Glaukos Corporation (GKOS) Q2 2017 Earnings Report, Transcript and Summary

Welcome to Glaukos Corporation's Second Quarter 2017 Financial Results Conference Call. A copy of the company's press release issued after the market close today is available at www.glaukos.com. [Operator Instructions]. This call is being recorded and an archived replay will be available online in the Investors section at www.glaukos.com. I will now turn the call over to Sheree Aronson, Vice President of Investor Relations and Corporate Marketing.

Hello, everyone. Joining me today are President and CEO, Tom Burns; Chief Financial Officer, Joe Gilliam; and Chief Operating Officer, Chris Calcaterra. Following our prepared remarks, we'll open the call to questions. [Operator Instructions]. 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 iStent product, 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 operations. These statements are based on current expectations about future events affecting us and are subject to risks, uncertainties and factors relating to our operation 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, a quick reminder that Glaukos is hosting our first-ever Investor Day at the St. Regis Hotel in New York City on Thursday, September 14, beginning at 8:00 a.m. For more information and to register to attend, please visit the Events & Presentations page in the Investors section of our website at www.glaukos.com. With that, I'll turn the call over to Tom Burns. Tom?

Thank you, Sheree and good afternoon to everyone. Thanks for joining the call today. Glaukos reported second quarter net sales of $41.3 million, up 45% versus the year-ago quarter and marking our 16th consecutive quarter of more than 40% year-over-year growth. Our top line performance reflected continued strong volume growth of iStent and iStent inject globally, along with the 2017 iStent price adjustment in U.S. ambulatory surgery centers or ASCs. We remain on track for the year and we're reaffirming our 2017 net sales guidance of $162 million to $167 million. Consistent with prior quarterly calls, I'll review our progress in the quarter in the context of our core growth objectives which are, one, to fuel U.S. adoption of iStent in combination with cataract surgery; two, to fortify our MIGS leadership with next-generation iStent devices; three, to advance our novel iDose injectable drug delivery platform; and finally, four, to expand our direct sales operations into high-value international markets. I'll begin with the U.S. iStent adoption. We continue to make considerable progress on our core objective of driving MIGS and our iStent franchise towards becoming the standard of care for comorbid glaucoma and cataract patients. These efforts were evident in a recent Market Scope survey of U.S. cataract surgeons, where 44% indicated that they plan to increase or add surgical treatment of glaucoma to their practice in 2017, up from 29% in a similar survey just 1 year ago. Our U.S. sales organization has now largely completed the rollout of the price adjustment driven by the unprecedented rise in 2017 Medicare facility reimbursement for combination iStent cataract procedure done in ASC setting. As you know, we implemented this pricing change via a methodical conversion process where reps and customers conducted a series of one-on-one conversations about the Medicare reimbursement increase, our pricing methodology and the various purchasing vehicles available to help customers optimize the profitability of iStent to their facility. These vehicles included the opportunity to purchase a certain amount of iStents at 2016 prices, tiered pricing options and longer term purchasing agreements. This high-touch approach proved to be an appropriate and successful way to implement the pricing change, even though it temporarily diverted time and resources away from the reps' primary responsibilities which include training new surgeons on the iStent procedure and helping existing practices increase utilization rates. Reps' ability to return their attentions back to these responsibilities was evident in our second quarter metrics. For example, we finished the second quarter with just over 2,750 surgeons trained, representing 50% of the 5,500 surgeons we're targeting and keeping us on pace with our goal to train 700 new surgeons in 2017. Another component of managing the ASC price adjustment has been tracking major commercial payers to ensure consistent and thorough implementation of the 2017 reimbursement rates. Roughly 20% of patients who need the FDA indication for iStent insertion are covered by private health insurance companies. Given the nature of commercial health insurance, their rate adjustments typically lag Medicare. Consistent with our expectations and prior comments on the situation, we're able to secure iStent rate updates on nearly all of the more than 100 national commercial payment policies by the end of the second quarter. We're now working to make sure that the more than 500 affiliated sub-payers and plans and the thousands of individual provider payer contracts tied to these national policies are also updated to reflect the new iStent reimbursement. This was a critical step to ensuring that private payer rate increases are fully implemented and resulting in consistent payment of individual claims at 2017 rates. This process takes time and we're working to resolve 3 primary issues to continue to create a transitory headwind to U.S. iStent unit volume growth, first, inconsistent implementation of updated rates due to the disparate networks of systems and plans and the lack of incentive over the short term to implement the new rates, especially considering the magnitude of the increase; second, decisions by some ASC customers to forgo iStent utilization for patients covered by commercial payers until the 2017 rates are broadly implemented; and finally, three, the necessity of certain ASC customers to renegotiate the commercial payer contracts to take advantage of the 2017 iStent reimbursement levels. This can be complex as the contracts may cover multiple ophthalmic procedures and devices beyond glaucoma surgery. We're intensely focused on this matter and are making considerable progress, including actively engaging with customers and payers and increasing the size of our market access team to provide individualized assistance to customers as they work through the situation. Importantly, on the reimbursement front, the Center for Medicare and Medicaid Services or CMS, recently issued their proposed rule for 2018 reimbursement rates. While the final rates will be published in the fall, we were pleased to see rates for 0191T remain generally in line with the 2017 amounts. Moreover, the 2018 proposed ASC reimbursement rates for 0191T continue to be higher than those used for implementation of other MIGS devices. Finally, I'll provide a brief update on Noridian, the MAC that recently lowered the iStent professional fee payment in its coverage area to be generally equivalent to the fee for performing an SLT or selective laser trabeculoplasty, procedure. We're continuing work with multiple medical and ophthalmic professional societies at the state and national level, who remain in active dialogue with the MAC on this issue. These societies are making compelling arguments to educate this MAC on the surgical skill, knowledge of angle-anatomy, interoperative time involved and post-surgical care required to implant the iStent. Facts that underscored the view that SLT is not an appropriate comparative relative to the time, scale and intensities to the iStent procedure. As we said before, challenges like these are to be expected and come with a territory when building a new market with disruptive technology. Turning to the pipeline. We continue to pursue FDA approval of 2 versions of our next-generation iStent inject Trabecular Micro-Bypass. One for use in combination with cataract surgery and another for use in the stand-alone procedure. The 2-year follow-up in the pivotal phase trial for this combination cataract version will conclude this month and we're on track to file the full PMA by the end of this year. And after completing enrollment in the initial phase trial for the stand-alone version late last year, we're now in discussions with the FDA regarding inclusion/exclusion criteria, trial duration and other factors related to the study protocol for the 500-patient pivotal trial. We hope to have the FDA's approval to begin the trial by year-end. We expect the iStent inject to be a powerful force in the continuing advancement of MIGS. Preloaded with 2 Trabecular Micro-Bypass Stents, it allows the surgeon to enter the eye once and deploy both stents a few clock hours apart in a straightforward click-and-release motion. Not only does this enhance procedural ease for the surgeon, but the placement of 2 stents allow access to more of the collector channels that are fed by Schlemm's canal. Recent published data show both the clinical and economic benefits of multiple trabecular bypass stents. For example, a study published in May in the Journal of Medical Economics showed that 2 iStents used in a stand-alone procedure were more cost-effective than either SLT or topical glaucoma medication-only based on an analysis of the cumulative 5-year cost. The study authors relied on a clinical -- a clinician panel to provide treatment strategy change probabilities and direct cost for the 3 treatment options. Then, a population-based annual stay transition, probabilistic cost of care model was used to analyze the treatment strategies and related costs over the 5-year time horizon. While the 2-stent procedure had the highest initial year cost, it also had the lowest annual marginal cost for each subsequent year. Study researchers concluded that the 2-stent treatment option may reduce glaucoma-related health resource use and contribute to direct cost-savings, especially when compared to topical medications only and across longer time periods. The clinical benefits of iStent inject were underscored in an international study published in June in the Clinical and Experimental Ophthalmology. This study of 53 open-angle glaucoma subjects not controlled on 2 preoperative tropical medications showed that stand-alone implantation of iStent inject, combined with topical travoprost, delivered a 35% reduction in mean IOP to 12.9 millimeters of mercury at 18 months postoperatively. At 12 months, 100% of eyes achieved IOP at or below 18 millimeters of mercury and 87% achieved IOP at or below 15 millimeters of mercury with the reduction of one medication. The study also revealed a favorable safety profile for iStent inject with no device-related adverse events reported through 18 months. Interestingly, following the medication watch-out of 13 months, mean unmedicated IOP decreased 33% to 16.6 millimeters of mercury versus 24.9 millimeters of Mercury preoperatively, a data point that shows the independent IOP lowering capability of iStent inject which is especially important when considering that patients often don't take the glaucoma medications as prescribed. Progress also continued during the quarter on iStent Supra. We completed enrollment in the pivotal trial earlier this year and expect to file the PMA sometime in 2019. The iStent Supra creates an opening in the suprachoroidal space in order to access the unconventional pathway which is responsible for about 20% of aqueous humor outflow. Our assessment of the available literature on suprachoroidal stents used in combination with cataract surgery indicates that they appear to provide clinical efficacy that is comparable to a single stent using combination with cataract surgery, but they are often associated with higher risks which has been confirmed by informed surgical experience. Given this risk/reward profile, we continue to expect suprachoroidal stents to ultimately be used primary as enhancements to trabecular stents in cases where lower patient IOP targets are desired. A similar competing device, the CyPass, was recently approved by the FDA and we're starting to see some U.S. commercial activity in the form of surgeon training and sponsor sampling. While we respect all MIGS competition, we remain confident in our positioning. We're prepared and continue to educate the physician community on our view of how suprachoroidal stents can best be used in the glaucoma treatment algorithm. Moving to iDose. This novel drug delivery system is intended to address the ubiquitous problem of noncompliance typically associated with topical medications. Filled with the proprietary formulation of travoprost, the iDose is designed to be inserted through a corneal micro-incision and inserted in the anterior chamber where it alludes therapeutic levels of the glaucoma drug for expanded periods of time. When depleted, the iDose implant can be removed or replaced in a subsequent microinvasive procedure. We expect surgeons to use iDose alone or in combination with flow devices to manage desired IOP targets based on each patient's individual disease stage and progression, offering the ability to customize treatment regimens for a full range of glaucoma disease-stage severity. The 12-week follow-up in the 150-patient FDA Phase IIb iDose trial will conclude soon and we continue to expect a public readout of preliminary safety and efficacy data in the latter part of 2017. I'll now touch briefly on our international expansion progress. We currently have direct sales operations in 14 countries outside the United States, including Canada, 9 countries in Europe, 3 in Asia Pacific and 1 in Latin America. We have made significant strides to build quality, experienced surgical sales teams in all of these markets. We finished the second quarter with over 50 reps and 70 total international commercial personnel which basically doubles the size of our OUS sales organization versus the same time in 2016. And we will continue to strengthen our sales presence in these markets as growing demand for our iStent technology justifies the investment. Some recent international developments of note. In Europe where we officially launched new direct sales operations in 9 countries thus far, we see momentum building behind our iStent platform. In June, iStent attracted significant attention at the World Glaucoma Congress in Helsinki where we hosted a MIGS symposium that was attended by more than 125 surgeons. We'll also be well represented in October at the European Society of Cataract & Refractive Surgery meeting in Lisbon where we will host various educational programs with prospective iStent surgeons. In Australia, regulators recently granted an expansion of the iStent and iStent inject labels, allowing both to be used in stand-alone procedures as well as in combination with cataract surgery. In the coming months, we will be engaging with Australian authorities to secure coding and coverage for this new stand-alone indication. According to Glaucoma Australia, a nonprofit patient education and advocacy organization, more than 300,000 people in Australia have glaucoma and 2% to 3% of the population will eventually develop the disease. In Japan, approximately 240 surgeons are currently in the midst of iStent training and we have begun recording initial commercial sales for implantation of the iStent in combination with cataract surgery. Interest in the iStent is high in Japan where 1.5 million cataract procedures will perform in 2016. And our newly installed team in Brazil commenced commercial operations in May, marking our official and direct entry into the Latin American marketplace. Brazil will serve as the hub of our Latin American operations, supporting distributors from a select group of other countries. So we're dedicating substantial resources to growing our international business and are very enthusiastic about the potential for it to be an increasingly important contributor to our long term growth. And now with that, I'll turn the call over to Joe for a summary of the second quarter financial results. Joe?

Thanks, Tom. As noted earlier, our second quarter net sales rose 45% to $41.3 million versus $28.6 million in the same year-ago quarter. Growth was driven by strong unit volume increases worldwide and higher ASPs in the U.S. U.S. sales were $37.1 million and grew 41% versus the year-ago quarter. In the U.S., we experienced improving year-over-year volume growth trends each month throughout the quarter as more ASC customers exhausted the inventory they purchased in December and January ahead of the price adjustment. At the end of the second quarter, we estimate that only a small portion of this inventory remained on customer shelves. Our international sales were $4.2 million in the second quarter, up 87% versus the year-ago quarter and representing 10% of total net sales versus 8% 1 year ago. Again, this quarter, Germany, Australia and Canada, where international direct sales operations have been underway for a year or more, were responsible for most of the year-over-year increase. On a sequential basis, international sales grew 4% compared to the first quarter of 2017. In Australia, we're working with Department of Health to resolve some transitory issues associated with the interim MBS code that we discussed in more detail on our last earnings call. At the same time, while still early, we were pleased to see growing sequential contributions from Japan, Brazil, the U.K. and nearly all of our recently established European markets more than offset the temporary headwind in Australia. Moving down the income statement. Our second quarter gross margin was 87% of sales versus 85% in the same year-ago quarter. We attribute the expansion primarily to the U.S. price adjustment in the ASC. We're pleased with the continued gross margin expansion; however, continue to advise investors to expect that gross margins may remain in the mid-80s percent range going forward as U.S. customer contracts and international sales become a more substantial contributor to overall net sales. SG&A expenses in the second quarter rose 63% to $24.7 million versus $15.1 million in the year-ago quarter. This rise reflects primarily higher personnel, travel and other costs related to the ongoing expansion of our domestic and global infrastructure primarily in our commercial and international operations. R&D expenses rose 39% in the second quarter to $9.6 million versus $7 million in the same year-ago period and reflected primarily the cost of additional personnel, particularly within clinical affairs where we're managing multiple clinical studies and associated investigational sites and study investigators, as well as development costs associated with our drug delivery programs and IOP sensor platform. We finished the second quarter of 2017 with a net loss of $3.3 million or $0.10 per diluted share compared to net income of $2.3 million or $0.06 per diluted share in the second quarter of 2016. It is important to point out that the second quarter 2017 results reflect the onetime in-process R&D charge of $5.3 million related to our April acquisition of the IOP sensor system assets from DOSE Medical. We generated strong cash flow during the second quarter of 2017 that resulted in combined cash, cash equivalents and short term investments of $103.8 million compared to $99.2 million at the end of the first quarter. While we're pleased by the continuing profitability and cash flow generation of the business, our primary focus remains on the top line growth as we invest heavily to build the MIGS market and drive increased penetration of our iStent platform here in the U.S. and internationally. Finally, as Tom indicated earlier, we're affirming our 2017 net sales guidance of $162 million to $167 million, reflecting an implied year-over-year growth rate of 42% to 46% versus 2016. Given the positive yet unprecedented nature of the 2017 iStent reimbursement change in U.S. ASCs and our appreciation for the corresponding financial modeling challenges it may create for the investment community over the short term, we're breaking what our usual policy and providing quarterly guidance for the third quarter of 2017 which is for net sales to be in the range of $41 million to $43 million. We also continue to expect full year international revenues of $16 million to $20 million. I'll now turn the call back to Tom.

Thank you, Joe. And so to summarize, we're pleased to deliver another quarter of solid financial and operational performance. Our record quarterly sales reflect the continued strong demand for our iStent technology and the successful execution of an ASC price adjustment. Our U.S. sales organization is fully focused on training new doctors and increasing iStent utilization in existing practices while our market access team works to ensure consistent commercial carrier payments at 2017 reimbursement rates. These commercial efforts are supported by a growing body of compelling evidence that demonstrates the efficacy, safety and cost efficiency of iStent platform. Our pipeline of novel flow and drug delivery technologies is moving forward on plan and fortifying our leadership position in the emerging MIGS marketplace. Finally, we're making significant strides to expand our presence in targeted international markets and to strengthen our long term growth potential. So with that, I'll open the call up to questions. Operator?

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

Just a couple of housekeeping items first. Did you give international number? And then second to that. Can you give us any commentary on U.S. growth between volume and price this quarter?

Sure. Mike, it's Joe. First, on the international sales we gave, it was $4.2 million in the second quarter, up 87% versus the year-ago quarter, 10% of total net sales, okay? Second, on your question on the contribution of price versus volume in the quarter. Consistent with our past statements, we don't plan to break out the specifics for competitive reasons. But what I will do is comment on some of the trends that we experienced across the key drivers there from ASP to volumes. First, on ASP. We did experience some improvement in the average U.S. ASP in the second quarter as you'd expect, given the price adjustment was largely implemented heading into the quarter. It's important to factor, though, that the countervailing impact from customer contracts, the majority of which became effective heading into or during the second quarter. On volume, we did experience, from an organic standpoint, sequential volume growth in Q2. And within the quarter, we experienced improving our year-over-year volume growth trends each month as ASC customers exhausted inventory they purchased in December and January. And the last thing I'll comment on which we've talked about on prior calls which is the impact of the inventory load-in, as we call it, from December and January, where we believe that, that impact in the second quarter, as we stated before, was about $2 million heading into the Q2.

You anticipated my question. It's all very helpful, Joe. A couple items I want to follow up on. So one was the commentary on the Supra time line. It appears as if you're now assuming you'll be able to submit with 12-month follow-up data. And so I just wanted to clarify all that. That's one. And then two, with iDose having completed enrollment, I believe it was beginning of May and with the follow-up, is there any chance you'll have that in time for your analyst meeting? And if not, what else can we expect at the analyst meeting?

Okay. Mike, this is Tom. So to your first question, I guess, I would clarify and say that since we finished enrolling this clinical trial earlier this year, we expect to have that data baked for 2 years for safety and efficacy. And because of that, we would expect to be in a position with just the way that we produce, we think, formidable PMAs on an expedited basis to submit that in 2019. So that was -- just to clarify, we do expect the 2-year follow-up for that. And then on the Investor Day...

So you're going to wait -- you're waiting for the full 2-day -- you'll wait for the full 2 years? You won't submit a 1-year. Okay.

That's correct. Yes. On the Investor Day, I thought it was a very, very good time and important that this kind of 2-year anniversary from our IPO that we reconsolidate and look at our addressable markets; that we show the investment community how we'll continue to lead and sustain our leadership position into the 2020s, how we'll look at addressable markets, how we'll segment the market, how we'll look at indication-based management with our new products and how those will play into the various segments and then how we build this company into a formidable business. And so I would expect it to be a very comprehensive and a foundational approach to where we go in the coming months. With respect to iDose data, I guess, I would stick with what I have said before. We're encouraged with the progress we're making. We expect to make a public statement on the safety and efficacy by year-end. If that happened in the Investor Day, it's not inconceivable, but I would stay with the party line of saying that we'll have it by year-end.

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

So I just wanted to follow up on a couple things and trying to focus on the U.S. business. I just want to make sure I heard some things correctly. In terms of the drags on unit growth in Q1 -- and obviously, Q1 growth was strong overall, but you did mention a couple of drags and I want to make sure I'm quantifying them correctly. So the inventory build that you mentioned last quarter, that was a $2 million drag this quarter. I mean, that's one question. Then the other one was you kind of cited 3 headwinds that affected unit volume growth that were related to the recontracting that went on. And I was just wondering if you could take a shot at quantifying those headwinds in this quarter and how long you expect those to kind of persist.

Yes. So this is Joe. Bob, first, I can confirm you heard that correctly. Look, my understanding of what you said is that the $2 million impact we expected, we did experience in the second quarter. Second, with respect to Tom's prepared remarks around the commercial payer reimbursement dynamics in the second quarter, we won't give specific on the exact quantification. But what I can share is roughly 20% of the patients who meet the FDA indication price then are covered by private health insurance companies. And a material number of our customers are impacted, both in terms of their overall usage of the iStent commercial patients as well as with selected commercial payers. While we expected this issue, the pace of the private payer company conversions has gone slower than we would have liked.

And so how long do you think that will persist as a headwind?

Well, I think it's difficult to quantify that and set a precise time. Obviously, we would like to make considerable progress over the second half of the year. We would expect to make a majority of that progress in the third quarter.

Okay. And then lastly, I appreciate your comments on CyPass and Alcon. And I'm just curious, are you able to give us a sense with your reiteration of guidance kind of what you're assuming for your own market share in the MIGS marketplace in the back half of the year? This was implied in the guidance.

Yes. I think I'll answer that, Bob, by saying that I would be reluctant to give any market share data. I will say that we clearly respect Alcon as a competitor. I'm highly focused and prepared for them to come into the marketplace. I will tell you, if you look at any granular basis, they have announced that they're looking to train 700 surgeons by year-end. We have heard and we have direct knowledge that they're sampling these surgeons, typically giving 5 samples to each, selectively giving 10 samples to other surgeons. So given just some granular quantification just at a pure sponsor sampling level of what we would expect in terms of procedures, that would be conceivably taken away from iStent. Beyond that, we're well prepared. We're holding conferences. We're already engaging. We've seen a more deliberate step-up by Alcon which we expected in July. And I think we have also heard informed surgical opinion which gives us -- makes us confident that we're on right positioning and we're taking the right approach to the treatment algorithm for the treatment of glaucoma.

And the next question comes from the line of Larry Biegelsen from Wells Fargo.

It's Adam in for Larry. I wanted to stay with competitive dynamics and ask about Ivantis. We expect them to be the next MIGS player to market likely in first half of 2018. So I wanted to ask about the Hydrus-sourced study, what your expectations are for the data and then, I guess, just more broadly how you see the Ivantis device competing against the iStent and iStent inject.

Adam, this is Chris Calcaterra and good to hear from you. And as you know, the 2-year follow-up for the Ivantis study was completed in the March-April time frame. We expect them to submit by the end of the year. We obviously don't have any visibility to their data. We have seen some data out there that suggests that their IOP mean is in the 16.5% range and we would expect that we'll see similar results with their PMA study. We're very encouraged by our own product in that in and around the same time as they get approval, we should get approval for iStent inject, where we've seen data of ours with the IOP ranging anywhere from 14 to 16 millimeters of mercury and that is in a stand-alone procedure. So we're quite bullish on our product versus the iStent -- or excuse me, versus the Ivantis product. But we respect all competitors and will be prepared for when they launch their product.

Okay. That's just helpful. And then just as a follow-up. I wanted to ask about Noridian. I recognized what you said in the prepared remarks. But just wondering if you've seen any impact in terms of adoption or usage in those states that fall under Noridian jurisdiction.

Sure and another good question. Yes. This is something we're -- we've been following closely. However, this went into effect in May and we really didn't start to see the claims or the providers didn't start to see the claims payments until June. We have seen a modest impact on those areas that are covered by Noridian, but we still believe that iStent is becoming more of a standard of care for comorbid disease, glaucoma and cataract surgery. So that, we think, will have a positive impact. Additionally, for many of these providers, they own their own ASC. And therefore, they are the beneficiaries of the higher facility payments and the profitability that they've gotten from that. So at this point, it's been a modest impact to those specific areas and a minimal impact to our overall business, but it's something that we'll continue to monitor. Any other questions, Adam?

That's perfect.

Your next question comes from the line of Jon Block from Stifel.

Maybe one on competition and then one on long term market sizing. Just first, on competition. And now that CyPass -- I mean, you mentioned it's out there; it's commercialized. Do you guys still believe it will be predominantly specific to the glaucoma specialists? And maybe they're actually getting a little bit of traction in First Coast because they've got that MAC on board. What are you actually seeing out there? Has that changed your thoughts? Have you seen any greater uptake arguably among the other subset, high-volume cataract surgeons, than you may have believed 6 or 12 months ago pre-commercialization? And then I've got a follow-up.

Yes. I can answer that. I would say that, if anything, it confirms our initial thought pattern. I mean, I think we have always said along -- all along that glaucoma specialists would be intrigued with the space. They have been operating in the space for the past 70-odd years, doing cyclodialysis clefts. They understand the collateral damage that can be brought by entering the suprachoroidal space. And because they're so focused on reducing IOP to the lowest lever -- level and moderately advance to advanced refractory patients, they're willing to use the suprachoroidal space as a vehicle to achieve normative intraocular pressures and very low intraocular pressures. But with respect to high-volume cataract surgeons, I would say that while it is early, I think it confirms our belief that these surgeons are quite focused on delivering the highest standard of refractive care when doing the cataract surgery and really are quite discriminate and intolerant of any types of side effects or adverse events that would disrupt the delivery of care. And so while we have always believed that surgeons will try the procedure, we said that time and time again and high-volume cataract surgeons will try this to see where it fits in this [indiscernible], we believe strongly that when the issues of hyphema, hypotony, intraocular pressure spikes and other adverse events are manifested which we know they will be from the published literature, that it will further confirm and substantiate, I believe, that this will be largely used by the glaucoma specialists and largely and enthusiastically embraced by the glaucoma specialists.

Great. Very helpful. And then just to shift gears on the market sizing. Stand-alone market, obviously a tremendous opportunity. I think it was last conference call, you mentioned how the sweet spot within that market would be pseudophakic patients. We had some similar conclusions from our diligence. But do you have data on how that stand-alone market breaks down between pseudophakic and phakic? And clearly, this is a longer term question. But maybe if you have any data on the percent of one group for the other, that would be helpful for us as we think out and try to size the opportunity.

Yes. So I will tell you that we're in active determination right now, looking at just that issue. And I think we have as good a view on that as anybody and we expect to be in a leadership position, outlining the segmentation of that marketplace. And so what I would tell you is that stay tuned and attend Investor Day and I think you'll be able to see exactly how we view the marketplace.

Your next question comes from the line of Chris Cooley from Stephens.

Maybe either for Chris or Tom. Could you maybe update us here when you think about the U.S. market, first, in terms of the percentage of practices that you would classify as active MIGS users? Maybe just trying to differentiate that versus those that are just now starting out. Then if I can maybe push a little bit more on the volume versus price aspect. Any color from, like, a same surgeon or a same center base as you could provide? I'm just kind of curious. You mentioned that the volume growth improved sequentially throughout, well, I should say, on a monthly basis throughout the course of the quarter, but didn't know how much of that was due to just maturation of surgeons that train versus greater utilization maybe post trialing from those more established practices.

Sure. Chris, this is Chris and I'm going to address the first one which is -- that's a hard one to quantify in terms of the percentages of practices that are utilizing iStents versus those that are not and what percentages have been on board for a period of time and so forth. With the advent of the load-ins in December and January and trying to quantify when that product has been utilized, it's hard to get an idea of "penetration rates." You've got competition now. There's a lot of noise in the channel. So I don't have an answer for you on that one. In terms of the second question which was same-store sales growth, I think it's fair to say that in Q2, the same-store sales growth was modest, that the majority of this increase was in units. And the reason for that was the challenges that we talked about in the prepared statement around the coverage and the policies of the commercial payers and particularly the payment of the commercial payers. You've also got some of the doctors trying the CyPass device, so giving as many as 5 to 10 sample products. So that made same-store sales growth be flat to minimal and the majority of increase in Q2 then came from the new surgeons which we converted or trained and that number being 2,750. So most of it was volume-driven in the second quarter.

Our last question comes from the line of Matt O'Brien from Piper Jaffray.

This is JP on for Matt. I wanted to ask just one the Q3 guidance you gave. Because if I understand it correctly, it is around a $2 million headwind from the inventory that hit you in this quarter. You guys have never really been flat sequentially and you said volumes are improving sequentially month-to-month. So I'm just trying to figure out why the range is what it is and so just factoring just the kind of ramp you saw up in July from Alcon. Or what are kind of the puts and takes there?

Yes. First, this is Joe. I think we often have seen in the Q2, Q3 time fairly similar results from the second quarter to the third quarter. To the part of your question what's driving the guidance, I think we have to take into consideration the exact things that Tom elaborated on in his prepared remarks, right? That's the -- number one, the full impact of some of the commercial payer disruption that's happening and the pace of resolving that in the third quarter as well as the continued trying and trialing from CyPass as they continue to train physicians and head towards their 700-surgeon target for the year.

Got you. And then if I could sneak one more and then Alcon. A, is the sampling sets they're giving out, the 5 to 10, is that more focused on the glaucoma specialists right now? Or is this kind of broadly cataract and glaucoma? And then have you heard any kind of real-world incidents of some of the higher risks and complications that we've talked about on this call before?

This is Chris. And yes, the majority of the people who are trialing the CyPass device at this point in time are glaucoma specialists. Not to comprehend some guys haven't trialed it, but the vast majority are to glaucoma specialists. And the general checks that we're doing, the conversations that we're having supports what's in the literature in that the efficacy is similar to our pivotal trial data and that the risk ratio or the potential for a complication is higher. And we stand by what we have said, the -- it confirms what's in the literature and we feel bullish about that.

There are no further questions at this time. Mr. Tom Burns, President and Chief Executive Officer, I turn the call back over to you.

Okay. So thanks to everybody today for being here and your continued interest in our company. I will say for those planning to attend our Investor Day on September 14, we look forward to seeing you and having a very productive meeting in New York. Thanks very much and goodbye.

This concludes today's conference call. You may now disconnect.