Glaukos Corporation (GKOS) Q3 2016 Earnings Report, Transcript and Summary

Welcome to the Glaukos Corporation’s Third Quarter 2016 Financial Results Conference Call. A copy of the company's press release issued after the market closed today is available at www.glaukos.com. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] This call is being recorded and an archived replay will be available online in the investors section at www.glaukos.com. I would now like to turn the call over to Sheree Aronson, Vice President of Investor Relations.

Hello, everyone. Joining me today are President and CEO, Tom Burns; Chief Financial Officer, Rich Harrison; and Chief Commercial Officer, Chris Calcaterra. Following prepared remarks by Tom and Rich, all three gentlemen will take your questions. Before we begin, let me remind you 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 iStent products, our pipeline technologies, our U.S. and international commercialization efforts, the efficacy of our current and future products and our competitive market position, financial condition and results of operation. These statements are based on current expectations about future events affecting us and are subject to the 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. Please review today’s press release and our recent SEC filing for more information about these risk factors. You’ll find these documents in the Investors section of our website at www.glaukos.com. With that, I’ll turn the call over to President and CEO, Tom Burns. Tom?

Thank you, Sheree. Good afternoon to everybody. Thanks for joining us today. Our third quarter 2016 results reveal another quarter of really solid performance. With third quarter net sales of $29.6 million up $10.6 or 56% versus the same period one year ago. So, we've now delivered 13 consecutive quarters of at least 40% year-over-year sales growth and in light of these results we are raising our 2016 full-year net sales guidance to a range of a $109 million to a $111 million. Our third quarter results show the demand for iStent is robust and growing fueled by a burgeoning number of trained surgeons and a heightened emphasis on the part of these surgeons to recommend iStent's to the patients. We believe these surgeons are motivated by the abundance of real-world clinical data that continues to confirm not only iStent's exceptional safety record by all sorts of ability can to consistently delivery sustained reductions in IOP. We view the strong iStent adoption trends as a tangible indication of surgeon's interest in the longer-term potential of Micro-Invasive Glaucoma Surgery or MIGS. We found that the MIGS category to change the way Glaucoma is treated and disrupt the $5 billion global glaucoma market. To accomplish this, our team is acutely focused on four core growth objectives which are: Leveraging our seasoned sales team and clinical evidence to drive US iStent's utilization and combination with cataract surgery. Fortifying our MIGS leadership position and expanding the market with next generation iStent flow devices for combination cataract and standalone procedures. Events, iDose injectable drug delivery platform. Entering or expanding our present in high value international markets. So, let me touch briefly on progress against each of these objectives beginning with driving US iStent utilization. Well, throughout the quarter, we continued to grow the ranks of surgeons trained on the iStent procedure which is performed in conjunction with cataract surgery. We finished the third quarter of 2016 with nearly 2200 iStent trained surgeons representing a 38% increase over the roughly 1600 trained surgeons at the end of 2015. And with an emphasis on high volume cataract practices. Importantly, we are also experiencing similar year-over-year growth rates in the numbers of surgeons currently working their way through the iStent training process. These trends make clear to us that surgeon interest in iStent is higher than ever and that our team is making good progress towards our goal to train the approximately 5500 surgeons who perform the vast majority of cataract surgeries in the United States. Trained surgeons are key to driving iStent purchasing demand among our actual customers. The ASC and hospital outpatient departments where procedures are performed. In the third quarter we saw solid growth in both the total number of facilities purchasing in iStent and the average number of iStent units purchased per facility. During the third quarter we also implemented our plan to establish a specialty sales group now will focus exclusively on introducing the iStent procedure into the US teaching hospitals. This groups efforts to build a presence and teaching hospitals is vital to our longer term goal to make MIGS the standard of care for glaucoma and will complement our MIGS residence and fellowship courses for young surgeons entering the practice of Ophthalmology. During the quarter, we also continue to execute a range of initiatives aimed at increasing awareness among referring optometrist perspective patients and nose surgeons done the sidelines with respect to mix. For example, the American Academy of Ophthalmology meeting in Chicago last month, Glaukos hosted an educational mix symposium for surgeons considering iStent. Approximately 250 practitioners attended this symposium which was led by some of the industries most recognized anterior segment surgeons. The session provided attendees fresh insights on the latest clinical data, insertion tools and techniques, practice integration approaches and the comprehensive reimbursement available for iStent through Medicare and private cares. Reimbursement is of course a fundamental component to achieving widespread utilization in the United States. We dedicate considerable time and resources to ensure that the reimbursement is broadly available and commensurate with iStent's value to patients and surgeons. Since our last quarterly earnings call, there have been several favorable developments. By now, many of you have seen the November 1st publication of the CMS final rule which establishes the 2017 payment amounts for facilities for Medicare reimbursed product and procedures. For 2017, the 0191T CPT code that describes insertion of MIGS device into the trabecular meshwork rose $744 to $25038 for procedures performed in ambulatory surgery centers or ASCs. This change means that when surgeons implant their iStent in combination with cataract surgery in ASC, the facility where the procedure is performed will be reimbursed 100% of the 0191T code in 50% of the 66984 cataract code or 50% of $977. On a net basis ASCs will receive an average reimbursement in 2017 of approximately $3027 for combined cataract iStent procedures, which is about $745 or 33% higher than the 2016 reimbursement. In light of this change, we are evaluating upward adjustments on both our ASC customer and reimbursement and device reimbursement. So, this change came about because 0191T code qualified for a device intensive designation. CMS made this adjustment as part of a broader change to device intensive calculation methodology. Under the new methodology which is based on historical hospital claims data, CPT codes were eligible for an incremental reimbursement if the device portion of the ambulatory payment classification or APC was more than 40% of the total APC payment. In other words, if the cost of the device represent a more than 40% of the total reimbursement to the facility. Also included in the CMS final role were 2017 reimbursement rates for iStent combo cataract procedures performed and hospital outpatient departments. These rates rose about 1% to $3417. Overall we are very pleased with the 2017 facility reimbursement levels which we believe are an acknowledgement of iStent's value and benefit to the healthcare system. Keep in mind that these Medicare facility fee payments are separate from the professional fee payments surgeons received for performing the iStent procedure. For category three codes, such as our 0191T the raise for surgery reimbursements are set by individual Medicare administrative contractors, MACs where CMS sets facility payments. On average, we believe surgeons approximately $500 more for implanting iStent in combination with cataract surgery and they do for performing cataract surgery alone or only. Our reimbursement team has also continued to pursue expansion of US private payer coverage price stents. During the quarter, we were successful in securing iStent coverage from Anthem, one of America's largest health insurance plans. Just a few days ago we received word the TRICARE which provides healthcare coverage to US active and retired military and their families as amended their policies to provide reimbursement for the iStent. With these additions Glaukos has secured reimbursement coverage for the iStent procedure from all national commercial healthcare insurance providers. This expansive coverage represent years of painstaking effort and is doing large part of strong and convincing body of published clinical iStent data. Today, iStent technologies have been the subject of 55 articles published in clinical journals. A remarkable number for a company of our size. Double recent studies in particular have got significant attention as they have further validated the sustained IOP lowering capability of a single iStent in combination with cataract surgery in everyday clinical use. These include data published by Dr. Tobias Neuhann showing a 39 eyes receiving iStent's in combination with cataract surgery achieve mean IOP baseline IOPs of 14.9mm of mercury, three years post operatively while experiencing also experiencing and 86% reduction in the mean number of topical glaucoma medications used. In addition, Dr. Mark Gallardo just published his results of a 134 predominantly Hispanic eyes receiving a combo cataract iStent procedure. He showed mean IOP of 12.9mm of mercury and a 61% decrease in mean medication burden one year post operatively. These results are especially not worthy because people of Hispanic descent are at a higher risk for developing glaucoma then in general population. In another recently published case series Dr. John Berdahl provided a data readout of 350 patients who received iStent in combination with cataract surgery. In a 107 eyes, followed through two years Dr. Berdahl's published data revealed a 22% reduction in mean IOP to a post-operative baseline of 15.2mm of mercury and a 56% reduction in mean glaucoma medications. Our iStent pipeline technologies are designed to build upon the excellent safety and efficacy profile of the first generation iStent, while providing surgeons the ability to manage even lower IOP targets and address the needs of more patients. We're pursuing FDA approval for two versions of the iStent's inject which rely on the same fluidic mechanism or method of action as original iStent or to place two stents into separate trabecular meshwork locations with a straightforward click and release motion. Trial for the first version designed for use in conjunction with cataract surgery is full rolled in the two year follow-up period will be completed in mid-2017. Just this week, we passed a major milestone and trial for the second version of the iStent's inject which makes its own self-sealing needle penetration for uses in injectable standalone procedure in phakic consecutive phakic eyes. We've completed enrollment of the necessary 75 patients in the initial phase of the trial to evaluate safety. We plan to submit the data to the FDA in the first half of 2017 and hope to move forward with a full pivotal trail of approximately 500 patients soon or after. Progress on the standalone version of iStent inject is important because it will target the needs of a sizeable percentage of the roughly 3.6 million Americans who are affected by the open-angle glaucoma but aren’t undergoing cataract surgery. Of this clinical results for iStent inject make a compelling case where it's potential to address these needs and to further influence the glaucoma treatment algorithm. And [indiscernible] by Dr. Richard Lindstrom just published in Advances in Therapy, 57 phakic eyes with open-angle glaucoma and un-medicated intraocular pressure of 22mm of mercury to 38mm of mercury underwent implantation of iStent inject in a standalone procedure. At one year post operatively, all 57 subjects achieved IOPs of less than or equal to 18mm of mercury without medications and nearly 70% achieved intraocular pressures of less than or equal to 15mm of mercury without medications. At one year mean unmediated IOP decreased by 42%, a 14.2mm of mercury. And this reduction was maintained throughout 18 months. Keep in mind, these iStent inject results were attained without the IOP lowering benefit of can common and cataract surgery. In the most basic terms, iStent and iStent inject restores the eyes natural draining system by creating a patent opening that allows aqueous humor to flow through the trabecular meshwork into Schlemm's canal. And healthy eyes is root known as the conventional pathway is responsible for roughly 70% of fluid outflow. But an eyes with glaucoma it is the greatest site of resistance to outflow and the primary cause of elevated intraocular pressure. Reducing this resistance is the psyologic way to treat glaucoma. A second pathway for fluid outflow is through the suprachoroidal space also known as the unconventional pathway. While reductions and intraocular pressure can be achieved by inserting a stent into this space, obvious clinical data from separate pivotal trials suggests that the IOP lowering efficacy in conjunction with cataract surgery is approximately the same as a single trabecular stent in combination with cataract surgery. Moreover, much like its predicate cyclodialysis cleft procedure. Placement of a stent into the vascular suprachoroidal space can lead to a high incidence of hypotony, hyphema, iritis, corneal edema and other adverse events that are reported in studies or then are reported in studies with trabecular stenting. These are important distinctions especially for comprehensive cataract surgeon who may be less accustomed to willing to manage these types of post-operative complications. In our estimations our view continues to gain traction among surgeons that the highest efficacy and lowest risk is achieved by restoring conventional outflow first with trabecular bypass stents and that a suprachoroidal stent maybe appropriate adjunctive therapy for patients with more progressive glaucoma that need to achieve additional intraocular pressure reduction. To provide surgeons a full suite of MIGS technologies to address such cases, we are pursuing FDA approval of the iStent supra which acts such as this unconventional pathway. We are currently in the late stages of enrollment in the pivotal trial. We anticipate that a competing suprachoroidal device the CyPass will fully enter the market sometime in early 2017. As I said in the call last quarter, we are confident in our competitive position, we're well prepared and we're ready for other players to enter the marketplace. Touching briefly on iDose, our study investigators continue to enroll patients in the Phase 2b IND clinical trial which began in earnest really in the second quarter of 2016. Our best case estimate is for data readout sometime in 2017. iDose is our novel microscale implant designed to be injected through a corneal incision and secured in the anterior chamber where alludes therapeutic levels of a special formulation of Travoprost for extended periods of time. When depleted the iDose can be removed and replaced providing potentially years of continuous IOP lowering therapy. We believe iDose is ultimately FDA approved as a potential overcome the ubiquitous and rampant noncompliance associated with topical medication use and alleviate the side effects and ocular surface damage that these medications can cost. Once and approved, iDose enters the market, we envision a glaucoma treatment algorithm where surgeons could use iDose alone or in combination with iStent flow devices to manage intraocular pressure targets based on each patients individual disease stage and progression. I'll turn now to our international expansive initiatives. We've made significant strides in recent months. First, our existing international direct sales organizations continue to drive adoption of our iStent platform technologies in Germany, Australia and Canada. These regions were responsible for the bulk of our 189% year-over-year growth in international net sales in the third quarter of 2016. In Germany and Australia, we were adding more sales reps to meet growing demand. We've also recently hired direct sales reps in France, Ireland, the Netherlands, Spain, Sweden, United Kingdom and Brazil. And we're implementing a high bred direct distributor model in Columbia, Argentina and Mexico. Onboarding of these new reps is now on full swing. Since the end of like second quarter 2016, we've more than doubled the size of our international salesforce which currently stands at approximately 55 professionals. Our direct sales team in Japan is also gearing up for commercial launch of the iStent in that country where we secured regulatory approval earlier this year and have been conducting surgeon awareness building and training in anticipation of a decision by Japanese officials regarding reimbursement which we continue to expect at year-end. Overall, interest in iStent it makes an international ophthalmic community continues to grow. This was a parent of the European Society of Cataract and Refractive Surgeon Meeting held in Copenhagen, late in the third quarter. There were numerous presentations of next date including 12 surgeon presentations and posters featuring Glaukos technologies far more than any other MIGS player. With that, I'll pass the call off to Rich for our summary of our third quarter financial performance. Rich?

Thanks, Tom. Good afternoon everybody. As Tom reported earlier, our net sales rose 56% to $29.6 million versus $19.0 million in the same year-ago quarter. Rose was driven primarily by strong US sales which provided 84% of our increase versus the year-ago quarter. US sales represented 91% of total net sales in the 3rd quarter of 2016 compared to 95% in the year-ago quarter. This reflects the continuing progress we're making and expanding our international sales and market penetration. Increased unit volume worldwide was primarily responsible for the rising third quarter net sales driven by an increase in the number of train surgeons and higher overall iStent utilization. For the third quarter of 2016, our gross margin was 87% of sales versus 83% of sales in the third quarter of 2015. The increase reflect higher sales relative to our fixed manufacturing cost and intangible asset amortization as well as the suspension for 2016 and 2017 of the medical device excise tax, which was included in our 2015 cost of sales. Turning now to operating expenses, they rose 42% to $24.7 million in the third quarter of 2016 versus $17.4 million in the year-ago quarter. Our operating expenses continue to increase as we have foreign subsidiaries and domestic sales marketing and administrative personnel and also increased our investment in worldwide marketing programs. So, overall we finished the third quarter of 2016 with net income of $1.2 million or $0.03 per deluded share compared to a net loss of $2.1 million or a loss of $0.07 per deluded share in the third quarter of 2015. I'd like to remind everyone, while our exceptional topline performance led to profitability in the third quarter this year. It's important to remind you that we may not remain profitable as our focus remains expanding the market penetration of iStent globally and rapidly progressing our deep and diverse pipeline. On the balance sheet at the end of the third quarter of 2016, our combined cash, cash equivalence and short-term investments stood at $93.6 million compared to $91.1 million at the end of the year 2015. And lastly, just to repeat as Tom indicated, we have revised our 2016 net sales guidance to a range of $109 million to a $111 million. This implies a 2016 growth rate ranging from 52% to 55%. I'll now like to turn the call back to Tom.

All right. Thanks, Rich. And so to conclude our prepared remarks, we're pleased to deliver another quarter of solid growth to shareholders. Our results demonstrate the momentum that continues to build behind our flagship iStent technology. We believe that this strength is the reflection of the reliable and sustained IOP lowering performance iStent provides glaucoma patients and the surgeons to care for that. Our growing team continues to push our injectable microscale pipeline forward and expand our global footprint. We see tremendous opportunity for Glaukos to redefine the $5 billion global glaucoma market and truly transform glaucoma therapy. So, with that I'll open it up to questions. Operator?

[Operator Instructions] Your first question comes from the line of Mike Weinstein from JPMorgan. Your line is open.

Hi, this is Robby and for Mike. Congrats on the great quarter.

Thanks, Robby.

Maybe just to start out here, this is another great quarter in terms of growth in the US on top of a pretty difficult comp. and so, maybe you could talk about some of the trends you're seeing in the market, it does it have to do anything with the great data sense percentage at ASCRS in early May? What's exactly driving the growth in and where is the incremental usage coming from. Is it I know you're adding new doctors up 48% year-over-year but is it also the increased usage at each practice? Maybe just a little more color would be helpful.

Very happy to, Chris. Will you take this one?

Sure. Hey Robby. I would say yes the data that was shown in New Orleans at the ASCRS as well as the data that was shown in Chicago at the AO does certainly help stimulate the growth of iStent in the US. We continue to guard our new customers. We continue to focus on high volume cataract surgeons and we continue to increase adoption which within the customer base that we've already established. So, all of those things have contributed to yet another solid quarter for sales in the US.

All right. Maybe a follow-up here. The street coming into the quarter had you guys growing about 26% next year. A lot of data I think is conservatism around some of your new competitors who are entering the market. You touched on this in the prepared remarks. But with annualized rep productivity over $2 million now, can you without I know you're not providing full guidance next year. But maybe you'll help us think about how we should consider current trends going into next year and how sustainable are they? Thanks.

Hey, Robby. This is Rich. I think as you said, we're not prepared at this point to make any statement on our guidance for 2017. You can expect that from a sometime in early 2017, date to be determined. But I will say that there's we don’t have any expectation that our growth trends and some of the success were having would not continue, they will. We feel very positive about our performance and expect it to continue strong. I just not at this point we're not a place where we want to give you any kind of percentage readout.

Okay. Maybe one quick housekeeping question, then I'll drop off. How many reps did join the quarter with? Thanks.

52, which is in line with where we were in the second quarter. And those do not include the additional teaching institution reps.

You next question comes from the line of Bob Hopkins from Bank of America. Your line is open.

Hi great, good afternoon. Can you hear me okay?

Hey Bob, how are you?

Hi, Bob.

Hey good. Good afternoon. So, congrats on another good quarter. Just a couple of things I'd love to touch on. First, I appreciate your commentary on iDose and getting look at some of the data in 2017, maybe you could just give us a sense as to what kind of need to happen to make that more sort of mid year versus end of the year versus beginning on the year, just want to get a better sense as to when throughout the course of the year we might get to see the data?

As we’ve said along Bob that we expect to have the best case we would have, we read out the three month data in 2017, so we began enrolling the trial in earnest in second quarter of this year as you know. Several months in advance of what we thought we would surely be, so I’m really proud that we were able to get approval and move through the FDA with such repetitive. So that’s very, very positive and so we’re currently enrolling will have to have our last patient out, will have the three month data well unmasked, we will prepare and we will make it available and disclose it. And if I’m going to give you any further guidance it certainly would be towards the later part of 2017 as the best case more than towards the former or towards the near part of 2017.

Okay that’s great, thank you for that color I appreciate it. A couple of little things, again on the reimbursement decision being finalized, as we’ve thought about it in our model we’re sort of thinking that somewhere in the neighborhood of 4100 to $150 price increase was kind of a reasonable way to think about it when you go through all the puts and takes and the amount of the magnitude of the increase and I don’t know if you want to comment at this point, if that’s a reasonable range to think about in terms of the price increase for 2017? But that’s kind of our early consideration in our model, is there something fraud with that logic at this point?

I probably wouldn’t comment on whether it’s fraud or not or how reasonable it is. What I would say, you see what’s in front of us and there is an incremental opportunity here and I think that challenge in the opportunity for us is to equitably address our customer who we clearly want to have take advantage of this pricing adjustment. To understand the competitive landscape to figure how we can gain additional traction of the market. And then to figure out what will be an appropriate upgrade as well for our device reimbursement. So, as you can imagine we’re thoughtfully preparing our approach and when we would execute that next year and I’ll ask you to stay tuned, we can get quite specific when we have that available.

Okay that’s fair. And then just one last one, I think I know the answer to this, probably just a little bit of conservatism on your part or just to make sure I’ll ask the question on the Q4 guidance at the midpoint, I think that’s kind of played a slight downtick from Q3 levels obviously every quarter for quite a long time you’ve been increasing. I assume that just a little bit of conservatism on your part or maybe is there something unique about Q4 just wanted to check it out, I assume it’s just conservatism?

I mean, I think a little bit of both Bob, so certainly we’re consistently conservative in our guidance we’ve been along, we’re implying a 52% to 55% growth rate for the year. Now for the quarter it would imply in the low to mid 40% growth range which is not surprising given a year ago when we looked at our fourth quarter of 2015, we grew by about 44%. So given that occurrence a year ago we think it’s appropriate to take that into account and be conservative in our guidance for the quarter and the end of the year. But it certainly in no way any indication of any change in our optimism or expectations of continued strong performance.

Perfect, thank you.

Your next question comes from the line of Brian Weinstein from William Blair, your line is open?

Hi guys thanks for taking the questions. Tom just to know we’re still bringing back home so when we get back home we know. Question for you kind of OpEx you had the lot of international markets going direct, how should we think about sort of factoring in the incremental expense kind of go-forward I assume it’s not in the numbers totally from the third quarter. And then how do we think about what you guys ideally like to target U.S. in terms of revenue split as you kind of get further out, over the next couple of years?

Yes it’s really tired Brian and congratulations on the card I throw that in there. I don’t think I’m going to put any brackets around any percent increase ranges I do want to continue to make the point that we’ve made for quite a few quarters now that we’re investing aggressively in our business. You heard the list of countries that Tom read off that we’ve hired sales represents or continuing to pursue those and we may even consider more. So we will continue to add to our SG&A and continue to see some increases in our R&D spending as well. So watch for that to continue. I think there was a second part to your question?

Kind of longer term in the U.S.?

Yes, I’m pretty pleased we’ve already gotten to 9% international MIGS and I expect that to continue to grow to some degree over the next year, we would like to get to in the next year to two years to three years maybe down to a 85% U.S., 15% international that’s a target it just remains to be seen how quickly we’ll get there and where our fastest growth trends are coming.

Got it. And Chris for you, you guys have targeted 116 kind of docket at the quarter it sounds like you guys are still well kind of in the -- you’re going faster than that do you expect that you’re going to be able to continue that or as you get competition in the market do you expect that your kind of current reps are going to have go back defend a little bit for me not be able to see as much as new surgeons coming on board, how do you think about that?

No Brian I think that is a good assumption and you’re right we’re adding 50 to 60 per month. We’re quite please with that but as we get deeper into it and with competition those numbers may change a bit.

And then last thing for me, I know people try and talk about 2017 and what I’m curious about it the typical seasonality that we see Q4 typically being a very strong quarter for procedures, Q1 being one where you historically had talked about a little bit of softness, you’re through that last year but should we be thinking about kind of typical seasonality or is there anything that you guys have learned over the last year that may change the way you think about how seasonality impacts your business? Thank you.

I think we continue to expect at some point that the underlying seasonality in the IOL business will show up more than it has today. If we look at seasonality last year our results we had in 2015, we had 20% of our sales in Q1, we had 25% and then 27% in Q1 and Q2 and 28% in Q4 so that was last year. And so that really kind of suggest that there were some seasonality there but not quite as strong as we might have expected. And then this year we had a very significant Q1. I think the [indiscernible] is still out on seasonality, we know it’s going to happen at some point in time but I think we’re still growing so rapidly it’s really hard to pin seasonality directly to our sales trends.

Thanks for taking the questions.

Your next question comes from the line of Matthew O'Brien from Piper Jaffray, your line is open.

Good afternoon, thanks for taking the questions and I really do – my time. I think I may have misheard Rich, did you say international was about 9% of revenue, it’s about $2.7 million is that right?

Yes.

Is that entirely inject sales or are there some traditional iStent sales in there?

No, there is both.

And is it skewing one way or the other the adopting inject faster traditional iStent?

It’s probably, it’s skewing more as we continue to launch in these new areas it’s starting to trend more the iStent injects.

Got it. And I really don’t want to split here because that performance has been fantastic but just domestically the two year stack continues to come down kind of quarter after quarter. And so, my question is are you getting, you take lot of the loading through from a physician perspective I know you’re about 40% penetrated at this point of adoption you go after, but have you think loading through or conversely what’s teaching hospital focus you think that you can sustain this level of kind of two year stack as you access some of these teaching hospitals maybe – give us a sense for the type of volume that some centers hold of the overall market what’s this new push kind of access for you guys?

Let me try and address this we’re quite pleased with the growth that we continue to show, I think that third quarter was up over 56% versus I think we’re in the 40s last year. So, we’re feeling really good about that. I want to address teaching institution portion of your question. Certainly that opens up additional potential revenue sources for us and more than anything it’s a strategic way to alignment with the teaching institutions as well as with the people we’re going to those programs. So as they come out into the ophthalmic world they are familiar with MIGS and they’re ready to start utilizing the product as soon as they get placed into their practice. I think it’s a great situation where we created this category and we’re able to do such a program and that MIGS has really forefront of these ophthalmic teaching institutions. There is certainly going to be revenue associated with these but I think it’s more of a long term play then the short term play.

And what I would say Matt, just you’re needing to take a little bit of a challenge to the stack growth presumption that you’ve taken. We saw 44% growth fourth quarter last year that rebounded into the mid 50s and beyond, I think we were 60% second quarter. So we actually saw some rejuvenation and really some prolific growth subsequent to that fourth quarter of last year, I think the payoff is coming from these high volume cataract surgeons we continue to bring them in the MIGS that are fueling sustained growth and we expect that to continue throughout this planning period. If you look at where we are, we are still in the relative early innings of being able to convert these high volume cataract surgeons to become kind of ubiquitous of users and so I think the promise for continued sustained growth, the fact that this is an embryonic market place the fact that competitors are entering in which are going to bring additional revenues and resources to build makes as a brand and as a standard of care, all potent really substantial growth for us for the next several months and years.

Okay, I like to hear that, just one more on the standalone application and forgive me I am going up a memory here, although it’s a theory, but I think you started enrolling the 75 patients was it kind of Q2 of last year and you're just completing enrolment now. First of all is that right and then as you are broadening it out for the 425 patients in total, are you going to add a bunch of new centres or is this going to be a very long enrolment cycle we shouldn't anticipate?

Yes so that's a great question and I think I had the opportunity to address this previously which is, so what I would tell is that this is kind of normal course for the FDA. This is a brand new order shared indication in a new marketplace and they haven’t made it easy on this when you look at the inclusion/exclusion criteria. And so it's always kind of a herculean effort in the first phase of the trial why you established safety before you enter into a far more liberal typical phase which will give you more open field running. So we experience the same thing when we first started rolling our combination cataract trial back in the mid 2000, so the FDA gave us some pretty herculean inclusion/exclusion criteria in the initial phase. So what our challenge and our opportunity is to continue to liberalize by filing amendments to open up the criteria. And we have the three months safety date in hand math then will approach the FDA. I think with some substitutive data and arguments to be able to fully liberalize the pivotal phase which should allow us to enrol at a far more rapid rate. So that would be one key, the other key certainly would be investigators right, so we will clearly have far more opportunity to have far more investigators available, eligible and selected for the expanded phase of pivotal portion.

Very helpful, thank you.

Okay. You're welcome, thanks.

Your next question comes from the line of Chris Lewis from ROTH Capital Partners. You line is open.

Hi guys. Good afternoon and thanks for taking the questions.

Hi Chris.

Wanted to start on just the number of certains come on board here obviously the growth remains really strong, but less than half of your kind of target 5500 surgeons sell out their stuff, I guess my question is really just given the clinical and economic benefit now for those physicians that haven't adopted MIGS and iStent at this point. What do you see as kind of biggest barrier for adoption within that group?

Hi Chris, it's Chris Calcaterra. How are you?

Doing well. How are you doing?

Good. So when it comes to devices I think there is always a resistance to change into adopt new technology. There is a vast majority of people out there they just want to wait and see and don't want to jump on the bandwagon early. There is a variety of reasons including the one I just gave you. It could be it's a high volume cataract surgeon who just doesn't want to change his course of action during the day to include another procedure. There is a variety of reasons and I would say that the adoption curve with this technology is not that just similar to other adoption curves with new device technologies. So I am quite pleased with the pace that we’re going at. It's what we expected, it’s what we planned for and getting 60 or so, 50 to 60 surgeons trained per month that's very much in line with what we anticipated at this point.

Okay, great and then in Japan it sounds like you continue to expect the reimbursement by the end of this year. Now how should we think about the rollout commercially in 2017, any commentary, I guess just around number of surgeons trained, their cases, any kind of expectations you can provide there will be helpful?

Sure, we will follow the same course of action that we did here in United States with our three step training process. I would say, I would expect that the adoption in Japan will be slower than it has been in the United States, just because of the way that they practice medicine there. We are going to spend an extra amount of time with the glaucoma specialist there before moving on to the comprehensive ophthalmologist and that's just a cultural thing and I think therefore, well I plan on Japan being a very robust market for us. I think the uptick in sales will be a little bit slower there than what we have experienced in United States.

Rich, may be a question for you gross margins ticked up more than 200 basis points sequentially, can you just kind of talk about elaborate on the drivers of the margin expansion there and then looking forward is just kind of a normal run rate to expect and in a sustainable level going forward?

Yes, I wouldn't read too much into the increased 87% versus the last couple of quarters that have been around 85% to 86%. We are going to have some variability in our margins overtime based on product mix, geographic mix, may be even operational factors such as everybody knows we moved into a new facility here in the fourth quarter in October, late September and we have transitioned much of our manufacturing, there are still some with the old facility, but most of its moved here. And we are getting everything setup, there could be some inefficiencies in the fourth quarter, don't be alarmed or not, I'm not expecting anything significant, but it could be enough to move the margin around a little bit. So I'm still comfortable saying that you guys for the foreseeable future ought to be looking at the – I’ve always low to mid 80's, I still think that's right more toward the mid 80s that's where we have been performing for the last few quarters.

Okay guys. Congrats on a great quarter.

Thanks a lot.

Your next question comes from the line of John Block from Stifel. Your line is open.

Great guys, thanks. Good afternoon. I appreciate you're taking the questions. I'll just ask two, may be any thoughts about the timing of the price increase in other words I may be don't want to disclose what you are thinking in terms of the – you now, but should we expect that the to be in place for all 2017 or do you need a little bit more time to see what CyPass is doing and already with the price increasing coming anything in regards to the cadence of quarterly sales, in other words should we expect any sort of a pull forward into 4Q with some of your accounts ahead of that price increase?

Yes, so what I would say John this is Tom, is we currently are looking at this kind of the favorable GMS policy. We are trying to figure out exactly when and how to implement. I probably will avoid giving any specifics on timing one because we haven't formally determined when that will be and because of that I can't give you any real insight or granular revision of what would happen with any load in, I would certainly expect that whatever months we chose to have a price adjustment that there certainly will be some inclination for some customers to buy in at some level prior to the initiation of the price increase. But in terms of timing, in terms of disposition and distribution of that incremental value to the total amount for this HCPCS code I can't give you anything granular.

Okay, that’s very helpful and then may be Tom just to stick with you for a moment, you mentioned for all host of reasons, many reason why you’re very confident in your embedded position. I'm just curious with CyPass approved and inarguably coming to market sometimes soon, anything you guys are doing with your sales team proactively, with your customers in terms of reaching out to them and as you said earlier may be hey equivalent, efficacy as iStent, but from a safety profile or may be in theory anything you guys are doing from an outreach to educate them, inform them of CyPass’s shortcoming ahead of the next year in the market? Thanks guys.

Yes, so I would say the answer to that is no. What we are doing is trying to build a marketplace, the marketplace we created and pioneered. We're interested in the overall evolution of this MIGS category to become a standard of care for use in combination with cataract surgery. I think when outcome launches which we expect in the early part of 2017 then I think it's fair to say what we are doing now is educating our sales representatives as to the current availability of clinical studies, what those studies might mean and how we might educate surgeons particularly if there is any misleading information out there how we might educate them and what the proper way to read the clinical trial data may be and you can certainly expect that will be fully trained and ready for any competition when it presents itself.

Okay, that’s it from me. Thanks guys.

Thanks John.

Our last question comes from the line of larry Biegelsen from Wells Fargo Security. Your line is open.

Hey guys, it's Adam on for Larry thanks for taking the questions. I want to start with reimbursement, first any insights or thoughts that you can share regarding the upcoming decision between pursuing a category three code extension or transitioning to a category one code and any sense to what the physician rate would be under a permanent code?

Yes, it's a good question, it's a question that I have addressed before, but what I would tell you is just to refresh everyone’s memory is that we will have a decision to make certainly by mid next year or there about whether or not we petition to convert to category one code or whether we look to extend the basis for a category three code here in the United States. As I said along, we think that the coverage and the current category three payments have been favorably disposed and fairly disposed for professional fees for surgeons for implanting iStent, so we are very happy with what's currently happening with category three code. We will need to make a decision if we do convert the category one what we said all long is if you look a study that I think or the procedure that I think most clinicians that you reach out through your channel checks will agree is most comparable to the iStent implantation is goniotomy and you can look up the current goniotomy code which I think pays currently about $760 and so. When we look at doing when we do go to finally to a ROCK committee and get RVU analysis, I would hope to be somewhere in that ballpark within a bracketed range and that would be my expectation when we do convert to category one. We'll keep you posted, we will continue to watch the marketplace which will inform us, so the best way to approach this decision which will happen mid next year.

Okay that's help well thank and then it's a quick follow up on reimbursement, do you any update on what's going on with Novitas?

Yes, the only update that I have is what you probably are aware of is that Novitas initially reported that they were going to make a decision and we look at the professional fee payments for iStent implantation and publish that by September 6th. They did not follow through with that and we believe that they’re currently reconsidering the code payment which by the way currently pays about $1,000 for the implantation of the iStent. We have not heard anything since that past September 6th a decision that they passed on.

Okay. Thanks for taking the questions.

Okay well I want to thank everybody. Thank our investors for being on this call, thank you for your continued support. Thanks to the analyst for again very good questions today and we appreciate you joining us, look forward to the next call. With that I wish you good afternoon.

Thank you ladies and gentlemen this concludes today's conference call. You may now disconnect.