Glaukos Corporation

Welcome to Glaucos Corporation's third quarter 2021 financial results conference call. A copy of the company's press release issued after the market closed today is available at www.glaucos.com. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, please press star one again. This call is being recorded, and an archived replay will be available online in the Investor Relations section at www.glaucus.com. I would now like to turn the call over to Chris Lewis, Senior Director of Investor Relations and Corporate Strategy and Development. Please go ahead.

Thank you, and good afternoon. Joining me today are Glaucus President and CEO Tom Burns, CFO Joe Gilliam, and COO Chris Calcaterra. While in 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 US and international commercialization, integration, and market development efforts, the efficacy of our current and future products, our competitive market position, reimbursement for our products, 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 investor section of our website at www.glaucos.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 relations section of our website for reconciliation of these measures to the most directly comparable GAAP financial measure. With that, I will turn the call over to Glockos President and CEO, Tom Burns.

Thank you, Chris. Good afternoon, and thank you all for joining us today. We hope everybody is staying safe and doing well. Today, Glockos reported third quarter net sales of 74.7 million. representing growth of 15% versus the comparable year-ago period. These results exceeded the top end of our guidance range and reflect solid execution across our glaucoma and corneal health franchises amidst both continued COVID-related volatility and headwinds globally and U.S. combination cataract glaucoma dynamics associated with the originally proposed CMS rules from July. I'd like to take a moment to recognize the continued dedication and resiliency of our teams around the globe who remain steadfastly committed to their work throughout the ongoing pandemic. It is clear that the pandemic and subsequent global recovery from it continues to pressure labor markets and the global supply chain. We and our customers are not immune to these realities and risk as we move forward, but we have been pleased with our continued ability to attract world-class talent and the resiliency of our supply chain thus far. We remain focused on our near-term execution as we drive new adoption and deeper penetration globally for our transformative MIGS and ILINC solutions. Importantly, we continue to self-fund and successfully advance our robust pipeline of novel, promising platform technologies that we believe have the ability to significantly expand our addressable markets and to transform our company into a leading hybrid ophthalmic pharmaceutical and device player over time. Pioneering innovation, scientific evidence, and clinical rigor play a vital role within our organization. During the third quarter, we accomplished a market-leading clinical milestone, surpassing 200 peer-reviewed publications on our iStent technologies. This represents the most robust diverse, and longest-term body of clinical evidence for any mixed technology. This robust library is comprised of over 20,000 eyes across a range of studies over nearly 20 years, including 15 publications analyzing long-term, four- to eight-year follow-up data. Outcomes from these studies reinforce the powerful benefit-to-risk calculus of iSTEM Technologies' microinvasive tissue-sparing approach supporting the utilization of Iceland globally. An important aspect of pioneering new markets the way we have is the ability to protect our proprietary inventions with a formidable portfolio of intellectual property. To that end, during the third quarter, we announced the settlement of patent litigation with Ivantis, under which Ivantis has agreed to pay Glaucos $60 million in two payments and a 10% ongoing royalty through April 2025. We are pleased with this outcome. remain confident in the strength of our robust intellectual property portfolio, and believe this settlement allows us to focus our full attention and resources on executing our long-term growth strategy by bringing transformative new technologies to the market for the benefit of patients worldwide. Within our U.S. Glaucoma franchise, our commercial team continues to successfully train and educate our current and prospective surgeon customers on the favorable risk-to-benefit profile of our iStent family of technologies and advance MIGs towards standard of care for glaucoma. Regarding CMS, earlier this week, on November 2nd, CMS issued its final calendar year 2022 Medicare physician fee and facility fee schedules, respectively. The final 2020 rule updates the payment policies, physician fee, and facility payment rates and other provisions for services furnished under the Medicare Physician Fee Schedule in both the HOPD and ASC settings. These final rules supersede the proposed rates that were issued in July 2021 and are subject to the issuance of any updates or corrections by CMS prior to or around January 1, 2022, the date these final rules take effect. Over the past three months following the July proposals, Gloucester Alarm was sick key national industry societies, 31 patient advocacy groups, 20 state societies, 16 congressional districts, many ophthalmic surgeons and others have directly engaged with CMS and undertaken a comprehensive and coordinated response that led to over 1,300 unique submissions to CMS. A positive recommendation by the CMS advisory panel on hospital outpatient payment in favor of our proposals and broad bipartisan support from policymakers in Washington. As a reminder, the CMS 2022 final rules include physician fee and facility fee payment rates for two new Category 1 CPT codes, including 66991 for non-complex cataract extraction in combination with the insertion of an aqueous drainage device, and 66989 for complex cataract extraction in combination with the insertion of an aqueous drainage device. CPT codes 66991 and 66989 will replace category 3 code 0191T as the primary code that physicians, hospitals, and ASC will use to seek reimbursement utilizing Glaucus' trabecular micro bypass technologies, including for our iStent and iStent inject W devices when used as approved in combination with cataract surgery. Starting on the physician fee, often referred to as the professional or pro fee, which is the rate surgeons are paid directly for doing a procedure, the final rule indicates a 2022 physician fee for CPT code 66991 of approximately $664, representing an incremental physician fee payment of approximately $135 above non-complex cataract surgery alone. This reflects an improvement of roughly $100 versus the July proposal, yet still implies a decrease compared to a median physician fee today for 0191T of approximately $350, which, as a Category 3 CPT code, is priced independently by each Medicare administrative contractor or MAC. Moving to the facility fee, which is the payment that a facility receives to cover the cost of a procedure, including the cost of the devices used, The final rule indicates that 2022 facility fee payment rate in the ASC setting for CPT codes 66991 and 66989 of $3,246, which reflects an improvement of $730 versus the July proposed rate of $2,516. And compares to the combined ASC facility fee under the existing Category 3 code today, of $3,353. We estimate that approximately 80% of procedures utilizing our trabecular micro bypass technologies in the United States are performed in the ASD setting. For the remaining estimated 20% of procedures performed in the HOPD setting, the final rule indicates a 2022 facility fee payment rate for CPT code 66991 and 66989 of $4,251, an increase of $333 over today's current HOPC facility fee rate of $3,918. We are pleased to see that our actions over the past several months materialize into notable improvements in the final rule for combo cataract MIGs versus the proposals but we still have work to do going forward to ensure physicians and facilities are fully compensated for utilizing our site-saving technologies in standalone and combo cat-arc procedures. We remain focused on various execution strategies to maximize the access and overall care for glaucoma patients here in the United States. Shifting gears to our international glaucoma franchise where our year-over-year growth during the third quarter was broad-based across the European and Asia-Pacific regions, but it is worth noting that we have continued to experience intermittent COVID disruptions in nearly all of our global markets. We remain early in our international penetration and are continuing to invest in our expanding teams as we drive broader adoptions of MIGS around the globe. These efforts were on full display at our recent ESCRS annual meeting where our technologies were featured in various scientific programming. Additionally, we held two educational symposiums on our iCent in JECW and iLink technologies that were widely attended and continue to help us drive new physician interest and adoption through clinical education and sales initiatives to support long-term growth. Colonial health growth during the third quarter was driven by record U.S. Betrexa sales of 12.8 million and continued healthy momentum in the new U.S. account starts. We continue to opportunistically expand our U.S. corneal health commercial team to fuel the execution of our commercial strategies and market develop initiatives that are being well received. As you know, behind the scenes, we've invested considerable time and resources over the past 18 months to successfully integrate our AVIDRO acquisition. I am happy to report that these corneal health franchise activities are now largely complete, that Boston is integrated within our corporate enterprise systems. Moving forward, our focus remains on building upon the strong momentum we're experiencing within this emerging growth driver for Galcos. We've also been investing considerable time and resources in our facility infrastructure to support our growth, key capabilities and pipeline development. And as such, we are rapidly advancing towards the expansion and enhancement of our facilities in Southern California. And we'll shortly kick off similar investments in our Burlington, Massachusetts facility. The strong capital position we have built has allowed us to remain on offense when it comes to successfully investing for our future. As a testament to this, we are continuing to invest in and advance our fulsome pipeline of core novel platforms where we anticipate in our planning for a robust cadence of new platform and product introductions over the coming years that have the potential to fundamentally transform Glock Home over time. On iStent Infinite, a 3-stent micro-bypass stent technology designed to be used in a standalone procedure, we now expect potential FDA clearance in the first half of 2022 based upon the pace of our review with the agency to date. Supported by strong, pivotal data highlighting favorable safety and effectiveness, we are bullish on iStent Infinite's long-term prospects as a highly compelling new treatment alternative in a standalone procedure for severe and refractory glaucoma patients. We also continue to advance our late-stage development of iPrime, a highly complementary new visco-delivery device designed to be a truly minimally invasive system to further support the needs of our physicians and patients. Regarding the PressorFlow Microsumpt, the FDA continues to gather additional input from glaucoma surgeons to ensure a complete evaluation of the clinical data submitted in the PMA. In the meantime, we are launching PressorFlow in Canada and are preparing for launch in Australia, given the recent regulatory approvals in both geographies. For IDOS-TR and Epion, we remain on track with our previous expectations for NDA submission in 2022 and FDA approval in 2023, respectively. Beyond these important near- to medium-term pipeline programs, we also continue to invest in and advance our key earlier-stage R&D programs, including in dry eye, retina, glaucoma, presbyopia, and additional undisclosed projects. During the third quarter, we added yet another early but exciting pharmaceutical opportunity to our pipeline portfolio through a licensing agreement with Adelap's Holdings. Under this agreement, Glaucus has secured global exclusive rights to develop, manufacture, and commercialize Adelap's proprietary library of investigational pharmaceutical compounds that target the eradication of demodex mites. Demodex mites are the root cause of demodex blepharitis and often associated with meibomian gland dysfunction and related ophthalmic diseases. Demodex blepharitis and demodex-driven meibomian gland dysfunction are caused by an infestation of these mites, the most common ectoparasite found on human skin. Demodex blepharitis is characterized by eyelid inflammation and irritation resulting in eyelid redness, discomfort, and debris. And demodex-driven meibomian gland dysfunction is characterized by decreased lipid secretion into the tear film and is a leading cause of dry eye disease. Adelap's lead compounds have demonstrated promising in vitro results in preclinical settings. This licensing agreement adds a promising therapeutic class that expands the focus of our emerging corneal health franchise into new and globally underserved disease indications and represents a highly synergistic fit within our ongoing corneal health R&D initiatives. While this program and other earlier stage opportunities remain in preclinical developmental stages, we are encouraged with the initial progress we're demonstrating within these platforms and are hopeful to advance a number of these programs into the clinic over the next 12 months. In conclusion, I'd like to reiterate our commitment to challenge the conventional way of thinking by driving meaningful innovation for the benefit of patients as we aspire to build a world-class company. I'm confident we have the right people, strategy, infrastructure, pipeline, and balance sheet to execute our plans and deliver on our future aspirations. So with that, I'm going to turn the call over to Joe and discuss our third quarter 2021 financial results. Joe.