Glaukos Corporation (GKOS) Earnings Call Transcript & Summary

Good morning, everyone. Thank you so much for joining. I'm Danielle Antalffy, the U.S. med tech analyst here at UBS. Very excited for my first time ever to host the Glaukos team. Alex Thurman, Chief Financial Officer; Chris Lewis, Head of Investor Relations. Thank you, guys, for making the time to be here.

Thank you for having us.

Thank you. Happy to be here.

Yes.

Yes. So maybe let's start. You guys did just report earnings like 2 weeks ago, I think it was. So maybe talk a little bit about the quick hits from Q3, and then we can launch into Q&A.

Sure. So we are really proud with our Q3 results. It was a great quarter, lots of records, record glaucoma revenues, record total revenues. And we are really excited to report $40 million of iDose for the quarter. So a really nice sequential step-up from Q2. And so overall, it was a really fine point. And as you know, we provided an update of guidance. So we beat the Street, and we kind of beat and raised our guidance for the year from up to $490 million to $495 million. So we're excited about the continuation of the business and how we're growing and as we close out the year and then go into 2026.

Well, and that's my next question because, of course, everyone is already focused on 2026 and how to think about especially the iDose ramp in the context of you do have the iStent business and sort of how they coexist together as iDose is ramping?

Yes, it's a great question. I mean, quite frankly, we're excited about iDose, and that is a focus just given the opportunity and the expansion of the TAM, et cetera. And so as you can imagine and given its price point, we're continuing to focus on iDose and trying to build that business and to really spread the message that we've started with this interventional glaucoma, where we believe that with patients that have glaucoma or even ocular hypertension, there's an opportunity to intervene earlier and really help them with their disease. And while the messaging is always about can we overcome the challenges that patients have with drops. We know they work when they're taken. Challenges that patients don't take them, and there's lots of studies that show that. So can you intervene with an iDose or even with a stent earlier in the stand-alone setting and help prevent them. So as we go through this business, we're starting to build that side and continuing on, and you see that in the iDose progress. And then obviously, we announced the approval of Epioxa, and that will be the second big driver as we go into 2026. And it's exciting as a company now that we have multiple drivers to drive towards what we think will be a great near-term period of time for the business.

Yes, yes. I mean, this is timely, too, and I'm going to jump right to tomorrow and the CAC meeting. And we actually have done some work on this on our own. I'll tell you what the takeaways we've heard are as far as what to expect out of this meeting. But curious what your guys' thoughts are as we head into this. So the work that we've done suggests that this could potentially restrict iDose use as stand-alone, so not in combination with cataract, not in combination with another MIGS procedure. What if that was the outcome, what does that mean for iDose?

Well, I think maybe taking a step back just for the audience, I think tomorrow's meeting, again, just to reiterate, is a great opportunity for MAC to learn what iDose is and for the CAC members to better understand iDose and the value it brings to patients in terms of addressing that noncompliance with topical medications. And so we're excited for iDose to have that forum tomorrow. And I think importantly, for doctors to share and understand and talk about the Level 1 clinical evidence that iDose really has, right? And I think that's such an important piece of it that we're really proud of iDose studied as an FDA-approved pharmaceutical, 2 Phase III drug trials, over 1,150 patients across both of those Phase III trials, obviously showed great efficacy and safety. And we think that's a really critical piece of that in terms of what that meaning is really geared towards in terms of understanding the clinical evidence around iDose and the value it brings to patients. I think another important piece as you think about the outcomes, and there's certainly pluses or minuses, and we can talk about that. That's obviously, I think, been written on by the Street quite a bit here over the past several weeks. But at the end of the day, it comes back to the Level 1 clinical evidence. It comes back to the fact iDose is approved as a pharmaceutical. And so when you think about what that means and the contraindications, I think that's a discussion to be had and hopefully some education learnings for tomorrow. And then the continued evolution of the peer-reviewed evidence, right? And we've written about that, and you've done a nice job. I mean there's 15 peer-reviewed publications now across a variety of settings. And we're going to continue to expand that. That's been the goal. Even before we got approval, we were planning for that, and you've seen that play out, and that will continue to play out in terms of supporting that evidence. And so I think at the end of the day, we feel -- I think continue to feel confident in how this plays out. Ultimately, I think there's a lot of enthusiasm and excitement around the product and what it means for patients. And our goal is to try to expand that patient access as much as we can.

Yes. Okay. Okay. And first of all, Angela gets the credit for all the work that we did on that, not me. But -- so it sounds like you think tomorrow could actually result in -- I mean, tomorrow itself is more an information gathering session, I guess. But are we at the Street overfocused on this as far as what the outcome could be?

I think it's just early in the process.

Yes.

To be fair. And I think Wall Street is going to speculate one way or the other.

Yes.

That's not our job. Our job is to just focus on executing what we can execute. Again, I come back to all those things we talked about being -- having the most robust Level 1 clinical evidence and the true value it's bringing to patients. And so I think there's a lot of enthusiasm and support out there from a physician advocacy perspective. And hopefully, that continues to show going forward.

Okay. And you are already annualizing at $160 million -- $240 million. I can't do head maths right now. But...

[indiscernible] run rate.

It's been a long 2 days. So as you exit 2025, why isn't the right way to think about iDose in 2026 as something well north of that?

Well, I think it's a good question. And if you look at our fourth quarter guidance, I think most of the Street has us kind of exiting at a $180 million run rate. And then the Street models have us at, call it, $220 million roughly next year in iDose. And exiting at $180 million, it's not a big stretch to get to $220 million.

Yes.

So that's perfectly within the ballpark, so to speak. If you think -- if you step back and you think about what are the opportunities that iDose has from a market standpoint, we've talked about the fact that when we started our journey as a company, we were limited to the combo cataract market with a kind of a TAM of 500,000 eyes that were being done. And with going into the stand-alone market and expanding that market size, we talk about the fact that there's probably 22 million eyes that have ocular hypertension and glaucoma, of which 12 million are actively being treated -- diagnosed and actively treated today. So it's a huge step-up in the opportunity for sure. And that's really -- that goes to this whole idea of this messaging around interventional glaucoma and trying to get in earlier and trying to help these patients because it's such a large patient population out there, of which today, most of those people that are diagnosed and treated are using drops, right? And unfortunately, as we know from the studies being done, it's largely ineffective.

Let's talk about interventional glaucoma because I think that it's important. And I was at AAO, and I felt like that was a very big topic. And so I guess my first question for you is, how are you guys measuring success for this market and the strategy there? And where do you see this going? Like if you look at MIGS procedures then say, what percent today is in stand-alone? And how does that ramp over 5 years -- where are we in 5 years?

Yes. That's a great point. I think as we measure success, we think about it, it's the things like you saw at AAO, right? How is the physician community adopting the messaging and getting excited. And when we see KOLs out there that are preaching from the pulpits like another conference like that, about the benefits of interventional glaucoma and the need to fully embrace it. That's one measure of success. And then you break that down into the next level of providers that are out there and they're adopting that and they're looking for opportunities to do that. And then hopefully, the patients get on board, right? And they understand, gosh, I hate my drops for whatever reason, and I don't like how they feel or I don't like how I look afterwards. And so what are the other alternatives and then that education process happens. All of that will lead to what we think is successful, right? It's getting those patients treated earlier in their paradigm and helping them relieve themselves of the burden of drops and really controlling those disease and those eye pressures earlier on in their disease state. That will be the measure of success.

Okay.

As we go forward, what does it look like in 5 years? You talked about the mix of stand-alone versus combo cataract. Again, we would hope that the majority of these procedures are done in a stand-alone setting because the market is so much bigger and there's so many more patients in that. The only reason we were in cataract to begin with was that's how we were initially approved with our stents and the FDA wanted us to go in there. So now we're luckily between iStent infinite and now iDose, we're able to go outside of the cataract market and really try to drive home that messaging around IG.

So what is the lift to drive growth in this interventional glaucoma market? Like thinking from a logistical perspective at the practice, like changing standard of care is hard. So maybe talk about some of the areas of friction there.

Well, it's always -- we've always said it's going to be a 5- to 10-year journey to change a market. And we've built markets before. Thankfully, if you look back at the iStent, there wasn't a MIGS before we started with the stents, right? And when we started that journey, there were some surveys done in some of these society conferences where how many of you doctors would consider using a MIGS product. And back then, it was a very low percentage. And now if you ask that same question, it's going to be 90%, right, or plus. So it's a similar process where you have to go out and you have to get your KOLs to buy into this and understand it and adopt it. And then it just kind of trickles down from there, along with our efforts around just advertising and talking with doctors and meeting with our customers and really educating them on the benefits of that. And so it just takes time. There's a lot of customers. There's a lot of education and a lot of things that happen. And then you do what you saw at AAO between AAO, ASCRS, those types of society meetings where you can, again, really market that concept of IG. We were very pleased to see at ASCRS this idea that they had -- and it wasn't put on by us, but we've certainly supported it, what a session they called the business of interventional glaucoma that was put on by the KOLs. And so those kinds of things start to snowball, we hope and really drive this in the next 5 years.

Yes. It was very evident at AAO that the same messaging. So...

It comes back to the clinical need, too. I mean, what -- like what's the driver of this over time? And it comes back to the noncompliance on topical medications, which have historically been kind of the standard of care for better or worse than glaucoma, right? And so when you look at the literature and the stats, 50% of patients don't fill their first script on a topical lowering medication, 90% of patients are noncompliant at the ear. So when you think of that, like drops can work when they're taken, they're just not taken. And so when they're not taken, they're not effective. And so I think it's -- you have tools now through stand-alone interventional glaucoma approaches for us with iStent infinite and iDose and hopefully more to come over time that you can intervene earlier to help patients slow and arrest the progression of the underlying disease before you get to later stages in tubes and travs and ultimately blindness. And so it's really a full-scale transformation of that treatment algorithm.

And so in the context of that and the growing interventional glaucoma market, how -- what is -- this year, you faced very well telegraphed headwinds in the iStent business. What is the right go-forward growth rate, a normalized growth rate for that business?

Yes. I think from an underlying market perspective, we're going to anniversary or we have anniversary kind of the LCD headwinds that basically restricted 2 or more surgical MIGS devices to be used in the same procedure, right? And so that was obviously a year-over-year headwind from a market unit perspective, not just for us, but for all companies out there within the combo cataract MIGS space. I think you get back to a place of underlying market growth over time, certainly, if you're looking in the combo cataract market, I think a good benchmark, obviously, is cataract surgery. So whether that's low or mid-single digits from a market perspective, that's probably not a bad place to be in terms of getting back to kind of a steady state. For us, I think you have to consider -- you have to balance that with the considerations of iDose, and that will obviously be the primary focus for our sales force and our leading tool out there. And so I think you have to kind of balance that a little bit when you think about kind of the growth specifically for our iStent or non-iDose franchise as it relates to just the vast opportunity we have with iDose going forward.

Okay. Okay. Got you. We did touch on the CAC meeting tomorrow. But just in general, where are we today with MAC and who's paying, who's not? I assume we'll get some more color tomorrow, at least how they're thinking about this. But curious about, as you think about 2026, where are we going to be entering '26?

Yes. So it's been a big focus of ours, right, for those of you that follow the story is to build the foundational market access pillars to support coverage and streamlined payment and building that reimbursement confidence at the account level over the past really 1.5 years, 2 years now. And we're in a really good place now. All 7 MACs are paying on the J-code in a streamlined manner. The facility fee is paying across all the MACs in a streamlined manner. And now 4 of the 7 MACs have pro fees posted to their schedules, most recently, NGS in August, which is kind of the second or third largest MAC. So I think within those 4 MACs that covers about 70% of the Medicare lives. There's 3 remaining WPS, CGS and Palmetto. And so we're working every day to get those established. Those 3 are part of this 5 working group that is going to participate in the CAC meeting tomorrow. So we think that's a great opportunity for us and doctors to educate them and maybe hopefully, that's a step in the right direction in terms of getting the pro fees ultimately posted and streamlined. And so from a mix perspective, it takes some time to operationalize once they get posted to the prophy schedule, it takes some time to operationalize that in terms of pulling that through in terms of volumes. And so what we said on the third quarter call was that those 3 MACs that have been -- have the pro fees established for some time now, Noridian, Novitas and First Coast, those accounted for about 80% of our iDose volumes, which was largely consistent with the second quarter. We're hopeful that NGS starts to layer in there as we exit the year into 2026 being one of the larger MACs. But I think that's an important point to think about that we've shown really nice sequential growth with 50% of MAC still not on board yet and operationalized. And so I think that continues to -- when you think about '26 and beyond, that layers in and starts to hopefully continue to support that growth trajectory over time.

So you're saying the Street is too low with that [indiscernible].

We are not commenting on '26, to be clear.

Okay. Let's talk about Epioxa. So that was an exciting approval, finally got that approval. Very few people focused on the right. I remember when we first started talking earlier, we have this whole other business here, too. Don't forget about that. Maybe talk -- remind us a little bit about what you guys talked about on the Q3 call and the ramp of that and how that's shaping up for 2026 and can impact top line growth?

It's very exciting. I mean, first and foremost. So it is if we go back in time with the Photrexa treatment, Photrexa was the one and only FDA-approved therapy for keratoconus. And it worked. It stopped the progression of the disease, but the challenge was with patients you had to debride or scrape off the outer part of your cornea to apply the drug, which was something that caused a long recovery and a painful recovery, and that was hard. Now with Epioxa, we have the opportunity to treat those same patients without taking off the outer part of their cornea. So it's an exciting new development. The other thing that we commented on, on the call was the fact that we -- when we bought the business from Avedro, we've had it now 6 years, and we've made substantial investments over time, but we really haven't been able to penetrate the number of patients we think are out there. It's kind of held steady at around 10,000 patients being treated per year. And we believe based on our data that, that is only 1 in 5. And so there's potentially 50,000 patients out there with keratoconus that's progressing and not getting treated today. And so with Epioxa, it was an opportunity to really reset the whole kind of dynamic and market around keratoconus, which would require substantial investments to find these. When you're talking about a prevalence of 10,000 patients in a U.S. population of, call it, 340 million, it's kind of like finding a needle in a haystack. And so that requires some investment. And so the price that we disclosed on that third quarter call was obviously a lot higher than Photrexa, but it allows us to make the investments required to find those patients and to help educate them, identify them, educate them, help them along the journey with their insurance, et cetera, to ultimately, we hope, get treated with Epioxa and really halt the progression of their disease and give them kind of their vision security back that they're not going to lose their vision in the future. So that's an exciting time. How that ramps up this year is another step, right, in the whole process. And we've been on record to say that as we go through 2026, it's going to be a focus of establishing the market access for the patients. And it's important to know that this is a younger patient population. So it's completely different than iDose, right? You're typically in a Medicare age patient in iDose. But with this, it's going to be typically younger than age 30, most of them are commercial. And then a pretty good subset of Medicaid patients as well. And so it's a matter of going plan by plan, state by state to get the coverage changed out from Photrexa into Epioxa and allow them to get treated through those plans. And then it will be a second step of going through our customers because with commercial plans, they typically have individual contracts with those commercial plans. And so we'll have to get those commercial contracts updated as well. And so we've already invested quite a bit in the apparatus, let's call it, to support our customers in doing that and to going through our payer relations and our reimbursement liaisons and helping them to figure that out. And so it will be a slow, steady move as we go through 2026. The other thing that is always out there is the famous J-code. So we've talked about now that we have an approved product, we can apply for a J-code, but it takes 2 quarters of reporting that ASP in order to get the formal J-code established. So the first half of 2026 will be under a miscellaneous C-code and then you'll get into the J-code in the latter half of the year. And that's really when we think commercial plans will start to pick up more fulsomely is once they have an established J-code.

So heavy market development lift, it sounds like. So 2026, we should not be modeling $220 million in Epioxa. That's my takeaway. You mentioned the only 1 in 5 patients being treated. Why is that? Is it just that therapy just Photrexa was not?

Well, I think it was -- you have to remember, it's interesting that if you're a mother of a child that comes home from school and says, "gosh, mom, I can't see my book or I can't see the board very well anymore. Your first reaction is going to take them down to the local optometrist, right? You must think there's some issue with the vision. And so then it becomes a matter of -- there's 50,000 optometrists in the United States. And so of those 50,000, how many of them are aware of keratoconus or know how to diagnose it. So that's another part of this launch is helping them to be able to diagnose it and then to be a part of a referral network that refers them on to the appropriate MD to treat it. And so that's all part of the process. And before with Photrexa, we just didn't have the financial resources to be able to do that. But with Epioxa, we think we will.

Okay. Got it.

It's not dissimilar like versus other rare diseases, just a structural kind of barriers out there. And given the kind of the patient populations and the number of patients, they're just harder to develop. And so I think that's why we're really excited to have the opportunity to kind of reset the way we're going to go to market and all those things we talked about on the earnings call. Ultimately, the goal and why we're doing that is to drive improved patient access over time and capture more patients and drive them to treatment so they can arrest the progression of the disease earlier.

Okay. All right. We talked a lot about top line, but let's talk profitability. As CFO. bring it on. So obviously, you talked about -- we talked about iDose and the ramp there. I mean potential leverage from a product priced at that price point as well as Epioxa. I mean, how do we think about the path to profitability for you guys?

Yes. It's a great question. One that I'll say overall is that our philosophy hasn't changed in the near term. And what I mean by that is we've been saying now for at least a year or more that our focus, once we were able to make the investments necessary to build a manufacturing facility for iDose and some of the things that went along that is we want to get back to a point where we "live within our means." And so we're driving our investments to match our revenues so that we are cash flow breakeven. And that's kind of the near-term goal. We have to remember, like we've talked about that with Epioxa, it's going to require a great deal of investment. So even though, to your point, from a gross margin standpoint, the product is great, right? Wonderfully high margins, and we should expect gross margin to accrete over time. But we're going to have to take some of those -- many of those dollars and reinvest them in both the commercial and the patient support apparatuses that we have to try and drive patients to that treatment and treat them. But that's kind of the near term. And then as we continue to expand and grow, we expect in the kind of the midterm time frame that we do turn to that profitability. There's no reason that the business that we have today with the gross margins that we have shouldn't be somewhere in the 30% to 35% operating margin in the midterm. And that -- and we'll drive towards that over time as we go.

Okay. Well, speaking of investment in R&D, so you guys don't talk a ton about what you're working on the pipeline, but you do give snippets here and there. Just curious, what can you say about the portfolio of R&D you have right now and how we should think about cadence of innovation?

Yes. I mean I think we try to balance it because if you talk -- I think we've disclosed we have 14 publicly disclosed pipeline programs across kind of a number of our platforms and a lot more behind that. But really, the focus is to build a world-class ophthalmology company. And so I think innovation is always the core of who we are. And obviously, that translates into best-in-class investment and historically and going forward. And so I think even like the iDose platform, we're in the Phase IIb, Phase III studies now with our next-generation iDose TREX, which kind of in the same form factor allows you to put about 2x the drug payload in there, so theoretically longer duration. So we're pretty excited about the potential for that over time. For some of our other platforms, we've talked about iLution, which is a transdermal cream platform that doesn't get a lot of press today, but we're excited to go hopefully into clinical trials on iLution blepharitis this year. That's our goal, and that remains our goal. And so stay tuned on that. And then earlier stage, but pretty exciting given how big the market is already is retina. And we are excited to go and announce our first-in-human clinical program started last year for that, and we continue to make progress there. Early but exciting as we say.

Okay. Well, we touched on this a little bit with the investments in the new product launches, but you do have a very strong balance sheet. How -- what is your approach to capital allocation priorities today? And fast forward to your profitable at that point, how it changes?

Well, I think the -- if I were to think about that, it is really around, again, you've already hit on it. Capital allocation primarily is going to be in the areas of our commercial launches because Epioxa and iDose are important to the future of the company. And we need to invest in the right way and at the right levels to support those launches for sure. The second is what Chris was just talking about, R&D, right? And we have a lot of programs that he's talked about. There's more that we have that are not yet disclosed that are exciting opportunities for us as a company and that we'll need to invest in those as we allocate those capital. We're excited. We've done pretty well building and developing products internally organically. And so we'll continue to feed that as well and see where that brings us and again, to drive the top line growth in the medium to longer term. And then last but not least, there's obviously -- we are -- we do have a nice little business development team that's continuing to look at a lot of things. What's most fun for our team now is that Glaukos, the name Glaukos is on everybody's radar. And so before we had to go out and seek things, but now opportunities are brought to our team. And so they're evaluating a lot of different things. But as you can imagine, just given our pipeline, it's a little bit of a high hurdle and so we'll consider those business development opportunities for sure, and we'll see how that works, but that will be kind of the third layer of how we allocate our capital.

Okay. Got you. Maybe let's talk 5 minutes left, dig a little deeper into the interventional glaucoma market because I think that is critical for not just iDose, but iStent infinite. Where do you think we are today as far as practices or surgeons that are already practicing this way, maybe as a percent of surgeons? And maybe talk about some of the hurdles for practices to implement this.

Yes. I think it's a surgeon-by-surgeon kind of case study. So there's not a blanket answer. But I think overall, to Alex's point earlier, we remain in the very early innings of the -- what we believe will be the kind of the IG evolution over the next decade. I think there are certainly some surgeons who are early adopters, as you see and have really bought in and incorporated it into the practice and all the considerations that we've talked about in terms of kind of operationalizing that and what that means from an OR standpoint, what that means from adding OR time or adding text or ODs or others to allow more time in the operating room for them. So I think that's a component of it as it continues to evolve and you're seeing that certainly from leading centers and groups and practices out there. And our job along with others is to continue to drive that. I think one of the good things is it seems like there's a lot of support, not just from us, but with doctors and with other companies that you hear about. So I think you see -- hopefully, that kind of benefits everyone given the market opportunity over time that we hope to unlock.

And in those practices that have been able to successfully implement this, how are volumes growing? I assume volumes are growing actually faster at those practices.

Yes, 100%. I mean I think it's probably one of the areas if you're a doctor, I mean, getting into interventional glaucoma is one of the both from a procedural perspective, business perspective, all those things, it's one of the fastest-growing opportunities there is over the next decade. And so I think it comes back to like you see big courses now alongside society meetings. I mean that had never really happened before, but it's a testament to the opportunity that provides doctors and practices over time.

Okay. Got you. We didn't touch on the international business. So maybe talk about the outlook for that business. What are the different growth drivers there?

Yes, the outlook is good. We've been very pleased to see the growth continue strong -- probably stronger than expected. We called out the fact that we expected competition in some of our bigger markets this year. But the growth overall in that business has continued to be strong, and we expect it to continue next year. One of the biggest drivers, to be fair, is the fact that we just got iStent infinite approved in Europe under MDR.

Yes.

And so that will allow them for the first time in, I don't know, maybe 5 or 10 years that they'll have a new product to go out and they're excited about it. The excitement was palpable at the CRS meeting around iStent infinite and what that can mean to patients in Europe. And so that we would expect to be a good nice driver in Europe next year.

And are there different hurdles in Europe in the way they practice to getting more people doing stand-alone than the U.S.? Or is it pretty similar?

I think each market is different. And we...

Like even country to country.

Yes, we're used to that. And from a market access standpoint, each territory is different.

Yes. Okay.

The good news is a lot of these international markets, we're still, I'd say, in the early stages of unlocking the full potential there. And so I think we think there's a lot of continued room for growth. The growth thus far has been broad-based across our 16 international direct markets and so that's been really encouraging for us. And we're -- the Infinite MDR certification was -- we were waiting for that for quite some time, and we're really, really pleased to get that. And I think it's still early, but the excitement, launching that at ESCRS recently, I think the enthusiasm around that product and what it means for some of those markets, we're excited about.

Well, less than a minute we have left, stock has been volatile. Market has been tough. I mean, what do you think the biggest disconnect is between the perception on the Street or where people are focused versus what you guys are most excited about?

Well, I can't speak to what the stock traders do. That's kind of a different world for us. And we are really just focused on building a business and really growing Glaukos treating patients. And so there will be volatility as there always is in this industry as you go through market access challenges and hiccups and CAC meetings and things of that nature. But if you really just step back and you look at where are we headed as a business, what are our opportunities? What are our products? Do they address them? Are they effective and successful in the hands of surgeons with patients? Those are the kinds of things that we drive on and we again, we look at where are those unmet needs within the patient population and can we address that as a company and can we go after that? And you've seen that with the stents initially. You've seen that with iDose. You see that with Epioxa, and then you'll see it some more in some of the pipeline stuff that we're joining.

And with that, we're out of time. So thank you so much, guys.

Thank you, Danielle.

Great to be here.