Glaukos Corporation (GKOS) Earnings Call Transcript & Summary

I think we'll get started. Tom Stephan with Stifel. Excited to have Glaukos with us here today. With us, we have Joe Gilliam, President and COO; Alex Thurman, CFO; and Chris Lewis, Vice President of IR and Corporate Affairs.

I'll start off with our least favorite acronym, LCDs. All LCDs finalized set to go into effect at year-end. I'll start with pretty direct question. Joe, Alex, how are you guys thinking about MIGS unit volume in the U.S. market in 2024? Notably, when taking into account potential preclusion of combination mix procedures, we've done some math. We kind of think U.S. MIGS market volume might be down 5% to 10%, but just your thoughts on what units look like next year?

Well, first, thanks for having us, Tom. We appreciate it, happy to be sitting here today. I think from an LCD perspective, and it's an important distinction you make from a unit volume standpoint, I think it's fair to say that the restrictions put in place by at least the 5 MACs who published LCDs, that are expected to be finalized right around the end of December, we would expect that to have a headwind impact to the overall MIGS volumes in 2024. I think we've stopped short of quantifying that. I think in some ways, it's a bit difficult. We'll have to feel our way through that over the course of the year. I don't necessarily think that will translate in the context of stent volumes. So if you take the stent portion of that market, as we said on the third quarter call, we would expect it still to be a neutral to positive in the context of stent dynamics, from a volume standpoint. And perhaps overall, from a dollar standpoint because of the relative price points, the market to remain in a healthy place.

Got it. And so for it to be a neutral to slight positive for stents, it would probably mean capturing some of the jump-off share from canaloplasty, for instance. Joe, what's your level of confidence that stents can capture that available MIGS unit share when competing against goniotomy since goniotomy is higher incremental combo cataract professional fee?

Sure. Well, I think there's a variety of restrictions within the LCDs, and you've touched on a couple of them. Obviously, there's restrictions around the utilization of multiple procedures -- from MIGS procedures in the same overall procedure. There's obviously the investigational status you're referencing around canaloplasty in its various forms. But it's also important to note that within goniotomy, the -- our read and the experts that we talk to, the view of those folks is that it's fairly restricted with the goniotomy category, too. I think when you look and kind of peel back that onion, it feels like the intended use case for goniotomy is much more pushed towards that more severe patient, maybe pre-Tube, pre-Trab type-stage patient, there's more gray in that. So I think part of that will be an evolution over the course of the year and how both clinicians think about the standard of care there as well as how payers enforce or don't, the specifics of that policy. But I think, the net-net of that is as I go back to my original statement, I think it's going to be a neutral to net positive for instance.

Neutral to net positive, I guess, to wrap it all up, growth next year on a unit basis?

That would be the expectation going into the year.

Got it. And then thinking about it strategically, can you give maybe any high-level insights into ways the company is preparing for when the LCDs take effect, such as with your sales force or from a commercial perspective, are you starting to shape the messaging within the sales force about how to approach your customers and educate them on all the changes that are going to occur?

Well, it's a lot. And when you think about it, both -- you started off the question around the LCD front, but there's also changes going on in terms of facility fee economics and the variety of things with the now final 2024 rule. So of course, you have to start that education process now. The way we look at it is there's a triage component of that in terms of education, baseline facts for our sales force and other constituents, our reimbursement team, et cetera, and then you'll accelerate that education through the end of the year and certainly, by the time we get to our national sales meeting in the beginning of February, you want to make sure that they're experts in terms of what it means in their specific territories that they're handling it the appropriate way in terms of educating their customers going forward. So that's a process that, quite frankly, starts from a triage standpoint, the day after these LCDs are announced and then we'll pick up steam as we exit the year.

Shifting to Infinite. Coverage in LCD is certainly a win that would obviously be specific to stand-alone. I guess just to start with 2023 for Infinite, can you help us think about how Infinite standalone specifically has progressed to date, so not combo-cataract?

Yes. Well, from a standalone perspective, it's had at different points of time, two arms tied behind its back, maybe 1.5 as we were awaiting these coverage policies. As you know, without the MAC coverage in place, that also translates into Medicare advantage, it translates -- commercial plans don't follow. So you're really in a sort of hand-to-hand combat, if you will, in the context of driving that. Having said that, we've been pretty pleased with the utilization even with that backdrop. Has it been more difficult for accounts, yes, to get access to that for their patients. But it has been utilized. And it goes back, I think, to sort of the, I'll call it, the low-hanging fruit utilization case. If you have a patient who is progressing and they've failed on surgical medical therapy and they're headed towards that in-stage procedure, a Tube or a Trab or even [indiscernible] for that matter. IStent infinite presents a very attractive alternative and a minimally invasive procedure for that patient. And the results speak for themselves, at least in the FDA trial.

And then 2024, I think that sets the stage. Well, the big question in my opinion for next year is how incremental standalone infinite can be to revenue in the U.S.? Do you believe 2024 can be an inflection year for standalone infinite? You have the much higher facility fee, much higher. LCD is formerly covering the procedure. And then hopefully, all MACs will have the professional fees in place. I think on the call, you talked about maybe spending into and leaning into the launch, hopefully, while reimbursement gets formalized. Do you think it can be an inflection year and help drive incremental U.S. revs?

Well, I think it definitely should be an incremental driver to the U.S. glaucoma revenue in 2024. There's no question to that. Inflection point, I suppose, means different things for different people, so I'll be careful about that. But I do think that we're finally starting to see the various impediments to product adoption be knocked down. You referenced several of them, but they were all relevant. First is coverage and getting that established. Second is that you've got a facility fee in place that actually makes it so that these procedures can be done at a minimum breakeven, which was a challenge in 2023 and certainly with an appropriate amount of return to the practice for doing them, that should be established now with the final rule as we entered into 2024. And then finally, the pro fee component of that which -- every day is a new day in terms of knocking down more and more claims and driving that towards a regular recurring payment stream that they can count on. I think all those things are there. It's going to be a major focus for us. If you think about sales force prioritization entering into 2024, it's #1 at the beginning of the year. And clearly, as iDose comes online, iDose will take over from a president standpoint. But as we think about the first half of the year and really trying to cement the proper utilization of iStent infinite in these practices for those patients who need the technology, it's going to be a major priority.

That's helpful. And then 2 more on infinite. The first would just be WPS and First Coast, I believe, do have formal professional fees in place on their fee schedules. Any trends to call out? I think those have been in place for maybe close to a year now. Are you seeing higher utilization because of that formal professional fee in place? And then ask a follow-up on ASPs.

Yes. Where you had coverage or certainly case-by-case and you had an established pro fee, you expect there to be a little less of an impediment to utilization, and I think we've seen that. But that's more on the edges in the context of the overall driving dynamic. I think we've been pleased, we think that the professional fees that have been established so far have been appropriate when you think about the similar procedures, and that's kind of what the MAC process does. We've seen pretty consistent payments that are in that, I'll call it, $600 to $1,000 range, and it's always varied based upon the geography and the cost of living index that exists within a territory.

Got it. Last one on Infinite. We saw recently that the facility fee was mapped-up again. I think at the ASP -- at the ASC, it should pay around $4,100, at least following the July proposed increase, you guys were pretty steadfast about not taking price. Has that thought process changed at all now that the facility fee is that much higher?

Well, I think it's important to remind investors that our expectation was that the facility fee would be adjusted from the beginning. So we went into this from a pricing perspective and from a market building perspective, always under the assumption that you'd have an adjustment to the APC assignment heading into 2024. And we're pleased, obviously, to see that be proposed and then ultimately finalized. That's because the majority of ophthalmic procedures in the similar class are all in these APCs. So the fact that it had a 1-year parking station in the 5491 APC was something we always anticipated. So I think we try to take into consideration pricing dynamics for the long haul when we set that even in 2023. I think it gives the sales organization a little bit more flexibility as they're having those sort of account-by-account negotiations. But I would not expect a wholesale change in our pricing strategy going into next year. We've got enough on our plate between trying to drive the proper utilization of that product combined with obviously iDose and other dynamics we've talked about that I don't think leading with a significant price adjustment around infinite is where we're going to go.

Makes sense. Shifting to iDose. I'll start with the label. Joe, can you talk about the range of durations we may see on the label? Can it be anything beyond the 3-month efficacy endpoint in the pivotal? And then I'll ask a follow-up.

Sure. And I'll be careful to preface this by saying, these are all things that we've said historically, and so I'll try to stay within that. From a label perspective, this conversation around duration was something we heard several years ago as people were kind of thinking about what that would look like. I think we've been pretty consistent on the record of saying, it was a study like 505(b)(2) study that's similar to all the drugs that have come before in glaucoma, it's a 3-month study with a longer-term, obviously, safety follow-up. In our case, obviously, we follow them for much longer, but that's not the actual FDA study, if you will. So I think that the investor expectation should be that it's going to look like those drug labels which the primary efficacy and safety, et cetera, is determined at the 3-month endpoint. I don't know that, that's as relevant outside of the context of other than the label because obviously, we have a wealth of what soon will be peer-reviewed publication data that is what will really drive the understanding of, call it, the medical directors, for example, at a payer. And that's probably the most relevant audience in that context. And I don't think there's any clinicians or very few who would look at iDose and say, this is a 3-month implant. So clinically, it's not that relevant either in that context.

Got it. So maybe we should expect 3 months on the label and you don't think that impacts iDose' marketability even at a consumer level? Or is iDose even going to be marketed to the consumer like DURYSTA?

Well, ultimately, we would hope to be in a position where we have a level of success with the clinical community that will drive the ability to have those consumer marketing efforts as we think about expanding and understanding. But, no, I don't think so. I mean, so much of it comes down to the doctor conversation. And I think that the -- it's pretty well understood. It certainly will be as we launch and we can actually have commercial conversations with these doctors that for the majority of these patients that you see long-term efficacy of 2 to 3 years. So I'm not so worried about that from a clinical perspective in the context. But I do think that the operating assumption should be that it will be a 3-month label, whether or not there's other places and -- these things are fairly lengthy documents where you try to get some additional information in there that remains to be seen.

Okay. Sticking with the label, single administration, question I get a lot, your level of confidence, we won't see any sort of single administration warning. At AAO, we did see strong ECL data. And then what would the company be able to do if this were the outcome when the label is published?

Okay. So the good Stifel multi-part question there. That's right. Yes, so I think as it relates to label, as we've talked about, going into that, I think we feel very good about the data from an overall safety efficacy we've shown in exchange trial. Obviously, this can be done multiple times and over a long period of time. So we feel good about the overall data package, if you will. It still is -- it's the FDA and they can look at things differently than the way we do or may sometimes be obvious to you all, and that's no way to comment about where this will or won't go. But that can happen. And so I want to be careful around that. There's a range of potential scenarios that you could see, everything from silence or a positive affirmation of repeat utilization to the far end on the other side, which is I think what we saw in DURYSTA where there is that black box warning around the safety considerations of repeat utilization and that restriction. There's also multiple flavors inside of that, that you could see where that could emerge, if you will, in a final label. So we'll see where that goes. I think in the context of the bigger picture, it's important to remember how long iDose lasts. And so I think where the concerns obviously would be is, let's take the most extreme example of that where you have a straight restriction on a single administration. If you think about the utilization in 2024, for example, the vast majority of patents are going to be treated towards the latter part of the year. So if you believe that for 60, 70-plus percent of these patients it will last 2 to 3 years, you're talking about 3 to 4 years before you're really thinking about readministration for the vast, vast majority of these patients. And during that time, obviously, we would be hard at work on TREX, the next generation in trying to bring that to market as another tool, as well as if the FDA puts that impediment, whatever that impediment is, how will we try to solve that. That's different than the DURYSTA situation, they have a 3-month to 4-month implant. And so they're faced with that readministration issue very quickly. And it's not quite the same dynamic that would exist for us with iDose.

Got it. And then last one on the label. Just the exchange trial, what was the impetus behind that? Was there any inbound from FDA based on DURYSTA's single administration warning and what they saw with the reimplantation in the pivotal? Talk about the exchange trial. Obviously, from a marketing perspective, that will help. But what was the impetus in sort of adding that on top of the Phase IIb?

Well, I think we've been public in saying that when we exited the Phase II study, the FDA actually did not require us to collect ECL in our Phase III study because the data was so strong. At some point during that, and I can't recall exactly when, I think it was after the DURYSTA study had been concluded and some of that was there, that conversation happened where they asked us for the remaining patients if you could collect that ECL to sort of round up that data package, even though the Phase II had been so safe. And so we did that. I don't know the -- recall the back and forth of that stage. But part of -- during that time, we concluded that we would also do an exchange study just to make sure that we had with as many patients as possible that data in hand and submit that to the FDA as part of our overall package to show that repeat utilization is safe and effective.

Got it. That's great. Combination procedures with iDose, probably one of the more common questions I got coming off the 3Q call. Any reason to believe physicians won't be able to implant iDose in combination with a cataract or other MIGS. That was -- the main question from investors was, will iDose be limited based on the LCD language around combination procedures?

Yes, that was a surprising one to me, too, in terms of the amount of questions that kind of came out of that. I sort of view that as, and I'll get to your answer, I think if we're at the stage where we're arguing about whether or not iDose can be done in combination with other MIGS procedures, then we've done really well with iDose, and that will all be pretty pleased with where that's at. I mean, when you think about would I want my mother to have iDose plus Infinite, and maybe even iPRIME, yes. But in terms of adoption, utilization of iDose, I don't think there's much of a correlation there, to whether it could be used or not, in combination of iDose and infinite. Now to the -- but to the heart of your question, it's a drug, and it is regulated a little bit differently in the context of these things. For example, I think this largely comes from this LCD dynamic, and you don't see DURYSTA listed in that. Neither DURYSTA nor iDose we consider to be a MIGS device. It's a drug delivery. And so you can never predict how LCDs will evolve in the future, how the MACs will handle that. But as we sit here today, we wouldn't expect any restrictions in terms of that utilization. Would physicians be cautious potentially in the context of doing it with, for example, iStent infinite, and that's okay. And it should be done where they think it's clinically meaningful and the benefit. Combo-cataract, different thing. I think from our standpoint, similar to iStent infinite and this is a transition for the industry, people have to think about this a little bit differently. We've been taught to think combo-cataract for so long because that was the pathway through the FDA. But we now are transitioning in the industry where we're treating glaucoma which was always the original intent. And so whether it's iStent infinite or whether it's iDose or whether it's any other tools that are done as part of a broader glaucoma study, the fact that you have -- you're also co-morbid with cataract, is not so relevant in the context of treating the disease. And so whether or not you're deciding there, you don't -- patients remain on their glaucoma drops to manage glaucoma when they have cataract surgery, they can have other procedures done in that same time. So we really view those independently. And if a doctor determines that they want to do an iDose in combination with cataract surgery, I think that's no different than anything else.

Got it. And that's a good segue into sort of -- how do you think doctors over time are going to position iDose in their glaucoma treatment algorithm? Where will it be most prominently positioned? Is it going to be maybe before an iStent? Is it going to be after an SLT? Just talk about -- as we think about the entire spectrum of the disease, where iDose is going to be slotted in maybe most prominently?

Yes. Well, as you know, unfortunately, a lot of this in health care is determined based upon coverage policies and the way things are paid for. I think that our goal will be to -- obviously, we think it's a safe and benign procedure that you'd like to see move as close to first-line as possible over time. But we're certainly realistic to expect that, I think out of the gate, and this is the way we'll have conversations with our customers is the fairly obvious use cases for it. And for patients who are already entering into that interventional glaucoma treatment paradigm, whether they've had SLT, whether they've had DURYSTA, whether or not they have [entered] because they're intolerant to topical medications or they have severe dry eye or they have mobility issues or different reasons that prevent them, there's a lot of those patients out there that you start with. That's a conversation that receives very few objections from the clinical community. And I think from there, you start to cultivate and grow standard of care in a much broader setting, and where payers put up impediments in terms of pushing you to third or fourth line therapy, you start to try to tackle those case-by-case by driving standard of care. And that's ultimately that, and the evidence is what will change the mind of a payer who puts in place any impediments in front of you.

Okay. Shifting to ASP reimbursement, and I'll start with ASP. We hear some very big numbers tossed around across buy-side, sell-side. Can you just remind us of your framework when thinking about a potential iDose ASP? Then I'll ask a follow-up.

We've been hard at work on this equation for quite some time, as you can imagine, in assessing that. And I think the first thing I'll say there is, we're focused on setting price points for iDose that achieve the maximum value for Glaukos as a company, for you all as shareholders. And we're cognizant of the conversations that will happen and the impediments that may be put in place with payers. So that exercise of trying to find that value maximizing price. I think if you look at the landscape of surgical pharmaceuticals and you think about the duration of effect that we see with iDose, that gives you the range of alternatives. We've certainly been on the record of saying we expect it to be a premium to DURYSTA, but maybe not a straight-line math exercise of the fact that there's that much more drug payload and duration of effect that's there. But we take all those things into consideration to try to drive what we think will be the value maximizing price for all of us.

Okay. Fair enough. Reimbursement pathway, just a level set, these can be sort of quick hits. Starting with the drug side, miscellaneous C-code before the J-code, this would be ASP plus 15%. Will the C-code be a barrier to adoption or utilization? I think these centers, based on our checks, they have experience with these codes. Maybe you can talk about that?

So first, I confirm it will be a miscellaneous C-code until the permanent J-code is established, either in the third or fourth quarter. And the economic side of that tends to be AWP minus 5, which is ASP right around plus 15. And that's meant to compensate them for the extra work that's involved with the C-code and the timing of getting paid for that. It is an impediment. I wouldn't say that it's not. There are some practices where it is just not set up to do that extra level of work. There are practices with more risk averse when it comes to these things, and they'll wait until the permanent J-code is established. There's some sites of service who just really have to have that permanent J-code established. Having said that, when you do the work and you submit the paperwork and you do it the right way, the payment rate for miscellaneous C-code, certainly within Medicare, is pretty good. And you'll have it, you'll get that. But that's a process you have to go through. I think the other thing that will likely be an impediment in the way that you'll think about the adoption curve here is that even though some of those accounts have been through it, a lot of them will want to see it come through.

What's the lag on that, roughly?

Well, I mean, the average payment time for a miscellaneous C-code is around 60 days. And so you could see them doing a few and then making sure that gets paid and then doing a few more and sort of stepping that up. And again, all practices are a little bit different, but you can imagine a little bit of conservatism until they see the payment come through.

J-code typically 30 days?

For Medicare, yes.

For Medicare, got it. Procedure codes, professional fee, I think, similar to infinite, you need to go MAC-by-MAC. I guess is cataract at $500 a fair low end, maybe infinite at $1,000 at some MAC so far a fair high end of the range?

So I think one nuance to what you just said, iDose from a professional fee standpoint, the process should look more like what we've had in the past with iStent than maybe iStent infinite. In the case of iStent infinite, just because of the way the coding had changed, it was in a noncovered status for most of these MACs and so you had to go and actually shift that before they would pay, or even have a policy that would apply retroactively. In this case, it should be case-by-case out of the gate and going through that. As we think about the crosswalk of a professional fee, obviously, that's a process. It feels like in the majority of these situations that you'd be looking at something that would be the cataract surgery through to the glaucoma procedures that we're talking about, we believe would be a fair landing spot, but you have to go through that process with the MACs and find out for yourself.

Perfect. Alex, I'll pull you in. As it relates to the iDose launch, can you just talk about investments that maybe remain outstanding, notably related to the sales force and headcount?

Luckily for us, iDose is going to slip right into the bag of our existing sales force. There will be no need to expand that sales force when we launch iDose. And then we'll see -- with success, we can see that sales force expansion happening, but it will be dependent on success. But the last thing I'll say is it's highly leverageable. If you see some of the larger pharma companies that are out there, they might have sales forces of 100, 125 people. So that would be the max that we would go to.

Got it. That's helpful. Shifting, we've got a couple of minutes left. I'll just ask about 2024 more broadly. Street is modeling 12% year-over-year growth, which is only a modest acceleration from the 9%, I think, at the midpoint of 2023 guide. A lot of moving parts next year, but there seems to be more tailwinds than headwinds when we think about infinite, iDose LCD share capture. Can there be a more material revenue growth acceleration for Glaukos in 2024?

The way you phrase it, of course. I think there's a range of scenarios that exist for 2024. To your point, there's a lot of puts and takes as you're thinking about the dynamics as we enter the year. I think it's important to note that a lot of those, in terms of the quantification, the materialization of those, play themselves out as the year goes on. So you'd expect to see those scenarios emerge more in the second half as you're running with iDose and you're seeing how the LCD dynamics are shaking out and all the various things that are there. So I would not expect us to get ahead of our skis, if you will, when we think about setting guidance and setting expectations for the year. But certainly, there's a pretty wide [indiscernible] of what could transpire over the course of the year, given the number of things that we're both launching and navigating entering it.

That's helpful. Just spend some time on near-term trends. You mentioned some seasonality in August, strength in July and September. And then I think you followed up in Q&A that the strength from September continued in October. We're halfway through November, coming up on the holidays. Has 3Q to date generally maintained the strength of the September exit?

Well, I don't think it'll break news in the context in November, but I will say, what you just said is correct. The strength that we saw in July and September continued in October. And I think the context of the 4Q and where that all lands, I think December is kind of that month that has the most potential variability to it as we think about leading up to both the change in facility fee around combo-cataract stents, standalone stents in 2024 as well as the dynamics around the LCDs, which all have proposed -- actual final dates of December 24. So that's the -- it was that month that we were most focused on where there could be some unexpected variables thrown our way, as we exit. None of which should have a significant impact in 2024. I think these are all things that should still be net positive for 2024, but could create a little bit of disruption at the end of 2023.

I'll squeeze in one more. It probably might be redundant, but 4Q guidance at the midpoint implied is down 2% quarter-over-quarter. Pre-COVID, you were up on average mid-single digits. Ophthalmology typically is mid- to high-single digits, know there are headwinds you talked about, conservatism just again, given December, some unknowns?

Well, I think all of the statistics and you think about normal seasonality and the like, and hopefully, we're finally getting back to a normal world and the way these things should work from a procedure standpoint. So all those things would imply what you'd expect for the fourth quarter. And the delta between that and our guidance is what we called out in the context of some of the dynamics, in particular around U.S. glaucoma. Yes, we have a little bit of incremental tail -- headwind from FX on international glaucoma side, but the most prominent driver of that, is really just the channel dynamics as we sort of navigate the finalization of these LCDs and the facility fees going into 2024.

Makes sense. Joe, Alex, Chris, thank you, guys.

Thank you.

Thanks, Tom.