Good afternoon. My name is Julien and I will be your conference operator today. At this time I would like to welcome everyone to Glaukos' First Quarter 2022 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session.

If you'd like to ask a question during this time [Operator Instructions]. Chris Lewis, Vice President of Investor Relations and Corporate Affairs, you may begin your conference..

Thank you, and good afternoon. Joining me today are Glaukos Chairman and CEO Tom Burns, President and COO Joe Gilliam, and CFO Alex Thurman. Before we begin, we wanted to remind you of a change in the way we plan to handle our quarterly earnings disclosures and calls starting with this one.

The company has posted a document on it's Investor Relations website under the Financials and Filings Quarterly Results section titled Quarterly Summary.

This document is designed to provide the investment community with the summarized and easily accessible reference document that details the key facts associated with the quarter, the state of the company's business objectives and strategies, and any forward statements for guidance we may make.

This document has been and will continue to be provided alongside the company's earnings press release, and it's designed to be read by investors before the regularly scheduled quarterly conference call. As such, beginning this quarter, we will make very brief prepared remarks and quickly transition into a question-and-answer session.

It is our goal that this change will make our quarterly earnings process more efficient and impactful for the investment community going forward. 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, pipeline technologies, U.S.

and international commercialization, integration and market development efforts, the efficacy of our current and future products, our competitive market position, our regulatory strategies and 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 Investors section of our website at www.glaukos.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 Glaukos' ongoing results of operations, particularly when comparing underlying results from period-to-period.

Please refer to the tables in our earnings press release available on the Investor Relations 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 Glaukos' Chairman and CEO, Tom Burns..

Thanks, Chris. Good afternoon and thank you all for joining us today, and we certainly hope everyone is safe and doing well. Today Glaukos reported first quarter net sales of approximately $68 million, but versus the year-ago quarter and up 1% on a constant-currency basis.

Our first-quarter performance reflects solid execution across our global glaucoma and Corneal Health franchises, amidst continued COVID -related volatility and headwinds globally, and U.S.

combination cataract glaucoma dynamics associated in particular with the 2022 CMS final physician fee reimbursement rates that became effective on January 1st, 2022. From a commercial perspective, we've been very pleased with the execution of our strategies and the resiliency of our U.S.

combo cataract franchise in the face of the reimbursement headwinds thus far in 2022. During the latter part of this first quarter, we launched our Iaccess device that has both minimally invasive and tissue-sparing features that will allow customers perform goniotomy procedures. We also look forward to bringing iPrime to customers soon as well.

And our international glaucoma and Corneal Health franchises continue to deliver strong results as we develop these important businesses. We are raising our 2022 net sales guidance range to $270 million to $275 million versus $265 million to $275 million previously given our better-than-expected first-quarter results and latest forward outlook.

On the development front, we continue to advance our pipeline, following the recent clearances of Iaccess and iPrime, the FDA 5,10 K review of iStent infinite is continuing and we remain focused on a potential mid-year clearance for this important product. iDose TR and Epi-AXA, or Epi-On.

Activities remain on track for NDA submissions and targeted FDA approvals in 2023, the iLution Phase III clinical trials for dry eye and presbyopia and well underway. Finally, the FDA did recently notified [Indiscernible] of SanTan company that it's PreserFlo MicroShunt PMA submission is non-approval.

While the MicroShunt is not a material potential driver of our near-term business. This outcome is disappointing given our early positive commercial experience with this product in Canada and Australia, and encouraging surgeon feedback globally as they seek alternatives for late-stage glaucoma treatment.

We intend to engage with the FDA to determine optimal clinical and regulatory next steps. Before we open up the questions, I'd like to reiterate our conviction in our long-term strategic vision.

We anticipate and are planning for a robust cadence of new drop less platform and product introductions over the coming years that have the potential to fundamentally transform Glaukos over time and meaningfully advance the standard of care and improve outcomes for patients suffering from sight-threatening diseases.

We are continuing to invest in Glaukos to scale our team, and to advance our mission to transform vision with disruptive, drop less, game-changing platform innovations. So we're excited about our prospects and confident in our ability to execute our plans in the years to come. And so with that, I'll open the call to questions. Operator..

Thank you. [Operator Instructions]. Our first question comes from Andrew Brackmann from William Blair. Please go ahead, your line is open..

Hey guys, afternoon and thanks for the questions. I like this new format. So congrats to Chris and the team for putting all this together. Maybe just to start here and have you address the elephant in the room on multiple procedure reimbursement.

Obviously, the stock has been under pressure to a degree, because of that, investors are certainly having questions around that. So can you just talk to us about your thoughts on that topic, specifically, how you're viewing the landscape there with Iaccess and iPrime and just what it means to your business? Thanks..

Thanks, Andrew, and Chris Pesh volunteers his sincere thanks as well. There's a lot in that. Obviously, there's been a lot of investor-related activity on this. So I'll try to cover the core topics, and if we got follow-ups, we can handle it.

I think as it relates firstly to Iaccess, and just as a reminder for investors, reimbursement is determined by the procedure performed and not the device itself. And we believe Iaccess has features that allow surgeons to perform a goniotomy procedure that would meet the definition of CPT code 65820 if they deem it medically necessary and reasonable.

As you think about iPrime, similarly, we believe surgeons can use iPrime device to perform procedures that meet the definition of CPT code 66174 if they deem it to be medically necessary and reasonable at their own discretion.

And to the heart of your question as it relates to the pairing of procedures, the AO is really already weighed in formerly on the subject of pairing these procedures where a surgeon feels it's medically necessary to maximize the clinical benefit for patients.

In March 2022, they put a savvy coder bulletin out that stated, if a canaloplasty is performed in conjunction with a Stent and cataract, then you should bill 66174 and 66991 as being appropriate.

And more recently, in April of this year, they also released a bulletin that if a goniotomy is performed in conjunction with stents and cataracts, then you should build 65880 plus 6691, as is appropriate. So I think in the day, we put it altogether, it appears many surgeons are increasingly turning to multiple procedures.

Now they have the tools to do so and to provide the max benefit to their patient, given this is a sight threatening disease, and ultimately our goal is to provide surgeon with truly minimum invasive alternatives to maximize the overall patient benefit and hopefully grow the overall markets while doing so.

So I think -- Hopefully that provides a little more clarity to some of the information flow that's been running in the investment community..

Certainly. Thanks for that, Joe. And then maybe if I can just sort of switch topics here for a second, and I hate to be so near-term focus but as it relates to the guidance so if you beat the quarter, you beat the street buys, it's pretty handedly $7 million or so on the quarter, but only raising full-year range by I think it's $2.5 million.

So can you just talk to us about and give us any additional detail with respect in the process or changes in our assumption for that updated range? Thanks, Joe..

Yeah, sure. Thanks Andrew. I think -- Well, look.

First, we provided guidance for the year and not the quarter, and while it's fair to say we were pleased with the first quarter results and how it turned out versus our expectations coming into the year and really acknowledged that, and also to say largely that performance was without the benefit of new products, I think on the positive side, as we think about the setup for the remainder of the year.

But having said that, it's still early in the context of the risks that we described entering this year, namely the U.S. prophy cuts, the impact of those and competition globally. And change doesn't happen all in a single quarter. We know competition will continue to get to see lags as the year goes on.

We have other factors we have to think about, the FX considerations here, so the macroeconomic dynamics that are playing out there. And as much as we don't like to admit it, COVID risk still remain as we move forward here.

So if you put all that together, I think we were pleased to be able to raise the bottom end by $5 million just two months after the initial guidance given everything that was facing us coming into the year..

Makes sense. Thanks, guys..

Thanks, Andrew..

Our next question comes from Chris Cooley from Stephens. Please go ahead, your line is open..

Good afternoon, and thanks for taking the questions. Congrats on a great start to the new year, and let me just briefly also echo Andrew's sentiment. Great job to Chris and his team, this is such a better way to do a call. So thanks you guys.

Just in terms of my two questions, could we unpack the growth a little bit that you saw, in particular, I should say, the 15% decline you saw in the U.S. glaucoma franchise. Help us think a little bit there about how much of that was volume-related versus price.

And then as we think about stepping back up through the year, what you're assuming in terms of the contribution from both Iaccess and iPrime. And then I've got a quick follow up..

All right. Thanks, Chris. Chris, also thank you for the kind comments in the beginning of your question. On the first part, I guess I would answer this way, pricing remains stable in the first quarter, largely stable. So what you're seeing there is from a performance overall in the U.S.

glaucoma segment is largely translated to volume dynamics over the course of the first quarter. Now, there's probably two things going on there. As you'll recall, COVID was still a reality globally at the beginning of the quarter in January and early February.

And then of course on top of that we have the dynamics around the changes in the professional fee reimbursement.

What was your second question?.

No, that hit it. I just was thinking about -- the second part of that was just going -- moving ahead, the contribution from Iaccess and iPrime, and how that helps to bolster the overall domestic glaucoma franchise, but I can follow-up with that online..

That's fine, Chris, I can answer that. I think -- if it relates to going forward, we mentioned when we gave the guidance for the year 265 to 275, that we'd include some contribution, albeit modest from Iaccess and iPrime and iStent infinite under the expectations that we would see product launches from those over the course of the year.

And I think that remains the case. So I wouldn't get too far ahead of your contribution from those products at this stage, ultimately we'll have a lot more, I think to say as the year progresses around how those are being adopted in utilizing what it's doing in terms of driving our top-line..

And if I could just squeeze a quickie in, just in thoughts here, you clearly have a very strong cadence with the iPrime and Iaccess in the controlled launch here in the second quarter moving forward, we have Epi-On and iDose coming as well.

But how are you thinking about the iLution platform how will we start to see data and kind of milestones across-the-board there for both dry eye and presbyopia, just trying to think about some markers we can put out there just to kind of track the progress? Thanks again..

You're wel -- Welcome and thanks, Chris, this is Tom. And so I'll answer the question on the foundational platform we have with iLution.

So as you know, we're excited about this, as a new platform, to be able to provide not only depot effect of the cream itself, but that as it penetrates the eyelid, we think the tissues itself will act as a depot which gives an opportunity for different APIs to travel using either the [Indiscernible] of the conjunctiva or to slower the fusion to be able to get into the front of the eye and treat enter segment disease.

So with that, we have launched, as you know, two Phase II clinical studies. One a 200-patient clinical study, evaluating twice a day iLution pilocarpine versus placebo to be able to determine safety and efficacy, looking at dry eye signs and symptoms.

And what we've said on clinical -- the clinical reports at clinicalglauk.com, I guess, is that we'd look to complete that clinical trial by May 2023 and I think we're tracking to be able to beat that pretty substantially. Likewise, we are also looking at another proprietary formulation of pilocarpine in the iLution cream to treat presbyopia.

And as you know, presbyopia, nearly a 100 million patients in the US for the us with the disease, we plan to make a difference there if this product is proved safe and effective. We also have consoled the completion of clinical trial of May of 2023 and I see that our progress leads me to believe that we'll beat that as well.

So that should give you some indication of what we will be looking at, obviously we'll be looking at dose ranging at various concentrations in order to determine what would be appropriate to take into our Phase III clinical trial. And we hope to make a difference in the treatment of dry eye disease and presbyopia..

Thank you..

Thanks, Chris..

Our next question comes from Larry Biegelsen from Wells Fargo. Please go ahead. Your line is open..

Hi, this is Charles Wilson on for Larry. First, congrats on the nice quarter. I had a question on iDose. It's like the one year follow-up, if I had this right, for the Phase III study is complete in June this year.

Do you have a plan for disclosing the top-line results in the full data? Do you think you'll be able to present that in a medical conference before approval?.

Yeah, Charles, we will. And as I stated before, what we'll be looking at doing is probably be looking at releasing the Phase III pivotal trial, both datasets, and the latter part of this year was called the tail-end this year, or certainly by early next year.

So that should give you some strong indication that we're on track and that -- and we'll have those results available..

Okay. Thank you..

Our next question comes from Ryan Zimmerman from BTIG. Please go ahead. Your line is open..

Hey, this is Phillip Dantoin on for Ryan.

Can you hear me all right?.

We can..

Great. I just have two quick questions here. Just number one, there's not really consistent coverage of goniotomy combined with stents for MAX across the U.S.

So what is your expectation that LCDs could change both positively or negatively?.

Thanks, Phil. I'll start off and if Tom wants to add anything, he certainly can. I think anytime you go through new product launches, you have a variety of things that you worked through. That's no different than what we've gone through over the years with the mix devices with iStent inject and iStent in its original launch.

We'll continue to work through those dynamics as it relates to the MAX and keep you advised we move forward..

What's been powerful lately is the release and disclosure by the academy, which has taken a position that if surgeons deem it medically necessary and reasonable, that goniotomy and Stent can be used and they codify both 65A20 A20 and the 66991 as the measures for how surgeons would use the codes to be able to code for these procedures.

And so to me, that's a very forceful arbiter and gives us a powerful way to approach these marks, to be able to influence them at a positive way going forward..

Awesome. Thanks for that color. And then just on my second one, as far as you have a line of sight on this, what should we expect at the upcoming AMA meeting on canaloplasty. Why are we discussing this? What risks does this potentially present the iPrime? Thanks..

Yeah. Thanks, Phil. I think there's been a little bit of a misconception around this upcoming AMA CPT editorial panel. We believe it's expected to discuss the simple addition of an example in a parenthetical 66,174, the code. To basically clarify what that code is to be used for, for example, canaloplasty.

The AUO asked for this given provider questions about proper terminology and ultimately, that parenthetical will become effective in January of 2024..

Makes sense. And thanks, guys, and congrats again on this transition to the better format. [Indiscernible] but thank you..

Thank you..

Our next question comes from Matt O'Brien from Piper Sandler. Please go ahead. Your line is open..

Hi, guys. This is Drew for Matt, thanks for taking the questions. I guess just to start off, maybe an update on Alcon and Hydrus, any changes so far with how that device is being marketed or anything you can speak to, as seen as far as the impact to Glaukos that you're baking into your guidance..

Thanks Drew.

Obviously -- I'll start with the latter and say we've obviously factored that in originally, all competitive dynamics, including Alcon's acquisition of Ivantis, we set our guidance for the year and we factored in as we thought about the raising of the bottom line of the guidance this time, so we factored that in financially in our expectations for the year.

I would say that as you've heard us say before, we have a tremendous amount of respect for Alcon as an organization. And they obviously now have full control of the Hydrus stand and we see them in the marketplace like we have for several years now.

So I would expect they continue get their fee legs over the course of the year and we'll continue to see them from a competitive standpoint, not just here in the U.S. but globally. But I would say it's continued more of the same..

Okay, that makes sense. And then just thinking about the -- that 15% decline in the U.S. it sounds like that's largely related to volumes. I assumed some of that earlier in the year here would be temporary competitive trialing.

So just any sense for how some of those trailing activities have gone for Glaukos, have you had surgeons try other devices and come back to Glaukos, and when do you expect some of that temporary trailing to begin to wind down? Thank you..

It's a fair question, it's a hard one to answer.

I think anytime you go through a situation like the adjustment in the professional fee reimbursement, you're going to have some disruption in ordering patterns, customer trialing and trying, some of which has come back, some of which will, some of which will potentially be -- continue to be losses as physicians become aware of it.

So I think it remains a fluid dynamic. We're encouraged by what we saw in the first quarter and that's all reflected in the guidance we gave..

Our next question comes from Tom Stephan from Stifel. Please go ahead. Your line is open..

Great. Hey everyone. Thanks for the questions. If I can just start big picture. A lot of things happening in 2022 with MIGS between new products, obviously reimbursement changes. And we pick up in our checks a lot that there just seems to be a bit of confusion in the marketplace among doctors.

So I guess, would love to hear your perspective just on the state of the U.S.

MIGS market today and how you believe the longer-term, I guess competitive dynamics may ultimately play out?.

Yeah. Thanks, Tom. I'll start off and then, Tom, if you want to add comments you can add to that. I think it is true that there has been a fair number of new product introductions in recent years, including some of our own here as we navigate 2022.

And whenever you do that or go through that, surgeons are going to be evaluating what's their optimal algorithm with the products that are available and the patients and the state of disease that they have. So I think it's natural that there be some of that here, now, as we go through all this.

I think you've heard us say for a long time that part of the mission at Glaukos was to provide the full portfolio of alternatives for these surgeons as they move forward. So I think those are discussions that we look forward to engaging in with these surgeons as I think about those algorithms and how our product portfolio may map against that.

Ultimately, our goal is to provide the most minimally invasive alternatives and to hopefully maximize the overall patient benefit and expand the market while we do it..

And I would just add that as we look at this, there are a number of alternatives that have entered in as surgeons grapple with that and get their sea legs as to how they want to build their own algorithms. That probably leaves to some of the near-term confusion over what you're hearing from the end market.

What I am very encouraged by is the movement of surgeons independently of us to the use of period procedures to be able to arrest this sight-threatening disease. Clearly, there's a need to be able to drive to lower intraocular pressures through the use of procedures that may be either additive or synergistic to be able to get them there.

And because of that, I think we've been perhaps a little pressured and put ourselves in a very, very good position as we move forward in this marketplace..

Got it. That makes sense. If I can quickly pivot just to supply chain disruptions, inflationary pressures, any updated view kind of as we sit here today or any moving parts in particular we should be mindful of, whether it's in relation to your core portfolio or the pipeline.

And then do you guys still feel comfortable with that 83% to 84% gross margin range you've talked about recently? Thanks guys..

Yeah. Tom, it's Joe. I'll -- Maybe I'll start with some of the macroeconomic points and then I'll turn it to Alex for the gross margin view. I think we're certainly not immune, right? The world continues to navigate new supply chain challenges each and every day.

I would say that our -- We couldn't be more proud of our organization and how they've responded to that, it's required creativity and ingenuity and all the things you can imagine to navigate that successfully. And so far so good, in the context of continued product supply, of continued clinical trial supply and all the things that are going on there.

But it's a lot harder in that context than it was pre -pandemic and some things that are going on. And we've also seen obviously the inflation dynamics that I think many are talking about.

It's playing itself out in various ways, including with suppliers and associated partners as it relates to our pipeline, and then almost everything we do here from a human resource and other perspective. So there's a very real dynamic, but so far so good in terms of our ability to navigate them. Alex..

Yeah. Hey, Tom, this Alex, so on the margin, the range 83% to 84%, we do believe that is still the appropriate margin for the business. We did an 83 in the quarter. And that was about a 160 basis points less than fourth-quarter. However, that was primarily driven by geographic revenue mix.

And our international revenues being a much higher percentage of our overall revenue mix in -- in the first quarter, which drove it down a little bit. And as we've said, historically, our international margins are a little bit lower than our U.S. margins.

But given that fact pattern, we still believe and we still target internally and we would express that same sentiment to you that the 83, 84 ranges is the correct one..

Very helpful. Thanks, Alex. Thanks, everyone..

Thanks Tom..

Our next question comes from Allen Gong from JPMorgan. Please go ahead. Your line is open.

Hey guys, congrats on the good quarter. I just had a few quick ones.

The first one is obviously a very strong trends and your core glaucoma business with any of that stocking dynamics earlier on in the quarter as physician and practices really prepared for things to hopefully get back to normal on for them to give you getting back to normal levels of volumes?.

I think it's a good question, but the answer is no, I don't think there was really any stocking dynamics associated with the first-quarter results, if anything, you had a little bit more noise associated with COVID and just the general sort of environment..

Got it. And I think someone already asked something along the lines of this, but glad to see the bottom end of the guidance range moving up. But even if I'd just take the sales that you had in first quarter and annualize it, you're already at the very bottom of the range.

So when we think about the sequential improvement we should really be seeing as hopefully trends get a little bit better, as new products launch, what are you assuming for competitive dynamics? Is it just assuming that as you said, Alcon, maybe gets a little better, a little bit more pressure from Alcon and other competitors, offset by these new products, and hopefully just broader trends getting better? And yeah, I ask why isn't the top end of the range where we should be off the back of such a strong first-quarter.

Thanks..

Again, I think it's fair and we acknowledge that we are pleased with the way that the first quarter played out relative to our expectations entering the year.

But as I said earlier, I just think it's still early in the context of the risks we face entering the year and that we still face, namely the prophy cut dynamics and just in competition generally.

And then when you overlay some of the FX-related considerations, the macroeconomic factors, the COVID risk, etc, quite frankly, we came into this call quite pleased that we were able to raise the bottom into the range by $5 million, just two months after giving our initial guidance..

Our next question comes from Stephen Litchman from Oppenheimer. Please go ahead. Your line is open..

Hi, this is David on for Steve, thanks for taking the questions.

I was wondering if you can provide any more color on the latest Macro Outlook you're seeing through April relative to procedure volumes, new patient flow, and backlog?.

Thanks, David. In general, you have to -- when answering that question, you have to think about it in terms of individual geographies. I think in the U.S.

we've been pleased with the stability that we've seen in terms of those Macro dynamics around COVID, procedure flow, and the things that you'd expect as we come out of the winter months and into the spring here in the U.S.

Internationally, I put more markets than not into that same camp, but there are still pockets of COVID resurgence that create sometimes temporary, sometimes a little bit longer than temporary disruption in procedure volumes, and I think that is something that we've gotten used to for almost over two years now, being that dynamic.

It's a little bit less than what we've seen in the past, but it's still a relevant dynamic to call out..

Got it, thanks. And then just one question on how we should think about the OpEx spending trend to the rest of this year. Is there any significant investment plan for additional sales reps or pipeline products that we should think about? Thanks..

Hey, David. This is Alex. Happy to take that question on the OpEx. So as you saw, we posted about a $70 million non-GAAP OpEx in the first quarter, which if you run that out for the year, it's about $280 million.

However, Joe has said in the past and we believe this is still holds true, that our business really justifies around a $300 million run rate for the year. So we would encourage you to think about that and to put that into your model, which also says that you're going to see sequential increases over the year to get to that 300 level of OpEx..

Thank you..

We have no further questions in queue. I'd like to turn the call back over to management for closing remarks..

This is Tom, and I want to thank you all for your time and attention today. We again hope everyone is staying safe and we thank you for your continued interest in Glaukos Corporations. So with that, goodbye..

This concludes today's conference call. Thank you for your participation. You may now disconnect..