Glaukos Corporation

Welcome to Glaucos Corporation's third quarter 2020 financial results conference call. A copy of the company's press release issued after the market closed today is available at www.glaucos.com. At this time, participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, please press star 1 on your telephone. This call is being recorded, and an archived replay will be available online in the Investor Relations section at www.glowcoast.com. I will now turn the call over to Chris Lewis, Director of Investor Relations and Corporate Strategy and Development.

Thank you, and good afternoon. Joining me today are Glauco's President and CEO, Tom Burns, CFO, Joe Gilliam, and COO, Chris Calcaterra. Following our prepared remarks, we'll open the call to questions. To ensure ample time and opportunity to address everyone's questions, we request that you limit yourself to one question and one follow-up. If you still have additional questions, you may get back into the queue. Please note that all statements other than statements of historical facts made on this call that address activities, events or developments we expect, believe or anticipate will or may occur in the future are forward-looking statements. These include statements about our plans, objectives, strategies and prospects regarding, among other things, our sales, our products, our pipeline technologies, our U.S. and international commercialization efforts, the efficacy of our current and future products, our competitive market position, financial condition, and results of operations, as well as the expected impact of the COVID-19 pandemic on our business and operations. These statements are based on current expectations about future events affecting us and are subject to risks, uncertainties, and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, they may cause our actual results to differ materially from those expressed or implied by forward-looking statements. Review today's press release and our recent SEC filings for more information about these risk factors. You'll find these documents in the Investors section of our website at www.glowcoast.com. Finally, please note that during today's call, we will also discuss certain non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into Glaucos' ongoing results of operations, particularly when comparing underlying results from period to period. Please refer to the tables in our earnings press release that is available in the investor section of our website for reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I will turn the call over to Glaucos President and CEO, Tom Burns.

Thank you, Chris. Good afternoon, and thank you to everyone for joining us today. I'm pleased to report third quarter net sales of $64.8 million that exceeded expectations across our glaucoma and cornea health franchises globally, with momentum that continued into October. Our performance this quarter reflects the resiliency, dedication, and resourcefulness of our customers and and employees around the world who continue to steadfastly move forward during these unprecedented times. Our strong third quarter performance not only illustrates our effective ongoing response to the current market environment, but it is also a reflection of the progress we continue to make towards our broader strategic vision. Consider our accomplishments this quarter in addition to the solid revenue performance. we fortified our U.S. MIGS market leadership position with initial commercial launch activities for iCent Inject W, the next generation of our market-leading Inject platform. Two, we continued to execute on our Cornea Health franchise integration, expansion, and market development plans, evidenced by a record for Trexa sales and a record number of new Trexa starts in the U.S. during the third quarter. Three, We advanced our industry-leading proprietary pipeline that we believe has the ability to significantly expand our addressable market opportunities beginning in 2021. Four, we continue to expand and strengthen our pharmaceutical R&D capabilities, adding product development expertise while advancing numerous preclinical initiatives across glaucoma, corneal health, and retina. And five, we executed financially, not only through strong sales recovery trends but also with improving gross margins, disciplined operating spending, and continued preservation of our strong balance sheet. Let's first focus on our commercial performance, both in the U.S. and abroad, where it should come as no surprise that procedural recovery trends vary and remain dependent on localized dynamics related to COVID-19, including related governmental restrictions and the site of service for ophthalmic therapies and procedures. Joe will elaborate more on the near-term trends later, but I have been encouraged by how physician offices, ASCs, and hospitals are navigating the new normal. At the same time, patient-related and practice efficiency headwinds persist, and there's a limit to how much the system can withstand from a COVID standpoint. We are monitoring what appears to be a second or third wave in the U.S. and Europe. In particular, the response of governments and healthcare systems accordingly is and any potential impact on our customers as we move forward. Our U.S. glaucoma franchise experienced a strong recovery during the third quarter, where practices continued to improve their operational efficiency, and new patient demand increased as the COVID-19 dynamic stabilized and related restrictions eased. Things are not yet back to normal from a market perspective, but the trends were encouraging throughout the quarter into October. Our field sales professionals are slowly regaining access into accounts, and we continue to supplement these activities with well-received virtual tools and training for our Salesforce and physician customers. We've even identified opportunities to collaborate with ophthalmic practices to manage ongoing cases by virtually proctoring ongoing surgeries as part of our commitment to ensure procedural proficiency and optimal outcomes. As expected, in early October, the AMA hosted a CPT editorial panel meeting where three items related to our business were discussed and approved to move forward, including the creation of three CPT codes for IDOS and standalone MIGs and the creation of a new Category 1 CPT code for MIGs in combination with cataract surgery. We look forward to working closely with the AMA, CMS, and AAO as we navigate each of these processes going forward. I'm pleased to announce that in mid-August, we successfully launched the iStent Inject W in the U.S. to select customers, followed by an official full-scale launch in early October. The iStent Inject W builds upon the proven foundation of our Inject platform, and is designed to offer ophthalmic surgeons the same established safety and efficacy of iStent Inject with added benefits designed to optimize stent visualization, streamline implantation, and deliver procedural predictability. Thanks to our team's solid execution from a commercial and operations perspective, many of our U.S. customers have already begun using this next-generation technology. Among U.S. surgeons who are utilizing iStent Inject W, feedback and real-world results remain very positive and mirror what we've heard from markets such as Germany, where we've already introduced the W platform. Surgeons most commonly highlight the improved visualization and enhanced procedural predictability that iStent Inject W may offer, and while it remains early in the commercial launch, we are encouraged by the ophthalmic community's initial response that reaffirms our confidence in the commercial prospects for this important technology. It is our plan for this next generation product to supersede the current iStentInject device globally as regulatory approvals permit. We've also begun to launch iStentInjectW more broadly in many of our key international markets, including various European countries, Japan, and Australia. This adds to a number of recent accomplishments in our international glaucoma franchise that positions us well for long-term growth including standalone indication approval in Australia, ISTENT and ISTENT inject regulatory approval in India, and continued progress across many of our key market access initiatives. Similar to the United States, we also experienced strong recovery, revenue recovery trends in our international glaucoma franchise during the third quarter, driven by a broad-based recovery in key European and Asia-Pacific markets. Looking ahead, we have seen the more recent emerging restrictions related to COVID-19 across Europe and are monitoring these developments closely. Nevertheless, we are continuing to invest in our international infrastructure from a sales, marketing, market access, and product development perspective. Within our corneal health franchise, we also experience strong revenue recovery trends during the third quarter as we continue to execute on our corporate integration milestones, commercial strategies, and market development initiatives. We are ahead of plan on the cost savings targets we announced at the time of the deal, but more important is our progress commercially. We've continued to successfully stabilize the reimbursement dynamics associated with Fortrexa, drive increased awareness of Keratoconus broadly across the optometric and ophthalmic community, advance the diagnosis of this important debilitating condition, and train Coina Health professionals on our I-Link procedure. As evidence of our progress, the third quarter saw record highs in Fortrexa sales and number of new Fortrexa starts in the United States, an encouraging sign that our strategies and programs we've introduced are resonating. While we remain in the early stages of unlocking the combined organization's full potential, we are encouraged with this performance and excited about the opportunity ahead of us as we approach the one-year mark of the acquisition. Moving on to our pipeline, we anticipated and are planning for a robust cadence of new product introductions over the coming years that we believe have the potential to significantly expand our addressable market opportunities and drive long-term sustainable growth over time. These programs include our previously disclosed FDA approval targets for the Presser Flow Microshunt in the first half of 2021, ISTED Infinite in late 2021, and Epion and IDOS-TR in 2022, respectively. We have discussed at length on prior calls the initiatives we implemented in response to COVID and the considerations for our fully enrolled versus actively enrolled clinical trials. We continue to navigate these unique circumstances and we're encouraged by strengthening enrollment trends in September and October, but we are continuing to monitor and analyze timeline expectations for high-dose, in particular as the COVID-19 situation evolves here in the United States. We also remain in early preparations for the potential U.S. commercial launch of Santan Pharmaceuticals Presser 4 Microshunt, an elegant ad-external surgical implant for late-stage glaucoma management. We advanced our commercial preparations for this promising opportunity during the third quarter ahead of an anticipated approval and commercial launch in the first half of 2021. In addition to the exclusive distribution agreement with Santan in the U.S., we're excited to announce we recently expanded our agreement with Santan to secure exclusive sales and distribution rights for the presserfoil micro-shunt in Australia and New Zealand. We look forward to commencing commercialization plans in these markets following appropriate regulatory approvals over the coming years. Beyond these near to medium term opportunities, we also continue to invest in and advance our key earlier stage R&D programs, including in dry eye and retina. While these opportunities remain in preclinical development stages, we are excited with the initial progress we're demonstrating within these programs. Our pipeline has the ability to fundamentally transform blog posts by significantly expanding our addressable markets over time. To enable this, we have built a strong balance sheet to provide us with the financial flexibility to remain on offense as the COVID-related dynamics play out by expanding our global infrastructure, strengthening our pharmaceutical expertise, upgrading our enterprise systems, advancing our core R&D programs, and supporting our clinical programs as they progress towards commercial realities. In summary, the progress we are making to advance our key strategic priorities reflects the commitment of our teams to rapidly adjust during the COVID-19 pandemic and ensure we are executing on our plans. We are confident that the investments we're making today will drive Ball Coast forward as a unique strategic vision care leader with tremendous potential for long-term growth and profitability. So with that, I'll turn the call over to Joe to discuss our third quarter 2020 financial results. Joe.

Thanks, Tom. As a reminder, I will be discussing our financial performance on a non-GAAP or pro forma basis and will summarize our GAAP performance later in my prepared remarks. I encourage each of you to review our GAAP to non-GAAP reconciliation, which can be found in today's press release, as well as the investor relations section of our website. Glauco's net sales for the third quarter of 2020 were $64.8 million, representing sequential growth of 105%, which reflects the continued recovery versus prior quarters despite ongoing COVID-19-related headwinds. Overall, we exited the third quarter with a revenue run rate that was approximately 95% of pre-COVID daily averages versus approximately 80% exiting the second quarter and approximately 10% during the April trough. Now, turning to our U.S. glaucoma franchise specifically, our third quarter U.S. glaucoma sales were approximately 39.2 million, representing sequential growth of 114%, which we believe reflects a combination of COVID-related dynamics, a stable competitive landscape, and stable pricing. Internationally, our glaucoma franchise delivered third quarter sales of approximately 12.8 million, representing sequential growth of 91%. The COVID-19 impact to our international glaucoma business has varied by market, but our overall recovery in the quarter was led by Europe broadly and Australia. In corneal health, third quarter net sales were 12.9 million, representing sequential growth of 95%. The third quarter performance was driven by record U.S. Photrexa sales of 10.4 million and a quarterly record for new U.S. Photrexa starts. As Tom noted earlier, we continue to see progress in October commercially across each of our franchises. While the overall market appears to still be facing headwinds in terms of new patient consultation visits and the ability of surgical practices to operate at full capacity, we are encouraged by the fundamental performance of our business. Having said that, we recognize that as we prepare for this call, many of our key markets are now unfortunately experiencing a real-time COVID resurgence, and as such, we remain cautious on the near term ahead of a widely available vaccine or therapeutic solution. Shifting gears toward the remainder of our P&L, our non-GAAP gross margin in the third quarter was approximately 85% versus 87% in the same quarter in 2019 and 78% in the second quarter of 2020. The sequential improvement reflects the benefits of the increased production associated with the overall recovery and initial inventory build of ISINT and JECW, as well as favorable corneal health margins driven by revenue mix. It is worth noting that our non-GAAP adjustments to COGS include substantial adjustments related to Abidro Acquisition Accounting. Our overall non-GAAP operating expenses were approximately $57.5 million in the third quarter of 2020, up 10% sequentially compared to the second quarter. We remained disciplined in the third quarter, but continued to reverse temporary cost-saving initiatives and restore expansionary spending as the recovery warranted, a trend that we would expect to continue going forward. Our non-GAAP SG&A expenses in the third quarter were approximately $37.4 million, up 11% sequentially compared to the second quarter, and our non-GAAP R&D expenses in the third quarter were approximately $20.1 million, up 8% sequentially compared to the second quarter. We finished the third quarter with a non-GAAP operating loss of $2.4 million and non-GAAP net loss of $4.1 million, or $0.09 per dilute share. Our GAAP net loss was $15.7 million, or $0.35 per dilute share for the third quarter of 2020. We invested in approximately $1.3 million of capital expenditures in the quarter, and looking ahead, we expect our capital expenditures to increase substantially over the next three to four quarters as we move forward with our facilities plan. As of September 30, 2020, we had cash, cash equivalents, short-term investments, and restricted cash of approximately $398 million, compared to $404 million at the end of the second quarter of 2020. Finally, we believe the range of potential outcomes for the fourth quarter and heading into 2021 remain more sensitive to the extent and duration of any COVID-19 resurgence than it does the business fundamentals for which we have a degree of control. And as such, we will continue to keep our guidance suspended as the path forward for this pandemic remains uncertain. With that, I'll now turn things back to Tom for a few closing remarks.

All right. Thanks, Joe. I'd like to conclude by acknowledging how proud I am of the actions of our organization has taken throughout the COVID-19 pandemic while advancing our key strategic priorities in a rapidly changing environment. While it is possible that this pandemic may well persist into 2021, leaving the near-term uncertain, we are prepared as a company. I'm confident that the response plans we've executed over the past several quarters have only helped strengthen our relationships with customers, clinical investigators, suppliers, and employees, and will leave us well-positioned to execute on our plans going forward. While we navigate this moment, we remain focused on the near and long-term fundamental growth prospects of our business and our unwavering commitment to create a strategic vision care leader with disruptive franchises across glaucoma, cornea health, and retinal disease. So with that, I'll open the call to questions. Operator.

As a reminder, to ask a question, you'll need to press star then the number one on your telephone. To withdraw your question, press the pound key. And your first question comes to the line of Ryan Weinstein with William Blair.

Hey, guys. Good afternoon. This is Andrew on for Brian today. Maybe to start on the quarter first, nice performance sort of across the board, but in U.S. glaucoma specifically, can you be a little bit more specific and categorize sort of the patient volume you saw in the quarter so it's sort of more catch-up of the patients in the backlog or more reflective of current demand?

Thanks, Andrew. It's Joe. I think, as you might expect, and probably consistent with what you've been hearing on other calls, there was certainly a shift in the quarter from, you know, as you'd expect out of the gate on the recovery, practices were more consumed with backlog, right? They prioritized those patients who were already in the queue, folks who already had partial surgeries done, and things like that. As we move forward into the third quarter and progress through, you start to see much more of a balanced mix between that backlog and new patient demand. So I think, you know, in many ways we were much more back to normal from that standpoint, certainly than we were in the second quarter.

Okay, great. And then as a follow-up, shifting gears maybe a little bit to IDOS and recognizing you're still a couple years away from that launch, can you just sort of level set us on how you're thinking about that opportunity still a couple years out around sort of initial market penetration, reimbursement efforts, and then commercial scale up ahead of that launch? Thanks.

Yeah, I'll be happy to answer that one, Andrew. So we're really pleased with the continued reengagement of our clinical investigators, and the favorable traction we've seen in September and October in recruiting. And we'll monitor the trial as we look at recruitment in these uncertain fall and winter months with the resurgence of COVID-19, and certainly we'll keep investors fully informed. We remain very, very excited about the potential for this drug delivery system. There's no question. that there is an existing strong appetite for the need for a long-term, sustainable drug delivery mechanism that can respond to the ubiquitous noncompliance that occurs with the use of topical drops. We're seeing that with the initial launch of Darista from Allergan. We're a product that has experienced some changes. setbacks in labeling continues to be perceived as an advancement in care for patients who need a response to the noncompliance in the treatment of glaucoma. One of the things that I'm most excited about is the sustainability of the product, and as we talked about before, We have this tiny device as shown in the Phase 2B study to really provide sustained reduction of interocular pressure and reduction in drug burden. And I think you will see that during 2021, we will be in a position to share some of the results from the Phase 2B clinical trial with you, which will convince you how promising this technology is. When you think about what is on hand in terms of the economic value of the product, I would ask you to look towards the predicate that's been established by Durista in the market. And the numbers we're hearing for the J-code and reimbursement are very promising as a predicate for the treatment of glaucoma and for the predicate for the pricing for our iDose device. So if you think about it, Durista now, which is showing capability of providing sustained release on the order of four to six months, depending upon what clinical study you see, you can imagine when you see a product like iDose, which presumably may promise orders of magnitude difference in sustained release over that initial product from Durista, we think that we have a very, very opportune ability to price and to realize a revenue-generating new addition into the marketplace. So what I'm very encouraged by, too, coming out of the AMA CPT Committee is that we were able to shepherd and sanction a formal Category 3 CPT code for IDOS. That means we'll have a standalone opportunity to be able to have a professional fee and an APC assignment for iDOS when we launch the product. And it also means that we'll be in position to move forward quite quickly after our commercial launch to be able to advance our product for appropriate payment from payers. So for all these reasons, iDose represents a more than significant opportunity and incendiary opportunity for us moving forward. As we've talked about before, it moves our TAMs from approximately 600,000 patients now with iSense Inject in combination with cataract surgery to nearly 3 million annual patients upon commercial launch. Now, just as a mechanism and full disclosure, this will not happen overnight. We'll continue to acculturate and move the market forward to where the product iDose will be most ostensibly used in advancement of patient care. And that will happen. It will happen in combination with cataract surgery and with other intraocular procedures. It will happen with patients who have shown noncompliance. It will happen with patients who are allergic to topical medications. It will happen to patients who have shown some distinct issues with ocular surface disease and the use of preservatives with topical medications. All of these patient subsets will become an occurring and cumulative opportunity for us to be able to advance iDOS into the marketplace. That was great. Thanks for taking the question. You're welcome.

Your next question comes from the line of Robbie Marcus with J.P. Morgan.

Hi. So you've got Saran on here for Robbie. Thank you for the color on the kind of cadence throughout the quarter. Could you share anything about how new physician training could have recovered throughout the quarter? Is that something that's been able to pick up as the quarter evolved and you've kind of returned to something that's more of a semblance to normal volumes?

Sure, thanks. It's Joe. I'll start off, and if Chris wants to add anything, he can on that. I think, you know, as you might expect, with some of the recovery trends that we experienced in the quarter, and certainly we can talk a little bit more about in the context of October, alongside of that has come a little bit more access into the accounts slowly over time. And with that comes a restoration of new doctor training. and the things that you'd expect around from a market growth perspective. So our teams have been creatively pursuing new opportunities throughout the pandemic. Certainly in the third quarter, we were encouraged by the restoration of new doctor training dynamics. We were exceptionally pleased with the number of new starts for Trex on the corneal health side. So I think the things there were trending fairly well, obviously in a much more, you know, COVID-stable environment than perhaps we're going into here in the coming months. But certainly over the course of the third quarter, we were pleased with where we were trending.

Great. Just a quick follow-up. Any, you know, clarity on how – you know, competitive trends might have evolved through the quarter as these volumes pick up. Are you seeing anything in terms of, you know, competitive views? Are doctors, you know, trying new products right now?

Sorry, this is Chris Calcaterra. And I just would say that, you know, largely, large part of things are stable to maybe slightly positive for us from a competitive standpoint. Everything that we said in the past remains true for this quarter as it was in Q2.

Thank you.

And your next question comes from the line of Larry Beagleson with Wells Fargo.

Good afternoon. This is Kevin here. Congrats on the nice quarter. I just wanted to spend a minute on the procedure trends you saw in October. You mentioned up front that momentum continued to be robust, and then you also said that you exited Q3 at 95% of pre-COVID, which is obviously very encouraging. I'm curious if in October you continue to see improvement versus Q3 or a step up kind of in headwinds from COVID, and that's driving some cautiousness on your behalf for Q4. And then, you know, big picture, is the October run rate the right way to think about Q4 or – are you expecting something different?

Thanks, Kevin. It's Joe. Great question. I'm going to answer that in two ways. First, I think the way you started a little bit was on the market front, and then I'm going to translate that into how we're seeing things and thinking about them in the here and now. From a market standpoint, you have to sort of break it down into the two primary components. Obviously, The first one is the average practice and their ability to operate normally, right, their throughput, really regardless of whether they were MIGS users in 2019 versus 2020. And on average, our channel checks suggest that the average practice is running still at about 80% of normal, call it. Obviously, there's variance from one account to the next there. The second layer you have to think about then is what growth factors are and the growth-related considerations for MIGS. We were starting to talk about this on one of the prior questions in terms of new doctor training for trucks and new starts, the things that would drive variance to that overall throughput for the MIGS category specifically. And as obviously those trends are down versus what we would have expected coming into the year given COVID, but we are getting back at it slowly. So net-net, I think the market is probably not down that full, you know, 20% that we talk about in the context of the throughput of these practices. in MIGS and certainly isn't in Keratoconus given all the success we've had in Petrexa New Starts since the Avidro acquisition. Now, when you think about that for us, what I said on the quarter was we exited at 95% of the March pre-COVID levels. I think as we get closer to those levels, it probably makes a little bit more sense to think about the trending from a year-over-year perspective and break it down in between the three sort of areas of our business. In the U.S. glaucoma franchise over the course of the third quarter, the growth was actually down 18%. But as we went into October, we were essentially flat year over year for the month of October versus 2019. Now, there's some confounding variables there, notably the W launch that Tom talked about earlier. That probably had a bit of a headwind to the third quarter, especially in the month of September, and a bit of a tailwind to October. I think if you put all that together from a normalized standpoint, we're probably running at about a run rate that's roughly down about 10% year over year today. On the international glaucoma side, obviously we grew mid-teens for the quarter and really saw that as an exit trend going into October and over the course of the month of October at a similar rate. Cordial health, very similar. Mid-teens over the course of the quarter, exiting the quarter, and over the course of October. Now, the challenge is when we think about that, and we wanted to provide as up-to-date information as we could on the performance of our business. The challenge, obviously, going forward is, you know, it's not really our expectation that those trends necessarily will hold in November and December, given the resurgence patterns of COVID that we've seen over the past few weeks. And, you know, if I added on the margin, I would say, you know, there's a few less selling days in the quarter this year than there were last year, and certainly versus the third quarter this year. So you have to factor all of those things in when you're thinking about, you know, setting your models for the fourth quarter and for 2021.

Super helpful, Joe. Thank you for the answer. My follow-up is just on the on the competitive landscape, my sense is from your results that it just continues to become more benign over time. I just wanted to kind of gauge your reaction to a couple of pieces of that landscape. So the first piece is kind of, have you seen less headwinds from Omni since the reimbursement change? The second is this recent Palmetto LCD conference call Do you have any sense for a timeline there and what, you know, any expectations? And the third is kind of the IVANTIS trial. I know you remain optimistic there. I don't know what you can say on it, but do you expect it's going to get delayed a little bit next year? And that's it for me. Thank you.

Hey, Kevin. This is Chris. I'm going to address the first two, then we'll hand it over to Tom for your third question. As it relates to Omni, I think it's fair to say that we've seen less momentum than they've had in the past. As you know, the edit went into effect in July. We're very happy with that edit. We think that that's fair, and we continue to sell the advantages of our product, the advantages of it being safe, efficacious, and ease of use. and the MIGS leader in terms of non-tissue sparing or, excuse me, a tissue sparing device. In terms of the Palmetto situation, there was a call on that on Monday. That was a follow-up to the draft LCD that came out September 3rd. And in that meeting, that was nothing more than an opportunity for interested parties to discuss their points, make their points clear, discuss any clinical data that they might have. And we had expected that to be the last opportunity for comments, but they extended the commentary period to this Saturday the 7th because of the COVID pandemic. We're not really sure when they'll come out with a final draft, but we remain diligent in following this. There's not much that we can do at this point, but it's not surprising that a MAC such as Palmetto, which roughly 27% of covered lives are in Palmetto, would come out with a draft LCD such as this due to the fact that there has been increased utilization and not a lot of clinical data. So we'll wait and see.

Tom? Yeah, I'd be happy to cover the litigation. So you may have been tracking the potential trial, the trial coming up, and there have been several pretrial motions that we've exchanged with IVANTIS, many of which have resulted in quite favorable rulings to Glaucos. And there I'll just ask you to consult our 10Qs for further information. But what I would say is that we're well prepared and we're confident going into trial. The trial is currently scheduled for March 9th of 2021, and I think it will depend on what we see here in the fall and winter months, COVID resurgence, whether or not there is any delay into that trial. But as we speak today, again, we are well prepared and confident going into trial into March of next year.

Sounds great. Thanks, everyone.

Your next question comes from the line of John Block with Stifle.

Thanks, guys. Good afternoon. Joe, some real-time math here. But, you know, the initial U.S. glaucoma guidance for you guys was around 195 million. You've done 90 million year-to-date. So let's just say 2020 ends up being 135 to 140 million. You know, those are obviously my numbers. Of the 55 million or so that gets pushed for COVID this year, Can you help us think about the recapture rate, you know, and over what period of time? You guys have talked about how these procedures, obviously they don't go away, they might get deferred, but you can't put them off forever. So maybe just help us with, at a high level, that math, and do we think about, you know, that $55 million of a true number is the vast majority onboarded onto your P&L in 21 or a little bit into 22? Yeah.

Hi, John. It's Joe. I think I may need you to send me your Microsoft Excel for that before I can really go through all that and address it directly. Look, I think clearly I'd go back to thinking about it the way we do a little bit, which is for 2019, our U.S. glaucoma franchise did a little shy of $190 million, right? And you just heard in terms of the last question kind of where we're at right now. You know, if you think about it from a normalized standpoint, in the here and now, we're probably running somewhere in that neighborhood of, you know, flat to down 10%, right, and on a normalized basis. And so, you know, where we go from here over the course of the next handful of months and certainly into 2021 is, has a lot more to do with, you know, any individual views you might have or others around the pandemic, the length of the pandemic, the depth of the pandemic, and the things that are going on there. What you're hearing from us and Tom, Chris, myself, is that we feel good about the underlying fundamentals and our execution of our products on the things that we can control in the marketplace. But obviously we don't have a control over, you know, the pandemic-related considerations here.

Okay, fair enough. Maybe I can follow up with you offline on that. And just to pivot, Chris, I think this one might be for you. On the AMA CPT committee, maybe just talk to us. I mean, you know, for the Cat 3 going to the Cat 1 on 0191T or inject, I mean, did you want that to go into effect January 1 of 2022? Were you hoping it got pushed to 2023? And then also, if you don't mind giving us some clarity, is that on a pro fee or pro-in facility? Thanks, guys.

Yeah, John, this is Tom. I'm actually going to take that question. And so we were pleased with what came out of the AMACP-T committee meeting in October, and there were a number of favorable developments that we were able to usher in in conjunction with working with the Ophthalmic Society. So I guess the first real promising development was this formal approval of a Category 3 code for a standalone use of trabecular bypass stents. And what's important here is that this is based on the full perioperative procedure, which we think will give us a more robust procedural fee as we move into Category 3 and eventually into Category 1. That Category 3 code will be effective June of next year, which will be in advance of the ISDN Infinite 1. So that's That's especially promising because we'll seek LCD reconsideration with Max prior to the iStent inject approval and subsequent to iStent incident approval over the course of the next several months. And so that's a very promising development. That's what we were seeking and what we got. We also were looking for formal approval of Category 3 code for high doses. As I mentioned earlier, that too was approved, and that's going to be effective June of next year. And what I really like about this is it's a favorable development, which allows us to have a professional fee established for iDose. And then, of course, as you know, we'll have a carve-out for the iDose product itself in a J code, which will be paid separately and in full once we achieve the appropriate fee with CMS. What's important to me as well is because we have two standalone codes, remember I've been driving this business towards the option of using combination therapy in the future to use multiple modalities to treat glaucoma progression. And so by having these two standalone codes, we provide a prescriptive financial opportunity for physicians to use both prosthetics and drug delivery devices in combination so that they'll get 100% of the professional fee for the first device used. and 50% for the lower pain procedure. That will provide the financial impetus for these surgeons to do what clinically we believe is the most robust treatment for patients who are in the more moderate to advanced categories. And then predictably, the RUC committee moved for approval of a Category 1 code for combination cataract surgery for trabecular bypass stents. What this does is it assures this continuous and widespread national payment for the eye stent And in transitioning to Category 1, the procedure will be subject to the RUC process, which, as I've already stated, could introduce some risks to the professional fee payment side. And likewise, as we work with CMS to construct an appropriate APC payment for the combined procedures, there are a variety of outcomes that are both positive and negative, as you would expect, that we can envision. But we'll work with our capable teams to realize what we believe will be a fair facility payment structure for the ISPENT Invalid Procedure, and we expect both professional fee and APC adjustments to be effective beginning in January of 2022. Great. Very helpful, Colin. Thanks, Tom. You're welcome. Thanks, John.

Your next question comes from Chris Cooley with Stevens.

Good afternoon, and thank you for taking the questions. Maybe we could shift gears just a little bit here. Coming out of ESCRS, we had heard, not only to really get positive data on pulsed custom corneal cross-linking with Epion, which I'm sure you guys are familiar with those papers and those presentations, but also that there was improved supply when we think about some of the testing that's done for keratoconus. So I was hoping you could help us, one, with just maybe a quick update on your thoughts on Epion here in the United States, And similarly, maybe help us kind of come back again to this very strong third quarter results with the record for Trexel sales and help us think a little bit about what kind of funnel has been built and how COVID-19 affects that pull through. I've got a quick follow-up.

Hey, Chris, it's Joe. Maybe I'll start in reverse and then let the guys build upon the sort of broader at Beyond Fundamentals and diagnostic trends and all the things there. In the quarter, yeah, we were pleased, obviously, with the results. And if you think about it, we've been building to this place now for a while, really since taking over the business in late 2019. we continue to see the benefits of the synergy of our combined sales organization and what that's driving in terms of new Fortrexa starts and ultimately now starting to see some of the pull-through from, you know, that broadening of our base and the efforts that we've been putting, you know, behind Fortrexa here in the United States. So, you know, if you heard during the prepared remarks, the third quarter not only saw, you know, another record of new Fortrexa starts here in the U.S., but also saw robust growth in terms of Fortrexa volumes and a record number of Fortrexa dollar sales in the third quarter as well. So we feel really good about where that franchise is at and the efforts that we've been taking to realize the value in front of us on that front. Tom or Chris, you want to talk about Epion?

Yeah, I think one I'd like to just say as well that since we've had the integration, the integration to me has been a phenomenal success. We've come together quickly. I think we have pulled together our resources in the marketplace, and we've had dramatic impact, and we'd expect more even as we face these headwinds with COVID. So I'm very, very pleased with the early commercial promise of the combined businesses program. As far as Epion, Epion represents another kind of incendiary emerging opportunity for us, and we're really pleased where we're at. As you know, we finished the clinical trial this last year, and that we've been having the – we're now in a position to basically go to a data lock with the Phase III study, and we'll be doing that over the next several weeks. And so I expect we'll be able to present data from Epion in 2021 for year review, and And I'm hopeful that that data is as encouraging as we're seeing in many of the independent studies where surgeons are undertaking single-site examinations of Epion. And we're very, very hopeful that Epion will be a next step in generation for us to really drive even further penetration into the ranks of these keratoconus patients.

And Chris, this is Chris. I'll just add a little color on the execution. And certainly the integration has gone well. But one thing we haven't mentioned is we've done a fantastic job with our market access team in terms of ensuring good reimbursement. We're at 97% or so coverage on this from a commercial payer standpoint. We've also increased the awareness about Keratoconus. We've worked closely with the OD community. There's been a number of initiatives that have really obviously paid off. Here we are in a COVID situation, and we're having record number of Potrexa sales and new starts. It's been a very positive thing for our business.

I appreciate all the detail there. My follow-up is just on the operating expenses. Just I'm really impressed with the company's ability to continue to maintain discipline through the middle of the P&L in this environment while still ramping on the R&D front. I just want to make sure I understood your comments earlier, Joe. When you talk about that's obviously going to start coming back up a little bit as we go through the fourth quarter and into calendar 21. Could you help us think a little bit about maybe kind of the ramping of those expenditures and the scene primarily in the sales and marketing line, but outside of the trial expense that we're all aware of. But just maybe if you could give me a little bit better dialing in on the ramp there of the op-ex would be beneficial. Thanks so much.

Sure, Chris. Happy to do that. I mean, I think the way I would say this is you've now seen in the second quarter kind of the trough, right? We were at roughly $52.5 million of operating expenses in the second quarter, and that increased sequentially about $5 million in the third alongside the recovery trends on the revenue side that we've talked about. You know, what you're seeing is that we have implemented, you know, a degree of cost-saving measures, both as it related to the original Avidro acquisition, you know, where we're ahead of schedule on that, as well as the measures we put in place in response to the COVID pandemic. And, you know, as a team and, quite frankly, throughout our organization, we continue to manage expenses closely and trying to evaluate, you know, week to week, month to month, based upon the environment we find ourselves in on the top line. So I would tell you that where we go from here is probably fairly highly correlated to where we go on the top line over the coming quarters. But you'll recall that at the beginning of the year we said our operating expense expectations were for about $300 million over the course of the year, split about two-thirds SG&A, one-third R&D. So I think as we progress back towards normal, you would expect that our spending would progress and trend back towards, you know, that level of overall operating expense, you know, line. Thank you.

And your next question comes from the line of Ryan Zimmerman with BTIG.

Hey, thanks for taking the questions. Good afternoon, everyone. So, Tom, just to follow up on iDose a little bit, you know, we've seen the risk to sales remain, I guess, softer than we would have expected since their launch. And I'm wondering if that's a result of physicians really only being allowed to bill for that one time or fares around endothelial cell loss. And what that may say or may not say about kind of how they're thinking about iDose, I'd love kind of your thoughts there. I know, you know, we're waiting on data to see some of these dynamics, particularly around the cell loss. But, you know, if there's any commentary you can provide right now, I think it would be very appreciated.

Yeah, I'd be happy to, Ryan. I mean, as I said before, what – What you may not be picking up is kind of the pulse in the marketplace and the appetite for the use of a sustained release drug delivery system. That, to me, has gone to nascent to readily apparent, and I can feel that in the marketplace and get many, many calls from clinicians asking about our eventual approval for IDOS because I think the pent-up demand for that is truly emerging. What I would tell you is that there's no question there's a need. There's no question that Durista has some advantages, but as you mentioned before, I would have to say, and I point you to your channel checks, that the fact that there is a pretty significant labeling restriction and a relatively high rate of endothelial cell loss associated with a product that really has not a truly long-lasting duration of effect I think would lead me to believe that the sales you're seeing are indicative of some of those impediments that Allergan faces. So what I look at as Darista, the only thing I look at there that's a predicate for us is really two-fold. One, the underlying appetites that exist. It's clear to me that the ubiquitous nature of noncompliance in glaucoma has been the elephant in the room for some time, but there's not been any solution to it, and we provide that solution moving forward. I think that's exceedingly important, and I think we'll take advantage of that moving forward.

Okay. I appreciate that. thoughts. And just a follow-up to that, and then just one on the broader MIGS market. But, you know, I think we're going to get three-month data early next year on IDOS, if I recall, some of the catalysts that you guys have coming. And so, you know, with the washout rates we saw one year for Darissa, you know, is three months the appropriate metric for approval? Or do you think you're going to need to wait, particularly for payers, you know, out to a year or longer for them to get comfortable in terms of reimbursement around that.

Yeah, well, remember, the FDA sets the regulations. Three months is the basis for approval, and this, again, will be versus our control, which is BID Timelaw. So that is a basis in fact. But what I would tell you is I refer you to the comments I've made all along is that I think we would need six-month durability for a commercially viable device. And as I've said, if we reached a year, I felt that that would be ideal. And as you know, we'll be presenting data to the FDA in our NDA that will include a year's worth of efficacy and safety data. so that we think we'll be in a great position to be able to go to payers with that data in hand as we do seek ultimate commercial approval. Likewise, Ryan, you should know, too, that with this Phase 2B study running with a significant number of patients, we'll have data out to three years of which we'll be able to count and show payers what the true potential durability of this product is, And then having said that, I'll remind investors that hopefully we've been prescient in coming up with this second-generation product, the iDose TR Extended or iDose T-Rex, which is going to hold nearly twice the amount of medication as the current iDose product. And so if we're successful in an expedited path to approval on the heels of an iDose TR launch, I think we're going to be in an incredibly enviable position to be able to have a truly set of long-term duration activities for surgeons to choose from to treat patients with glaucoma.

Okay, that's very helpful. And then just lastly for me, and I'll hop back in queue, Joe, one of the things you've talked about, I think, is at least when we go back to the launch of Inject, was using the original iStent as more of a value-oriented product, right, to compete on price. And so given some of the changes we've seen in reimbursement, the NCCI edits, We'll have to get your, you know, views on kind of what utilization you are or are not seeing. Maybe this is better for Chris, but around the use of iStent as a more value-oriented product, if there is demand for that and whether that's, you know, something you're taking advantage of.

It's Joe, I'll start, and then Chris can jump in. I would just say from a financial perspective and from results, it might not surprise you. The vast, vast majority of our sales now are ICE Inject or ICE Inject W as we transition that. And that has, you know, post our training of doctors and really the initial wave, has remained quite stable to continue to improve in favor of the ICE Inject franchise. Chris, maybe you want to talk about some of the dynamics around that.

Yeah. We like having a choice, and there are doctors who still prefer the iStent. And because there is only one stent versus two, as you alluded to, yes, it is, from a value proposition, less expensive. We like having the ability to have choice. There are some customers who make a decision based on value, and that for us then is our value product. But the vast majority of our utilization is with iStent Inject and soon to be iStent Inject W. Thank you.

Okay. Your next question comes from Joanne Blunch with Citi.

Yes, hi. This is Matt Henriksen in for Joanne. First question is around foot trucks, and congrats on the great new starts numbers you guys provided. How long does it take for those new starts to kind of ramp up to full speed, and kind of what do you see as kind of their quarterly run rate once they are up to full speed?

Yeah, hard to get at a quarterly run rate, but it does take some time to get going. By the way, this is Chris. because you've got to build your network of referrals. You've got to get the equipment in, get the equipment installed, purchase the product. So I would say, and I'm somewhat spitballing here, a couple months to get up and going before you're running.

You'll recall that when Avidro was a public company, they talked about the sort of average utilization. You know, they were in the two-and-a-half to three, you know, treatments per month per, you know, start, if you will. But it takes a while to get there, and what I will say is there's a pretty significant delta underneath that from those early-day customers to those who've been around and are really up and running fully on Fetrexa and general keratoconus treatments. And the COVID effect.

Okay, that's helpful. And then just kind of sticking on with COVID then, we're seeing second waves, resurgence, whatever you want to call it. How are you seeing ophthalmologists prepare themselves differently this time around than when back in April no one was prepared for what the worst was?

So it's just all the procedures and things that they have in place to try and ensure the safety of the patient and their employees on the protocols that they have in the OR and in their offices so that they're less hopefully less inclined to have to shut down. But that remains to be seen. It's all across the board. I'm aware of a surgery center that shut down because one of the nurses came down with COVID. So given that she was in contact with everybody else, they shut down the surgery center. So there's going to be these fluctuations, and it's hard to predict where and when and how and what people will do. But I do think that to answer your question directly, yes, physicians and surgery centers and healthcare professionals are better prepared because they're taking precautionary steps that they didn't otherwise do back in November through March.

Yeah, I think I would just add, I mean, as Tom said, I think we're encouraged by where their preparedness for this relative to obviously what was an unexpected series of events as we entered into late March. Having said that, clearly you can't control if patients, particularly elderly patients, decide to more proactively shelter in place amid a resurgence. And you can't control surgery cancellations that result from that, too. So, you know, there's still a fairly high degree of elasticity between, you know, COVID and procedures like ours. It's a temporary deferral, not a permanent. But it's something we have to factor in as we, you know, go back in these early days here now of a potential resurgence.

I appreciate the color. Thanks very much.

And your next question comes from the line of Anthony Petrone with Jefferies.

Thanks, and I hope everyone's doing well. Two quick questions here. on market opportunities and one on Avidro. One would be on standalone cataract, maybe just to kind of refresh us on the opportunity shifting from combo therapy to standalone cataract and how long do you think it will take to sort of realize that market expansion. That would be the first one. And then the second one would be on the three Epion studies two specifically are linked to refractive surgery. And so I'm wondering if you can sort of review for us what the incidence of keratoconus and corneal ecstasia is following refractive surgery, just to sort of get that piece down, and whether or not you see that as the larger opportunity here for KXL. Thanks.

Okay, Joe, I'll start off with a standalone MIGS opportunity, the size and sort of timing question, and then I can let Chris and Tom talk a little bit about the Keratoconus opportunity and then some of the broader, I think what you were asking was around cross-linking and in broader utilization, not just in keratoconus, but in addition and adjacent to refractive surgery. So I'll let them talk about that. From a standalone MIGS standpoint, obviously we've talked about the path, the size here. It depends a little bit on the stage of progression of the disease, right? So for standalone MIGS, as you think about end-stage disease, We've said in the past that depending on how you measure it, anywhere from 125,000 to maybe 200,000 potential annual procedures here in the United States. Obviously, as you go abroad, it's a much larger number than that. The timing of penetration, there are puts and takes in that. So obviously, unlike in MIGS, and as a team at Glauco has built the MIGS category over time, where you were teaching a new way of treating a patient, when it comes to late-stage glaucoma management, doctors are already very familiar with intervening with surgical solutions. So there's less convincing there to be done in the context of how you treat those patients. Having said that, there are fewer of them, and so you have to get out with your sales force and train these doctors on your procedure and the like. So I think it's, you know, the way we look at it is it will be, you know, we do things in a methodical way. We train the right way, as Chris often says, and we'll be focused on getting the right outcomes as we bring some of these late-stage procedures to market in the standalone opportunity. So that obviously includes both the presser flow, micro-shunt, as well as ICE and Infinite as that comes out. If you think about the broader standalone opportunity and you start moving into the more, you know, mild to moderate standalone MIGS opportunity, and we've said that our best estimates are that provides another probably 500,000 potential procedures a year here in the U.S., and obviously that's a little bit longer term down the line, but something that we're obviously enthusiastic about over the planning period. Tom or Chris, do you want to talk about Epion or Keratoconus?

Yeah, I'd be happy to do it. And so if we think about, again, it's worth looking at the long-term and the larger market, which is the Keratoconus market. Again, the prevalence for that, when we look at triangulating the number of epidemiology studies, is around 600,000 patients here in the U.S., We're looking at about 1.1 million eyes, 17,000 patients newly diagnosed for incidence each year, and around 30,000 eyes that are potentially treatable. That is the clear large market that we're approaching, and we'll be able to penetrate with both EpiOp and EpiOn. It's an interesting question on coronary lactation. I've seen some of the numbers, and it's interesting you ask because we are in the process of meeting with a number of refractive surgeons as we speak. to triangulate and come up with our own analysis of what we believe that market is. It is clearly far smaller than the overall Keratoconus market, but yet we believe it can be a meaningful additional market. So I would stay tuned, and as we do our information and pull together estimates like we like to do in a sophisticated way, we'll be able to present that at an upcoming meeting.

That's helpful, but just one quick follow-up. You know, when we look at market scope data, is a good starting place 4 million refractive procedures in the U.S.? And then, obviously, you'll have to get smarter on what the incidence of corneal ecstasy is. Is that a good starting place? Thanks again.

Well, it's a good starting place just for overall, but now we have to look at the actual rate of corneal ectasia and how we look at that over time, how these corneas are healing, what is the asymmetry in some of the arcuate issues with the cylinder and the cornea change. and then how many of these ectasia patients truly can be arrested with a progression by the use of cross-linking. And so it's rather convoluted and sophisticated. It's analysis that we're looking at and undergoing as we speak. And, again, I believe we'll be able to pull together a sophisticated and accurate analysis of what that market is. Thank you. You're welcome.

And your last question comes from the line of Robbie Misra with Brandenburg Capital.

Hi, it's Brandenburg. Thanks for taking the questions. So just the first, I guess I'll just have two for tonight. It's been a long day, I think, for everyone. First, just in terms of PreserFlow or kind of the new iStent coming out this year, Can you talk about some of the specific kinds of training that might be required? I mean, or is this kind of really a once the surgeon's comfortable with the product, however many cases that may be, if you could provide some insight in that, it's off to the races kind of for it? Or is it more of a measured type of launch? And then maybe my second one is a little bit more of a philosophical question. You know, you guys have I think done a good job at kind of converting the business from a single product MIGS company into a more comprehensive eye care portfolio. Just looking forward, you know, if you're talking to an investor saying, hey, this is what's in our pipeline around the retinal area, just maybe talk about some of the areas that you're really excited about and kind of some of the catalysts and timings on when we expect that data again. Thank you.

Hey, Robbie, this is Chris. I'll address the first one and then turn it over to Tom for the second one. In terms of pressure flow, that will require a lot of training. The iStent, iStent Inject, iStent Inject W, lots of similarities there in terms of the training. It's all ab interno. There's not a lot of cutting of tissue. And we had to teach people certainly a new procedure. The pressor flow will be similar to a more extensive glaucoma surgery, and so for glaucoma specialists, there'll be some similarities, but there's some nuances with the pressor flow device that will require some additional training. And we'll approach it the same way we approached iStent and JACT and W. will be very thorough. There's no magic number of cases that will be required, except to say that it'll be a situation where the sales representative and the doctor feel good about where the doctor is in implanting that device. But it's a much more extensive procedure. It takes a lot more time. There's a lot of variables involved and some nuances with this device that we want to make sure that doctors understand so that This leads to good outcomes. Good outcomes lead to increased utilization. In terms of the iStent Infinite, that'll be more like, obviously, Inject and W. It will be W, but there'll be three stents instead of two. And it comes with a different insertion device. So I would say there that the training versus W or Inject will be very similar and therefore the number of cases required to convert will be much less.

And I'm happy to address some of our embryonic work that we're doing in retina. And again, we are moving towards becoming a full-scale purveyor both in glaucoma, in corneal health, and in retina. So with specific regard to retina, we're very excited about our work with a triamcinolone implant As you know, this marketplace, this would be for the treatment of diabetic macular edema. This marketplace right now is being served by a product called Ajudex, primarily from Allergan. It's over a $400 million worldwide marketplace. And we have an implant that we've been able to extrude, which is already showing some very, very good pharmacokinetics with zero-order drug delivery over a six-month period, and then does what it's advertised, goes away very shortly afterwards. It's with a very potent steroid, triamcinolone, which we feel strongly about, and we think with this kind of delivery, we may have both advantages and strengths to be able to have a meaningful entry into this marketplace. It's in preclinical development, as you know, and moving forward, and we hope to be moving forward into the clinic late next year or early in 2022. In terms of the work we're looking at for long-term treatment of age-related macrodegeneration, we're looking at cross-linked hydrogels, which will be able to sequester the use of really demonstrated anti-VEGF compounds for the treatment of age-related macrodegeneration. and we're making some significant headway there in understanding the pharmacokinetics, the release of the product, and the potency over time, as I've described in previous meetings. That work is early. The efforts to get to this are Herculean, and yet we're undertaking them. And one of the reasons why we feel that we are in such a promising position is we've been able to recruit some top talent from Allergan Pharmaceuticals with some of the balkanization that's happened with that company. And so we think we have some of the best minds that are looking at some of these problems. And if we get there, these are exciting opportunities. And the final area would be in the area of looking at a small molecule for the treatment of age-related macrodegeneration. And we're looking at a multi-kinase inhibitor, which is showing really strong release, good pharmacokinetics over an extended period of time. And both the multi-kinase inhibitor and anti-VEGF products are showing really promising results in persistent retinal vessel leakage models, which are a strong indicator of potency. So for all these reasons, we're a company that, as I've said, we're moving to become a hybrid medical device, a pharmaceutical company. We're on the throes of doing that. We're aspirational. We're making good progress in these promising areas.

Great, thanks. You too. Thanks, Robbie.

There are no further questions at this time, and I'll turn it back to the company for any closing remarks.

Okay, thank you very much, and thanks to everybody for all your time and attention today. We hope everyone is staying safe, and again, thank you for your continued interest in Glockos. Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.