Glaukos Corporation (GKOS) Q3 2017 Earnings Report, Transcript and Summary

Welcome to Glaukos Corporation's Third 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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [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; CFO, Joe Gilliam; and CEO, 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. The 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 SEC filings for more information about these risk factors. You will find these documents in the Investors section of our website at www.glaukos.com. With that, I'll turn the call over to Tom Burns. Tom?

Okay. Thanks, Sheree, and good afternoon, everybody. Today, Glaukos reported third quarter net sales of $40.4 million, up 37% versus the year-ago quarter, reflecting the continued global adoption of iStent and iStent Inject, along with the 2017 iStent price adjustment in U.S. ambulatory surgery centers or ASCs. We are also reaffirming our 2017 net sales guidance of $155 million to $160 million. In United States, I'm pleased with expanded adoption of our beachhead iStent device continues to drive mix towards the standard of care for co-morbid glaucoma and cataract patients, while generating the growing revenue in cash flows that fuel our deep late-stage pipeline. At the same time, we continue to invest and strengthened our domestic commercial sales and marketing organization to provide optimal resources for training new doctors, driving utilization in existing practices, obtaining broad reimbursement and increasing iStent awareness with optometrists, potential patients and others. This investment is evidenced in the tremendous expansion of our global commercial sales organization from 65 individuals at the time of our IPO to 177 today, including more than 90 Glaukos professionals currently serving the U.S. mix market. Under the reimbursement front, CMS has now published their final 2017 fee schedule. The final schedule is consistent with the proposed draft and is a reaffirmation of 2017 reimbursement increase that was implemented when 0191T CPT code describing iStent implantation received a device intensive offset designation. These reimbursement adjustments remain an extremely positive longer term development for the iStent platform and a meaningful recognition of the value it makes to the healthcare system overall. We continue during the quarter to increase the ranks of trained U.S. surgeons with the goal of having more than 3,000 fully trained by the end of this year, a portion of which includes glaucoma fellows and residents at teaching hospitals. While this particular subset of new trainees may not be meaningful to near term procedural growth, they are a vital component to longer term adoption curve for iStent and our pipeline technologies. This is an area we will continue to target through the strategic account manager or SAM sales force we created in mid-2016. Later this week, we head to New Orleans for the American Academy of Ophthalmology meeting where we will host a major mix educational symposia for active and potential iStent implanters and take part in various other activities designed to advance iStent awareness and utilization. During the third quarter, we also made considerable progress towards providing a complete portfolio of solutions across the entire glaucoma disease patients therapy continuum. We believe our pipeline platforms, if approved, will significantly expand our addressable market opportunity and uniquely positioned Glaukos for growth and leadership as a provider of innovative, pharmaceutical and surgical solutions well into the next decade. First, as highlighted at our recent Investor Day, we are delighted with the initial efficacy and safety profile demonstrated by iDose Travoprost in our Phase IIb clinical trial. The Phase II IND trial data is powerful, and it validates the potential for sustained glaucoma drug delivery system to address the widespread problem of patient non-compliance with topical medications. The 154 subject Phase II results showed that at 12 weeks the fast diluting and slower alluding versions of iDose Travoprost achieved average IOP reductions from baseline of 8.5 and 8.0 millimeters of mercury respectively, compared to 7.6 milligrams of mercury for topical timolol, meeting a fundamental clinical goal of non-inferior IOP reduction to topical therapies. It's worth noting at 12 weeks post operatively approximately 40% more subjects required additional meds in the timolol control arm than in either iDose arm. Importantly both illusion rates of the iDose Travoprost achieved mean intraocular decreases of 30% or greater. Longer term, iDose Travoprost results also showed excellent performance. In the 43 subjects with 9 months of follow-up, average IOP reductions in the fast and slower illusion groups were 8.3 and 7.5 millimeters of mercury respectively, demonstrating sustained IOP reductions of 32% from pre-treatment baselines. And perhaps, most impressive was the stellar safety profile. The Phase II study resulted in zero reported intraoperative adverse events in the iDose groups. Moreover across all patient cohorts no hyperemia was reported and the incident rate of other AEs was low. We'll be meeting with the FDA before year-end to review these results in detail and to map out plans for the pivotal Phase III trials, which we hope to begin early in 2018. We expect to conduct two 600 patients Phase III clinical studies, one primarily in the U.S. and one international, supporting our goal for iDose to be commercially available in the 2022 to 2023 time frame. We also expect our next generation iStent flow devices to be important drivers of our future growth as we expand beyond the combo cataract market segment. IStent SA, our 2-stent stand-alone product, includes an injection system designed to yield smooth trabecular stent insertion during a closed chamber stand-alone procedure, allowing the surgeon to enter the eyes once to implant two stents in a straightforward click and release motion. Multiple clinical studies have shown the potent IOP lowering capability of two trabecular bypass stents, including one presented at the ASCRS by Dr. Richard Lindstrom and more recently at the ESCRS by Dr. Comrad Shargo [ph] This latter study revealed a 42% reduction in IOP versus pre-op un-medicated IOP in 57 open-angle glaucoma subjects followed through 2 years. Moreover, 98% of subjects achieved pressures at or below 18 millimeters of mercury without medication at two years. The initial IDE, iStent stand-alone trial of 75 phakic pseudophakic patients is now complete, and we're in discussions with the FDA regarding the protocol for 500-patient Phase III pivotal trial. We hope to agree on an inclusion/exclusion criteria that will achieve more timely enrollment than we experienced in the initial trial. As we negotiate a more liberal Phase III inclusion/exclusion criteria, we will consider evaluated only mild-to-moderate pseudophakic open-angle glaucoma patients, which we believe represent about a third of the total U.S. open-angle glaucoma population, and where contemplate the most rapid initial commercial adoption of the iStent stand-alone product. We continue to target initiation of this pivotal trial in early 2018 with commercialization possible in the 2022 to 2021 time frame. Similar to the iStent essay is our most recent addition to the pipeline, the iStent infinite, which we unveiled at our Investor Day. We will seek an iStent incident indication for stand-alone use in refractory glaucoma patient. The iStent incident is preloaded with 3 stents with medium planted across 5 to 6 clock hours of Schlemm's canal. By establishing multiple openings through the trabecular meshwork and accessing numerous collective channels with in Schlemm's canal, the iStent infinite is designed to further lower IOP in the most advanced glaucoma patients, offering a minimally invasive procedure with a fast recovery time and few complications. Unlike conventional late-stage procedures, it does not create ablation [ph] In international K-series of 30 eyes, including 27 with prior trabeculectomies, the iStent infinite achieved a 52% reduction in mean IOP to 13.7 millimeters of mercury and a 77% reduction in the mean numbers of meds at 12 months postoperatively. Our plan is to submit an IDE filing for the iStent infinite with the FDA by the beginning of 2018 and to conduct a 1-year clinical trial subject of 65 subjects followed by an eventual 510(k) submission after the study is completed. Estimated U.S., commercialization is 2022 to 2021 further expanding the market for a standalone flow platform beyond mild-to-moderate patients and into advanced refractory glaucoma. Finally, progress continues with our next generation combo cataract flow devices, the iStent inject and iStent Supra, which we hope to commercialize in the latter part of 2018 and 2020 respectively. The iStent inject is on track to be filed with the agency by year-end. Once approved, we expect to iStent inject significant advantages in the combo cataract market in terms of efficacy, safety and ease of use. Moreover, like that iStent SA and iStent infinite, the iStent inject will utilize the existing 091T reimbursement code all in effect with iStent device with full coverage and payment by the max and commercial payers already established. We believe that the iStent, iStent inject, iStent SA, iStent infinite and iDose represent the most compressive portfolio in the global glaucoma landscape, a portfolio capable of meeting the needs of the entire disease state continuum from ocular hypertensive to refractory glaucoma. As I said earlier, our pipeline platforms, if approved, will significantly expand our market opportunity at a solid cadence over the next several years and uniquely positioned Glaukos for growth and leadership well into the next decade. To put this in context, using our treatment algorithms and combination therapy expectations, we expect our U.S. addressable market opportunity to expand from roughly 600,000 procedures today to a pool of over 11 million diagnosed and treated as eyes of which we believe over 4 million to be treated annually. We continue to invest significant resources in an effort to fully capture these opportunities and to expand beyond our current pipeline with new products that leverage our core technologies and expertise. This includes investing in broad pharmaceutical development capabilities. As many of you may know, we've recruited the MD [ph] with Dr Jay Katz to serve as our Chief Medical Officer. At the same time, our pharma development organization has now grown to over 30 scientists, chemists and other experts with product experience at leading pharmaceutical companies. We continue to bring in-house the technologies and tools required to advance our development capabilities into the future. While these efforts remains early, I'm excited of the capabilities we're building and the pipeline of opportunities that this organization is generating. At the same time, we continue to invest in the global infrastructure required to expand the opportunity for iStent and iStent inject combo cataract franchise today and serve as the foundation for the commercialization of our broad portfolio and longer-term growth objectives internationally. We finished the third quarter with direct sales operations in 14 countries outside the United States, including Canada; 9 countries in Europe; 3 in Asia Pacific and one in Latin America. All of three of these, Canada, Germany and Australia, represent direct commercialization efforts we've launched in 2017. Our focus today is on building quality experienced surgical sales teams in all of these markets. While working to establish favorable reimbursement, train surgeons and leverage our compelling clinical data to grow awareness around the merits of mix offerings. From recent developments of note include one, we are well represented at ESRS last month in Lisbon Portugal where there were 7 surgeon podium and poster presentation highlighting our iStent and iStent inject technologies. Two, we are gaining traction in the U.K., following the favorable nice ruling earlier this year that made iStent available under standard protocol with no restrictions. And the recent introduction of iStent inject into that country. Three in Japan, iStent surgeon trading continues in earnest with concentration on glaucoma specialists. Given the size and ultimate potential for this market, we are currently increasing our representative count to approximately 16 in Japan. We believe the strong foundation we've built in the glaucoma specialists community over the past 12 months should begin to gradually allow broader adoption across the comprehensive ophthalmologist surgeon pool and ultimately support more meaningful growth in 2018 and beyond for Japan. In Brazil, four, we have established a direct sales organization in the second quarter, we just launched iStent inject, and we are encouraged with its initial market receptivity. So lastly, I'll touch briefly on our efforts to fully develop three complementary and comprehensive technology platforms: Surgical flow devices, sustained pharmaceutical systems, and in-vivo diagnostics. Our surgical floor device platform is already positioned us as a market leader in the emerging mix treatment class. Core competencies and micro engineering design, assembly and manufacturability have put us well ahead of the competition and facilitated our foray into sustained pharmaceutical systems. We are leveraging these core competencies, while building the season team to explore additional glaucoma applications for our iDose platform and possible expansion into other ophthalmic diseases. And with our recent acquisition of IOP sensor assets, we are further leveraging our microscale, ocular device expertise with micro-electromechanical systems and our aim is to develop, elegant and plantable biosensors with the potential to improve the way physicians monitor and manage glaucoma. Ultimately, we envision Glaukos is a hybrid drug device company capable of delivering a host of novel, surgical, and pharmaceutical ocular therapies and diagnostic tools that address important unmet patient needs. So with that, I'll turn the call over to Joe for the summary of the third quarter financial results. Joe?

Thanks, Tom. As noted earlier, our third quarter net sales rose 37% to $40.4 million versus $29.6 million in the same year ago quarter. Growth reflected unit volume increases worldwide, higher ASPs in the U.S. and international expansion. U.S. sales were $35.6 million and grew 32% versus the year-ago quarter. As discussed at our Investor Day, our strong U.S. growth has been impacted by several headwinds. First, we believe commercial insurance disruptions remained the most significant headwind in Q3. As we said previous, about 20% of our target patient operation falls under commercial insurance and while virtually all of the 100-plus national commercial unit policies have already been updated to reflect the current Medicare rate, we continued to be impacted by legacy rate schedules at many of more than 500 affiliated sub-payers and plans and thousands of individual provider payer contracts. Our newly expanded reimbursement team is now working diligently and making progress with customers to ensure these rates are updated as efficiently as possible. This remains largely an account by account administrative issue, and we continue to believe it is a question of when and not if we'll convert this vast majority of the situations to new reimbursement rate. In the meantime, we've introduced several initiatives to help customers manage through the situation. As we have evaluated the pace of resolution sitting here today, we do expect this issue to decline, but persist through the first half of 2018. Next, the recent hurricanes did temporarily impact iStent procedures in Houston, Florida and to a lesser extent the southeast United States. We did start to see the return of these accounts during the second half of September and believe that most of the iStent practices are now back up and running, but patients remain impacted and does it may be early 2018 before all the procedures lost in the third quarter are fully recaptured and the pace of procedure volumes normalizes for these regions. We estimate the Q3 hurricane impact to be less than $1 million. In the meridian region, we continue to monitor the situation closely to determine whether or how the lower surgeon fee is impacting procedure growth trends. We now have several months of experience with the lower surgeon fee. And it does appear that has had a modest impact to our growth in the region as expected. As we've noted on prior calls, this impact has come primarily from a slowing of new surgeon training and utilization within lowered volume practices. It is important to remember that any mac [ph] has ability at any time to adjust professional fees for Category III codes. At this point, while various efforts continue, we have no evidence that meridian surgeon fee policy will change in 2018. And on the competition front, the situation remains consistent with our commentary at Investor Day. The lunch of CyPass thus far has been in line with our original expectations. The exception of margin being more aggressive free sampling program and customer payment terms. While this headwind likely persist and grow in 2018 as CyPass achieves additional reimbursement coverage, we remain firm on our belief that trabecular meshwork represents the optimal first line MIG therapy and over the long-term more market participants will further our goal driving MIGS to be the standard of care. As we look outside of the United States, our international sales were $4.8 million in the third quarter, up 80% versus the year-ago quarter and representing 12% of total net sales versus 9% 1 year ago. This quarter, Australian, Germany were joined by Japan and the U.K. as being responsible for the majority of the year-over-year increase. As we've previously discussed, the reimbursement situation in Australia has continued to have an impact on volumes there since changes were made in May, but we expect the situation to be resolved in the first half of 2018. Our gross margin in the third quarter was 86% of sales versus 87% in the same year ago quarter, the change primarily reflects a growing contribution of our international business. As previously indicated, we expect our gross margins to remain in the mid-80% range going forward as U.S. customer contacts and international sales become a more substantial contributor to overall net sales. SG&A expenses in the third quarter rose 43% to $24.1 million versus $16.9 million in the year-ago quarter. The rise reflects higher personnel and other costs related to their ongoing expansion of our domestic and global infrastructure, primarily in our commercial and international operations. R&D expenses rose 26% in the third quarter to $9.8 million versus $7.8 million in the same year ago period and reflected primarily the cost of additional personnel as we expand our pharmaceutical R&D capabilities and within clinical affairs where we are managing multiple clinical studies and associated investigational site and study investigators. We finished the third quarter with net income of $1.3 million or $0.04 per diluted share compared to net income of $1.2 million or $0.03 per diluted share in the third quarter of 2016. Our cash flow was strong in this quarter, resulting in combined cash, cash equivalents and short-term investment of $108.8 million compared to $103.8 million at the end of the second quarter. While we are pleased by the profitability and cash flow generations of the business, our primary focus remains on the short and long term top line growth as we invest heavily to build MIG market, drive increased penetration of our iStent and inject platforms globally and advance our robust pipeline initiatives through necessary clinical studies and programs. As Tom indicated earlier, we are reaffirming our 2017 net sales guidance of $155 million to $160 million. Finally, while we are not providing 2018 guidance today, we do want to take a moment to provide some preliminary high-level comment on how we are thinking about next year beyond my commentary in the headwinds as stated pleurisy. As Tom mentioned earlier, we remain hopeful that the iStent inject launch will happen in the latter part of 2018. But obviously, this specific timing is variable and depended on the FDA. Two additional points worth noting as it relates to iStent inject: One, we would ;expect the iStent inject launch to temporarily impact its overall pace of new doctor training both immediately prior to lunch as physicians may elect to wait and in the subsequent post-launch period as the sales force will primarily be focused on conversion to inject. We also expect that 2018 may bring new competition from Hydrus and with that, we would expect similar trying and sampling activities during the second half of 2018. Finally, we will continue to invest in our business with incremental expenditures occurring primarily in two areas. One, the R&D organization to continue our pharma development efforts and to support the substantial expansion in the pivotal clinical trial activity, that we expect will reach nearly 1,800 patients when completed. And two, our global commercial infrastructure to support the continued adoption of iStent and iStent inject but with the focus towards the substantial market expansion opportunities that are ahead of us. And with that, I'll now turn the call back to Tom.

All right. Thanks, Joe. As the MIGS pioneer, Glaukos continues to build this promising new glaucoma treatment class and if so doing manage the inevitable near-term challenges, increase completion in the combo cataract segment of the market. This initial stage of our commercial development is important because it lays the groundwork necessary to achieve our broader goals. To establish Glaukos as an ophthalmic pharma device leader with unique microscale flow, sustained pharmaceutical systems and diagnostic platforms. Beginning in 2018 and extended well into next decade, our pipeline is designed to deliver an annual cadence that we expect will deliver 5 or more new market expanding products and to truly transform the treatment of glaucoma. At the same time, we're making significant strides to provide presence in key high-value international markets and to expand our organizational skills and capabilities abilities so that we are well positioned to capitalize on the tremendous potential that lies ahead. We've never been more optimistic about the future for Glaukos and our ability to deliver sustained, long-term value to shareholders. So with that, I will open it up to questions. Operator?

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

Good afternoon, guys. Let me start with the quarter, if I can. So at the September analyst meeting, September 14 you lowered your third quarter guidance and there was a whole launch of kind of issues, including the hurricanes that you called out and the headwinds for commercial reimbursement now in Australia, which you mentioned. Quarter ended up coming in better than the lowering of the guidance you were at $41 million to $43 million, you lowered to $38 million to $40 million. You ended up beating that range. And it looks like its relative to street expectations and with the combination of U.S. and international. So can we just spend a minute on the second half of September and why exactly that the second half of September was a little bit better than you expected?

Sure. Thanks, Mike. This is Joe. I'll start and then Tom or Chris can add any additional any commentary. I think the second half September obviously is implied by everything you said was certainly stronger than what we saw leading into the Investor Day. I'd say there is probably two primary puts and takes that I would highlight there. The first is, we did see obviously, the return of the hurricane affected region towards the latter part of September, the time we were going into the Investor Day, if you remember, it was right in the sort of what, was happening in Florida, and so we took a pretty conservative approach by what that the hurricane related impact. The second, I would say, is actually - a bit of counter to that which is you know, the commercial insurance side, while we're continuing to make progress as continue to go relatively slow, and you heard some of that commentary and prepared remarks that we made. But those were the primary two puts and takes that I comment since the Investor Day.

And you had in the international piece, you had guided towards the lower end that of $16 million to $20 million. It looks like you're going to do better internationally. So why is that the case?

Well, these are still, again this is Joe, early days in many of these markets. Mike, we're obviously very [indiscernible] and what's happening there. But as you heard in the commentary we gave, I think we are pleased with the progress we're making in Japan and in Brazil and in the U.K. and, in particular, during the third quarter in addition to what has been you know, continued strong performance out of the longer-term markets in Australia and Germany.

And then, I want to ask you on inject. You continued to say expect to filing by the end of this year. But it sounds like - just in terms your commentary on when that translates into approval is now kind of shifted towards the end of '18. And I don't want to assume that's because you had the incremental dialogue with the FDA that would make you think that later in the year versus middle of the year. But any reason to think that's going be later versus maybe what you're thinking 3 or 6 months ago?

This is Tom, Mike. So thanks for your question. So what I would say is that as we start to approach the 2018 budget, we give a little bit more granular. We're looking for benchmarks that can be telling of how the FDA treat this PMA submission. The nearest benchmark we have is the CyPass adjudication. We about 9 months, so we're on track as we stated along to submit the final module of iStent inject. If we use that benchmark then plus or minus we expect to be somewhere around that range. So I don't know if it's much of a shift, I think it's just more of our granular take what has been predisposition of the FDA.

Okay. Can you just talk about the competition issue that obviously, you're concerned about short-term? And the overall is that dominate in the cataract surgery space, if they wanted to could give away CyPass doing right now, trial and trained people, if you can give CyPass as far long as they would like. So how do you think about 2018? And what are you seeing at this point from just in this period where they really I just trying to trial and trained surgeons to try use their products, what are you from that gives you an indication just to how the behavior is going to be forward?

Mike. This is Chris. They're basically doing as a key what we expected with the exception of taking a little longer on the free trialing, and that's a function I think of their coverage. Right now, there is 4 coming that, they've one commercial appear covering them and is probably taking longer than they anticipated. So they are giving away product or extending term. So in large part, it's been pretty consistent with what we have felt they would react and respond to what we guided you both in Q2 and at the Investor Day.

So no surprises, no changes there?

I would say that, this is Tom. So we've been pretty consistent all along and what we thought to do just to re-stipulate we have immense respect for the organization and its ability to use muscle and mass in the U.S. and around the world. Having said that, we believe we have the primary product that provides the best benefit to risk for patients in the mild-to-moderate open angle glaucoma. We continue to firmly believe that. As we get our channel checks, you can imagine nobody is more intimate with the community that we are. We believe that the outcome CyPass launch is largely within our expectations.

Your next question comes from line of Robert Hopkins from Bank of America.

Tom, I just want to start with you. I think I saw an 8-K filed for you guys maybe talks about restated change of control provisions for the company. I was just wondering if you could comment on that and why sort of the why now question on that.

Bob, this is Joe. I'll just chip on that So I think this is ordinarily housekeeping price as we go through various planning the board that timing was fly alongside with the documents today, nothing unique there.

Okay. And then on the question 2010, I mean, there is obviously a ton of moving parts here, some of which are obviously very temporary and some will see and then a lot of product launches coming from you guys late in '18 and then '19, '20 and beyond. So '18 is clearly a transition year and I realized give guidance a quarter from now. But preliminarily, it looks like it's probably not going to be a year where there is really frankly any growth. And I was just wondering if you can sort of kind of react to that comment just level set given that it is such a unique year?.

Thanks, Bog. It's Joe. Obviously, as you alluded to in your question, it's premature for us to get anymore granular with respect to 2018. We will obviously give that guidance on our Q4 call early next year. Today, what you heard with an attempted against a little bit more thought and commentary and color around various puts and takes and how we think about them for 2018. But I'll leave it to you for assess what that means in your models for the year.

Okay. And then maybe just on your Q4 guidance, can you give us a sense as to especially in the U.S. the difference in the growth rate in the commercial accounts versus the other 80% of the business?

It is a difficult one to answer, Bob. So obviously, in any account, we're seeing as a mix through the commercial and Medicare-related patient volume. I guess, what I would say is, if you're thinking about the context of maybe putting it in same-store sales terms, right, which we continue to see about a third of our accounts they are growing quite nicely. Not surprisingly those are accounts that are not impacted by either hurricanes or commercial Insurance issues in the like and then growing in the direction we would expect about a third of our accounts are in and around flat, and they may be dealing with some issues are there may be fully penetrate in terms of procedure volumes, perhaps what they're doing. And then about a third are being impacted in some way by the Commercial Insurance issue and/or trying and of competitive products.

Your next question comes from the line of Brian Weinstein from William Blair.

Just to go back onto CyPass for a second. Can you talk, just to be clear about this, where are you seeing the utilization? Can you talk about if you're seeing it head to head with the primarily more on the glaucoma specialist side or with the general surgeons? And then are you hearing about similar complication rate in the field to what they saw in the clinical trial?

Brian. This is Chris. Yes, I would say they started out primarily with glaucoma specialists that is still, I would say, their primary customer. They have started to move into comprehensive ophthalmologists as well. They are, in some cases, experiencing many of the things that were listed in their IDE in terms of complications. But there are people too who are having some success with that. We still feel strongly that trabecular bypass approach is a better approach it's more consistent. There is not much very variability basically the same efficacy and less chance of complications. And for all those reasons, we still feel very good about our product portfolio in our positioning within the marketplace.

Great. And as a follow-up, as it relates to the fee schedule. Now that the fee schedule is published and this number is basically in there for 2 years just help guys in your negotiations or not negotiations but your discussions in trying to get this done I think it would be some sort of accelerate to make the job a little bit easier now that's it's been there for 2 years?

Yes, Brian, I think that's a safe assumption. The final ruling came out very similar to the 2017 ruling. So it was in line with what we expected and this quarter been in place now for 2 years, it certainly can't hurt us and should help us.

Yes, I'll just add. Brian, this is Joe. I think it's like we said in the remarks we don't necessarily get the matter of if these conversions happen, it just a blocking and tackling issue account by account, situation by situation and that is just taking it's time.

Your next question comes from the line of Lawrence Biegelsen from Wells Fargo. Your line is open

I guys, its Adam [ph] thanks for taking the questions. I guess, Tom, I had 1 question on Q3. Can you give us any more visibility into the U.S. performance, how much was unit growth versus price? And I was wondering how the underlying volume growth compared in Q3 versus Q2? And then I had 1 follow-up. Thanks.

Yes, thanks, Adam, this is Joe. I think I can answer that and you'll be able to do the analysis offline ASPs were stable from Q3 and Q2 and from that you can probably do the rest of the analysis on the relative trend.

Okay, that's helpful. Thanks. And then one question on stand-alone. So you recognize you guys are still working from it the Phase III trial design with FDA. I may have missed it, but do know whether that will require 1 or 2 years of follow-up? And then, I guess, just in general, why is the process taking so long?

Yes, Adam, this is Tom. So To answer your questions we're still in negotiations with the FDA. And as I've been kind of consistent all along, we do think that there, and we know there is some underlying deliberation on 1 versus 2 year for that clinical trial. There is also deliberation on whether or not we go with pseudophakic patients or pseudophakic and phakic patients. So this is all kind of coming to a conclusion as we try to seek to liberalize the open angle glaucoma inclusion criteria, which will speed our enrollment in this expanded phase clinical trial. Why is it taking so long? That's probably less a question for me. I think this is endemic in these discussions we are in the frontier of the whole new treatment class for stand-alone procedures, the FDA, by nature, is conservative, there are multiple terms or they go on in these negotiations. And so as we've said from the beginning, we hope to be able to get a protocol available by year-end, and we are committed to doing so.

That's helpful. Thanks, guys.

Our last question comes from the line of Jon Block from Stifel. Your line is open.

Great. Thanks, guys. Good afternoon. And maybe just two questions. Just on the - it seems like a battle is still going on. Is a time period we don't hear anything in other words here 6 or 7 months passed. So just from your experience, is there, hey, the window shut, and we don't think we can prevail here or can this go on for ? And then I've got a quick follow-up.

Well, I think it's the latter, expectations is as we haven't given no guidance or no indication that there will be a successful conclusion. What I will tell you is that we said along there was an early that we are principally the same condition with and after about a year they upgraded significantly the professional fee payment that they have for the iStent. So there is no time course or deadline. This is something that's normal course for Category III code. And I'll tell you that these discussions as I said, therefore, they're largely happening behind the scenes with state medical societies and others that are highly interested in fair payment for the iStent as well as other MIGS procedures, professional fee payments.

Very helpful. I actually I didn't the other one took up to 2 years. That was good color. And then just to shift gears, Joe, I've got to be the guy that I asked you $5 million spread to keep the full year unchanged so that $5 million spread seems wide as you head into 4Q. It seems like in the past you've been $2.2 million or $3 million delta for that particular quarter. So any reasons why $5 million spread with only 1 quarter to go? Is that a competitive thing, is that a market thing, I would just love your overall thoughts there ?

So it's a fair question, John. I think, obviously, if you talk about here in the call we have a fair number of moving parts heading into the quarter and as we evaluate various scenarios in terms of the progress we made on the Commercial Insurance front, the pace in which we recover some of the procedures from the hurricanes as well as the pace the competition gets additional reimbursement and in whatever traction within the market we just felt it's prudent at this point to stick with the $5 million range.

We have one additional question from the line of Matthew O'Brien with Piper Jaffray.

This is Kevin on for Matt today just 1 for me most of my have been answered. I just wanted to dig in on Japan for second. We heard about the headcount at in the quarter just curious at a high-level at any other update there in region? And then kind of number two knowing you don't want to talk too much about next year just how should we think about that geography intermodals for next year either from a cadence perspective or?

Kevin, this is Chris. We remain very excited about Japan. What we've said all along is that from a medtech standpoint, Japan always adopts new technologies a little slower than most and that we were going with the limited launch in 2017, focusing primarily on the glaucoma specialists to ensure that we got there support. And in '17, we would be more of an investment year with the majority - not the majority, but with '18 starting to be a payoff year for us. We have been training a lot of surgeons. We were strictly focused on the glaucoma specialists until this month where we had our first koshykai [ph] training, which is the training project there, which included comprehensive ophthalmologists. So it's very expect it to be, and we look for good returns from Japan in 2018 and beyond.

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

Okay.. So to all investors and analysis, thank you so much for your time today, and it attention and for your continued interest in Glaukos. Thanks, again, and goodbye.