchange, I'm sure -- there's like half a dozen of the [indiscernible].

And it's possible you said over the next 6 months. So it is possible this year before approval, something could be published.

Absolutely.

You've submitted stuff with...

Yes, absolutely. Yes, we've submitted. And so there's things that are already working their way through the process, but you've got to get through that reviews and ultimately the timing of the individual publications and when they put things out there will matter.

Okay. Moving to the market opportunity. In 2017 at your Investor Day slide, you talked about the iDose opportunity being 6 million eyes in the U.S. Is this still how you're thinking about it? And what's the low-hanging fruit for iDose?

I think that 2017 presentation remains probably the best way to think about it from an investor perspective in terms of the individual subsegments that are most relevant here, the 6 million eyes. I mean, the reality is we believe there's about 5.4 million people with glaucoma, and that was in that presentation as well that when you think about the bilateral rate of the disease, that ends up being about 10 million eyes that are addressable. Not all of those are diagnosed and not all of those are treated. And so when you go through that process, we landed somewhere in the neighborhood of 6 million eyes. I think what's most important underneath that for investors is to think about the various subsegments of that. And those patients who are intolerant to topical medications, those patients who have mobility issues, those patients who are known noncompliant, I think that's the way the clinicians will go through the process of determining certainly out of the gate, who is most likely to be a good candidate for iDose. And over time, we hope to obviously go after a much larger swath of whether you look at it as 6 million or 10 millions eyes.

And when I look at that chart, it doesn't have combo cataract on it. You don't think about that separately? How do you see kind of being complementary to the iStent?

Yes. And that's -- I think it's an interesting thing that all of us have to go through an evolution when we think about the category is so much of the internal Glaukos as well as with investors because the industry first came about in combination with cataract surgery, given the FDA and physicians, a lot of models are built that way and various things. But from a clinical standpoint, you're treating glaucoma. And if you just think about even from a legacy drop perspective, you treated glaucoma irrespective whether they also got a cataract surgery or not. And so we look at it in the context of the disease stage severity, the population of the folks who have these various things. And the cataract component is a subset of all of those. So at any given time, you could have a patient who has glaucoma, who has mobility issues or has intolerance of topical medications or any of those things. They're a subset. In some respects, they may be a lower-hanging fruit subset where the doctor is already intervening. So it's not a complicated conversation to have with the patient. But if our vision for the future is -- it comes through, I think the conversation will be straightforward irrespective of whether it's in combination with cataract or not.

So you see it being used in both settings in combination with cataract?

Over time, yes, absolutely. Absolutely. We see it being used based upon the disease stage severity and the clinical call that supports the utilization of iDose more than whether it's -- they're also doing a cataract procedure or not.

Got it. And how are you thinking about pricing? I mean the numbers out there for DURYSTA at $2,000, you said, I think the premium, but you've tried to kind of rein people in. And I think to kind of street landing it, hey, the base case is $3,000 right now.

I don't think we -- so just to be clear, I don't think we've tried to rein. We've tried to really be -- to have no a comment approach in the context of where it will come. And that was prudent because the work has been ongoing. So for Tom or myself or Alex or anyone in the organization to really comment on where that would land would be premature. We would simply say that we would expect it to be at a premium to DURYSTA because that's an easy thing to say when you have a product that at least clinically in the studies shows to be efficacious out as long as 3 years versus something that fits for 4 to 6 months. So that was an easy statement for us to make in that context. Beyond that, we've gone through and are going through all of the work you expect to do for any pharmaceutical pricing exercise, everything from the health economic assessments through the various other considerations that you do in determining the appropriate price for pharmaceutical.

And when we do our channel checks, one thing that we hear is that the physician fee is going to be important. DURYSTA has a relatively low physician fee. I think you guys feel like you can come out from prior conversations, maybe in the $500 range to the physician fee. How confident are you in that? And how are you thinking about it?

Well, I mean, you have to have the process to play itself out. And obviously, it will be a T-code, so it will get crosswalked to the most comparable procedure that is done in the same setting. And so for us, it will be an unencumbered, it's a stand-alone procedure. And when we talk about that, the range of most likely, and there's always a variability of this -- of outcomes is cataract surgery, that's where you come at the $500, $550 range tends to be one of the more widely utilized procedures that stand-alone out there. The glaucoma procedures, even iStent infinite in the early amount that we've seen get published have been a little higher than that. So I think our general, I call it the fat part of the bell curve centers around that $500, high single hundred digit range.

Got it. And I know you've been getting a lot of questions on the ramp, especially 2024. Are you going to give a specific number for iDose in 2024?

We haven't decided on the -- with precision on the Investor Relations side of how we're going to do this. But I will say we understand the importance of the iDose number to the story and to investors and understanding the dynamics around it. So clearly, we're going to provide more than we have historically rounded But I'll stop short of getting more precise until we've set a plan in place.

And I don't know if you -- well, I'll ask the question, but the whole -- how do you think about the ramp relative to DURYSTA that's separate from the question of what was the DURYSTA number and we've talked about that, and there's been a lot of numbers thrown out there. We have a $35 million number at actually year 2, if you will, kind of the 2021, which was their second year. So -- and I'm telling that to be helpful because I hear $50 million, year 1. So it's setting the bar much higher for you just to kind of keep expectations in check. But how are you thinking about it relative to DURYSTA?

Yes. Well, I mean, first, I'll comment that this is -- I'd love to say is not in the context of the numbers you just gave, that $35 million to $50 million.

[indiscernible]

Yes. And I think that the point being is that the $35 million or $50 million or whatever it is that we've heard different numbers from them depending on the sources as well, I understand why investors would look at that as an analog given the competitive nature potentially of the 2 products. It is a little apples and oranges. If you think about -- they launched with an established professional fee code. So they did injection into the anterior chamber which, I think, paid a little shy of $200 procedure. But they had that establish out of the gate. And so obviously, that would help them be able to have that dialogue around what you'll receive as a physician in doing the procedure. For us, it will be a more traditional launch where that will be established over a period of time through volume and case-by-case analysis by the MACs until they ultimately land on pro fees for each of them. So I think it is a little bit apples and oranges in that regard. But there are so many other variables from price to that, that will ultimately drive the outcome for us that I think it's hard to look at the DURYSTA as a good analog to anchor your model on. I think what is relevant is looking at the building blocks of what will transpire. And while we expect the facility fee to be in place, the pro fee you have to adjudicate over a period of time, you'll have the miscellaneous J-code, if you will, or C-code out of the gate that you hope to have the permanent J-code established in the second half and the train dynamics of a surgical pharmaceutical, we're going to walk, and we're going to intentionally go slow to make sure that we get it right with our surgeon customers for the benefit of patients. And the whole goal that you really have is that you're landing these things as they start to come to a crescendo as the permanent J-code is established, the pro fees are there and your sales force is really ready to train at scale. And I think that certainly leads to something that's more oriented towards the second half. In the first, doesn't mean we won't have revenues, but I think you'll start to see the pace of that hopefully accelerate as we make our way into the second half of 2024.

How do you think about -- they have an office procedure, they clearly launch in middle of COVID was a headwind for them, like that goes without saying. But they had an office-based procedure out of the gate, you're going to have an ASC procedure out of the gate, hopefully, office-based over time. How does that dynamic impact kind of uptake?

Well, I see this -- we're thrilled with the success that DURYSTA had both out of the gate and overall because I think it speaks to the need for interventional procedures. And the idea that people know that pharmaceuticals as an agent work to lower pressures. They work. They have time and time again in clinical studies. The challenge with them is not, that they're not effective. It's that people don't take them. And so I think that even with some of the restrictions that DURYSTA had on its label, the uptake there shows that there's a need for these patients, and that's very encouraging to us. I think site of service, recall that we studied even in the iDose pivotal trial, multiple sites had in office. And ultimately, I think Tom said this for a long time as part of it, we see a path to iDose being also done in an office-based setting, we've just chosen to prioritize for different reasons, the ASC and HOPD setting out of the gate, but ultimately, we would expect to provide this in a broader facility environment in the office as well.

One more on iDose. You talked about the market opportunity for infinite, 200,000 eyes, 100,000, doubling. Is there an analog -- so we're talking about the ramp now. Is there an analog out there like SLT, which I know there's numbers all over the place, but 500,000 or so a year. Is there an analog out there for what peak procedures could be for iDose?

I don't know if any of those are great analogs for peak. You've asked this question in the past in the context of SLT. And I do think that in the various ways that you're trying to triangulate on at least the near to medium-term model, I think any of these things, when you're looking at volumes, address the volumes of SLT, those are all interventional procedures. And so from that perspective, they all become very good candidates for iDose. When you think about folks who've already made the decision as patients and their physicians that do an interventional procedure. And so I think it's another way of looking at what, in theory, should be the lower-hanging fruit opportunity associated with iDose before you think about 6 million eyes or 10 million eyes or whatever might be the overall addressable market.

You're not going to say -- you're not going to sign up for 500,000 peak...

We'll focus on getting an approved product first, and then we'll go from there.

Joe, maybe the last few minutes left because I think we probably don't really have 10 minutes left, but second half of this year, I mean, you had 11% constant currency, the guidance about 7%, I think at the high end of the range. So it implies a deceleration in the second half. Why the deceleration?

I get to answer this one, Larry. So first of all, I mean, we were super pleased with the first half, right? We had a great first half. Second quarter was fantastic. We had record-setting sales in international in corneal health. So all really positive. But to your point, I think when we looked at it, and we were getting ready for that second quarter earnings call, we started to see basically across the whole med tech device landscape, everyone was beating and raising , right? So we sat back and said, what's going on? Is there something larger in the macro environment that was pushing that? And I think a lot of companies, including us, believe that there was a mix of a bolus of backlog and other things that were -- the staffing shortages that we experienced in the past were kind of dissipating. And that was possibly driving a lot of the upside in the first half of the year. And we thought, okay, maybe we shouldn't get ahead of ourselves a little bit on that. And then secondly, you had infinite, right, in the first half, was approved, but still had one hand behind our back, we had one hand tied behind our back because of the LCDs and not giving that formal professional fee established, et cetera. So that was maybe -- and we didn't know when that was going to happen. So that was kind of out of our control and didn't want to get ahead of ourselves in the second half on that until all of those things settle out. And then I think lastly, there's probably a little bit of seasonality, especially in the third quarter and a lot of -- around the world, a lot of people are taking August off and how that played in it. So I think a combination of all those 3 things is what played into that second half. Now hopefully, we will experience things like the first half, but we weren't going to get ahead of ourselves.

Got it. The seasonality so far at this conference, I've heard nothing unusual this year in terms of like vacations, pent-up demand and all, nothing unusual. Any comment from you guys?

I think it's similar to what you see. I mean, folks late July and August, there's a little less activity and you enter into September and people are back to work. So I'm not sure there's anything that you need to call out.

And the last question, 2024. Alex, I mean, puts and takes. You know where consensus is, I think, [ 3.47% ], 13% growth. And EPS, I think $1.94 loss. Any reaction?

I mean, I guess what we'll always say is that we'll get to guidance and things when we get to our fourth quarter call. But as I look ahead, 2024 is exciting for us in a couple of ways. We hope we'll have infinite fully unleashed by that point. The LCDs, hopefully, we expect to finalize later this year and everything should be running smoothly. Obviously, we're looking forward to an iDose approval at the end of the year, and we'll start to work our way through that over the course of 2024. And so a lot of exciting things ahead as we think about that.

All right. Joe, anything you want to add, we didn't cover? We have an extra 6 minutes.

I think Alex summarized it right. I mean so much of where we're at right now is heads down focused on the blocking and tackling associated with trying to deliver on what we think is going to be a pretty exciting stretch for us as a company and something that we've been looking forward to for quite some time. It doesn't mean -- I'm sure there'll be some bumps in the road and things that we navigate. But we're pretty enthusiastic about the markets that we're unlocking as a part of some of these products. And we just spent an entire call and we didn't even talk about the corneal health side of the business where we feel really good about the continued opportunity there, leading into hopefully what will be an Epioxa approval and unlocking that market, let alone what we continue to accomplish and try to drive the standard of care change internationally in that side of the franchise. So we're excited about what's to come, and we just appreciate being a part of the conference.

Yes. We appreciate you being here. Thanks.