Glaukos Corporation (GKOS) Q4 2017 Earnings Report, Transcript and Summary

Welcome to Glaukos Corporation's Fourth Quarter and Full Year 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. 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 Chris Lewis, Director of Investor Relations and Corporate Strategy and Development.

Hello, everyone. Joining me today are Glaukos President and CEO, Tom Burns; CFO, Joe Gilliam; and COO, Chris Calcaterra. Following our prepared remarks, we'll open the call to questions. To ensure ample time and opportunity to address everyone's questions we request that you limit yourself to one question and one follow-up. If you still have additional questions you may get back into the queue. Please note that all statements other than statements of historical facts made on this call that address activities, events or developments we expect, believe or anticipate will or may occur in the future are forward-looking statements. These include statements about our plans, objectives, strategies, and prospects regarding, among other things, 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 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 recent 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?

Good afternoon everybody and thank you for joining us today. Today Glaukos reported fourth quarter net sales of 41.7 million up 26% versus the year ago quarter or 34% after adjusting for the $2 million inventory load that occurred in the fourth quarter of 2016. For the full year 2017 our net sales rose 39% to 159.3 million from 114.4 million in 2016. We also issued a 2018 net sales guidance range of 160 million to 165 million. Joe will discuss our financial results and outlook in more detail later in the call. Admission at Glaukos has always been aspirational to truly transform glaucoma therapy for the much needed benefit of patients worldwide. We intend to accomplish this by delivering a portfolio of micro invasive sustained pharmaceutical therapies and surgical devices capable of providing an optimized treatment solution at each stage of glaucoma disease stage severity. From the earliest manifestation to the most severe in both combo cataract and standalone procedures. Over the course of 2017 we made significant progress to advance this mission. As a result I can now look ahead at our five and five growth strategy with increasing confidence about what it means for Glaukos. In addition to our current iStent device Glaukos is advancing a cascade of five distinct pipeline products targeted for U.S. commercialization over the next five years. We believe this expanding product portfolio will facilitate our evolution into a hybrid pharmaceutical and surgical company while potentially delivering a seven fold increase in our current U.S. addressable market opportunity allowing us to penetrate more deeply and fulsomely in the growing glaucoma marketplace. Driving this ambitious development plan forward requires meaningful progress on a number of fronts including obtaining clinical evidence and establishing clear regulatory pathways that derisked our emerging opportunities. In this regard 2017 was a watershed year as we move close to delivering our transformative pipeline. In 2017 we submitted the iStent inject PMA application. We reported favorable Phase IIb iDose Travoprost data. We completed the iStent SA U.S. ID clinical trial and finalized the design for the expanded phase pivotal trial. We complete enrolment in the iStent Supra pivotal trial. We submitted an ID application for the iStent Infinite and we continued to make significant investments to grow and strengthen the Glaukos pharma team and pipeline. Our commercial performance and the cash flow derived from our beachhead iStent combo cataract product continued to fuel our key initiatives and we believe produce the capital necessary to drive our pipeline and global infrastructure expansion. In 2017 we achieved a number of important commercial objectives included that we implemented a successful price increase in the AST care setting. We sought and received an extension through 2023 for the 01912CP3 [ph] code. We grew the number of iStent trained U.S. surgeons to more than 3000, an increase of approximately 25% versus 2016. We added to our patent portfolio of over 200 methin [ph] and apparatus patents designed to protect the viable technologies we've created and we grew our body of clinical evidence which now includes 74 separate peer review articles. We also made significant strides in 2017 to expand and strengthen our international presence. Finishing the fourth quarter with direct sales operations in 16 countries outside the United States including 13 that were fully established in 2017. Our O.U.S. focus is building -- is on building quality, experienced surgical sales teams while working to establish favorable reimbursement, trained surgeons, and leverage our compelling clinical data to grow mixed awareness and adoption. In terms of specific country highlights we are growing momentum in the UK following a favorable 2017 Nice ruling that made iStent available, under standard protocols with no restrictions as well as the recent launch of iStent Inject. In Japan iStent reimbursement is established and surgeon training continues in earnest with the concentration on glaucoma specialist. Given the size and ultimate potential for this market we are methodically building a strong foundation within the glaucoma community through a controlled commercial launch that we believe should lead to broad adoption across the comprehensive ophthalmic surgeon pool over time. In Australia our commercial progress continues despite reimbursement headwinds in 2017. We continue to make progress with the Department of Health regarding a permanent code for the implantation of iStent and iStent Inject in conjunction with cataract surgery. And in Germany our commercial execution remains solid as a continued conversion of private payers has provided expanded market access for patients. As I said at the top of the call unrivalled pipeline is designed to transform the glaucoma treatment paradigm and facilitate our evolution into a hybrid pharmaceutical and device company. A testament to this evolution is in no place more evident than the recent news surrounding our initial iDose platform product, the iDose Travoprost which has shown initial efficacy and a favorable safety profile in its Phase II trial further validating its potential to address the widespread problem of patient noncompliance with topical medications. We're delighted with reported phase II 12 week post-op results which supported the FDA's decision to allow us to commence Phase III trials. The longer term iDose Travoprost results are also very encouraging. In an interim cohort of 74 patients follow through 12 months the fast alluding and slow alluding versions of iDose Travoprost achieved average IOP reductions from baseline of 8.2 millimeters and 7.9 millimeters of mercury respectively compared to 7.6 for topical timolol. In addition patients required 31% more medications on average in the timolol control group compared to the iDose groups. This most recent Phase II data readout also showed a favorable safety profile with no adverse events of hyperemia reported to date in either of these group and a low overall rate of AEs. Preparation for the Phase III trial are currently underway and we expect to begin enrolling patients in the first half of 2018. The FDA approved design of the prospective randomized double blind pivotal trial will be similar to the Phase II and will enroll approximately 1000 ocular hypertensive or open angle glaucoma subjects at U.S. and international clinical sites supporting our goal for iDose Travoprost to be commercially available in the 2022 to 2023 timeframe. We've also begun the processes to seek regulatory approval for iDose Travoprost in European markets and in Japan. We believe the iDose Travoprost to date is powerful and see iDose as a potential platform for future generations of sustained therapies both within glaucoma and potentially for other ocular diseases. As such we continue to invest significant resources to expand our pharmaceutical development capabilities. Our team now includes over 30 seasoned scientists, chemists, and other experts with prior experience at leading pharmaceutical companies. Moving now to our next generation surgical devices. As discussed earlier we achieved our goal to submit the final clinical module of our iStent Inject PMA application for use in combo cataract surgery to the FDA by the year-end 2017. We remain hopeful for approval in the latter part of this year and our moving ahead with preparations for U.S. commercial launch later in 2018. In a recent independent industry survey U.S. surgeons overwhelmingly identified iStent Inject as the yet to be approved mixed device they are most looking forward to by a factor of six to one underscoring the anticipation that is building behind the product. We attribute this to significant benefits we expect iStent Inject to provide surgeons in terms of clinical performance and ease of use which is consistent with the favorable real world results and adoption trends it is already achieving in international markets. Recall that the iStent Inject is a two stent product that allows a surgeon to enter the eye once, to inject stents into multiple trabecular meshwork locations in a straightforward click and release motion. We expect to present the initial results of our iStent Inject pivotal trial at the ASCRS Meeting in April adding to the published and accruing clinical evidence that continues to validate its performance in both combined cataract and standalone procedures. Our clinical team is currently gearing up to begin the ID pivotal trial for the iStent SA, our two stent trabecular bypass product designed for standalone use in pseudophakic mild to moderate glaucoma patients. The multi-center randomized trial will enroll approximately 400 patients and have a primary efficacy endpoint of non-inferiority to SLT at one year post-operatively. We're very pleased with the final trial design which reflects our successful collaboration with the FDA to liberalize the expanded phase inclusion exclusion enrollment criteria. We continue to target FDA approval and U.S. commercialization in the 2020 to 2021 time frame. Similar to the iStent SA is our most recent addition to the pipeline, the iStent infinite, a three stent standalone procedure for severe or refractory glaucoma patients. We submitted our ID application to the FDA last month seeking authorization to study the iStent infinite in a prospective multicenter single arm clinical trial. Assuming we are successful in receiving approval via a 510K pathway, we would expect U.S. commercialization in the 2020 to 2021 timeframe. The concept of the iStent infinite derive from a Glaukos sponsored dose response study authored by Dr. Katz Adall [ph] that showed three stents may provide additional IOP reductions for surgeons who are seeking lower mean post-operative baselines in patients where medical treatment and/or prior surgery did not result in desired control of glaucoma. The latest findings from the study recently published in clinical ophthalmology support this basis. At approximately 36 months post-operatively the one, two, and three stent groups achieved unmedicated post washout mean IOPs of 17.4 millimeters of mercury, 15.8 millimeters of mercury, and 14.2 millimeters of mercury respectively translating into mean unmedicated IOP reductions of 30%, 37%, and 43%. At 42 months 61%, 91%, and 91% of eyes in the one, two, and three stent groups respectively achieved a greater than or equal to 20% reduction in IOP without medications. A read out of this 54 month -- of these 54 month outcomes from this study along with numerous surgeon presentations on our technologies will be featured at the American Glaucoma Society Annual Meeting beginning tomorrow. Our notable clinical and regulatory milestones in 2017 leave us well positioned to further advance our transformational pipeline in 2018 and beyond. We believe that the iStent, iStent Inject, iStent SA, iStent infinite, iStent Supra and iDose combined to represent the most comprehensive portfolio in the glaucoma or the global glaucoma landscape. Our portfolio is capable of meeting the needs of the entire disease state continuum from ocular hypertension to refractory glaucoma. We believe our pipeline. Platforms if approved will significantly expand our market opportunity to solid gains 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 in combination therapy expectations we estimate our U.S. addressable market opportunity to expand seven fold from roughly 600,000 procedures today to a pool of over 11 million diagnosed and treated eyes of which we believe over 4 million can be treated annually. Finally our strategy as we head into 2018 remains unchanged. It will be an investment year for us. As competitive dynamics evolve in the combo cataract market we've always understood that the path may not be perpetually linear but our focus on long-term growth continues and the year ahead we expect to one, obtain FDA approval and commence the U.S. commercial launch of iStent Inject; two, begin patient enrolment for three key pivotal studies including the iDose Travoprost Phase III U.S. I&D study, the ID expanded phase trial for iStent SA, and the IDE trial for iStent infinite. Three, drive increased penetration in our direct international markets and four, expand our pharmaceutical capabilities through continued investment. So with that I'm going to turn the call over to Joe for a summary of our fourth quarter financial results. Joe.

Thank you Tom. As noted earlier net sales for the fourth quarter of 2017 were 41.7 million, a year-over-year increase of 26% on a reported basis or 34% after adjusting for the $2 million inventory loading that occurred in the fourth quarter of 2016. The U.S. represented 87% of our sales in the quarter and international 13%. In the U.S. fourth quarter 2017 sales was 36.3 million, an increase of 20% on a reported basis from 30.2 million during the same period a year ago and 29% after adjusting for the 2016 inventory loading. U.S. sales growth was impacted by higher ASPs and the previously discussed competitive launch and commercial reimbursement headwinds. Outside the U.S. fourth quarter sales were 5.3 million, an increase of 80% from 3.0 million during the same period a year ago. This quarter Australia, Germany, Japan, and the UK drove the majority of the year-over-year increase led by growing iStent Inject sales. Our gross margin in the fourth quarter was 89% which includes a onetime benefit related to an inventory evaluation adjustment. This compares to 85% in the same quarter in 2016. We continue to expect our gross margins to remain in the mid 80% range going forward as we may incur inefficiencies during the scaling of our Inject manufacturing infrastructure and inventory ahead of a potential U.S. launch. SG&A expenses in the fourth quarter rose 27% to 26.0 million versus 20.5 million in the year ago quarter. The rise reflects higher personnel and other costs related to the ongoing expansion of our domestic and global infrastructure primarily on our commercial and international operations. R&D expenses rose 42% in the fourth quarter to 10.5 million versus 7.4 million in the same year ago period. The rise reflects primarily the cost of additional personnel as we expand our pharmaceutical R&D capabilities and within clinical affairs where we are managing an increasing number of clinical studies and associated investigational sites and study investigators as we head into 2018. We finish the fourth quarter with net income of 1 million or $0.03 per diluted share compared to net income of 0.1 million or breakeven on a diluted per share basis in the fourth quarter of 2016. Our cash flow was strong in this quarter resulting in combined cash, cash equivalents, and short-term investments of 119 million as of December 31, 2017 compared to 108.8 million at the end of the third quarter and 95.8 million at year-end 2016. While we are pleased by the profitability and cash flow generation of the business it is important to remind you that as we move into 2018 our primary focus remains on long-term growth as we invest to MIGS market, drive increased penetration of our iStent and iStent Inject platforms globally and advance our robust pipeline initiatives through necessary clinical studies and programs. Further our fourth quarter sales and 2017 cash generation benefited from seasonality similar to prior years but also the timing of several key expenditures that shifted into the first quarter of 2018. Now I will briefly recap our full year 2017 results, total net sales were 159.3 million, a year-over-year increase of 39% on a reported basis or 44% after adjusting for the loading that occurred in the fourth quarter of 2016. U.S. net sales of 140.9 million, a year-over-year increase of 34% on a reported basis and 39% after adjusting for the 2016 loading. International net sales were 18.4 million, a year-over-year increase of 95% and approximately 11.5% of total 2017 net sales versus roughly 8% in 2016. Our 2017 gross margin was 87% versus 86% in 2016. SG&A expenses for the full year rose 49% to 96.3 million versus 64.8 million in 2016. R&D expenses excluding the onetime in process R&D charge of 5.3 million rose 33% for the full year to 38.9 million versus 29.2 million in 2016. Our net loss was 0.1 million or breakeven on a diluted per share basis compared to net income of 4.5 million or $0.12 per diluted share in 2016. Our 2017 net loss does reflect the onetime in process R&D charge of 5.3 million related to our April acquisition of the IOP sensor platform. Finally as Tom indicated earlier we are introducing 2018 net sales guidance of 160 million to 165 million. This guidance outlook takes into account the 2018 considerations we outline in our third quarter call including the full year impact of an evolving competitive landscape, the iStent Inject launch timing and broader U.S. reimbursement dynamics, as well as expansion of our international sales which we expect to be in the range of 23 million to 26 million for the full year. Historically we have provided certain U.S. market growth related metrics such as doctor training goals and same store sales commentary. While these areas remain an internal priority for us competition, the training of non-commercial residents and fellows, and trained doctor productivity have made these data points less representative of market growth. To simplify things going forward from time-to-time we will comment on our overall market growth expectations instead. As such we expect the U.S. market to grow approximately 20% in 2018 as Glaukos efforts continue to primarily drive the markets growth. These efforts in 2018 will be impacted by the previously discussed doctor training dynamics in the months prior to and immediately following the Inject launch. Finally as we think about our operating expenses in 2018 we expect to modestly expand our SG&A spending from Q4 levels to support the Inject launch and international efforts and accelerate our R&D spending as clinical costs increased to support our pivotal trial activities. With that I'll now turn the call back to Tom.

Okay, thanks Joe. So to recap Glaukos is advancing an aspirational mission to transform glaucoma therapy. Importantly with the viability of our iDose platform validated in positive Phase III data we continue to evolve into a hybrid ophthalmic medical device and pharmaceutical company with the ability to more fully penetrate this large and growing glaucoma marketplace. The ubiquity and alarming rate of patient noncompliance to topical therapies and glaucoma demands alternate dropless therapy approaches that could provide continuous treatment and minimize the potential for disease progression due to patient non-adherence. We believe Glaukos's robust pipeline of five distinct products can advance glaucoma therapy while sustaining competitive advantage, expanding our addressable markets, and driving shareholder value. So, with that I will open the call to questions. Operator.

[Operator Instructions]. Your first question comes from line of Mike Weinstein from J.P. Morgan. Your line is open.

Good afternoon guys, thanks for taking the questions. I have got a long list here but I will try and be quick. So, first off the U.S. market commentary for 2018 of 20%, is that a revenue growth outlook, is that a volume growth outlook, and is there -- and what would be the difference between the two and then how does that compare to what you think the market did in 2017?

Yeah, thanks Mike. We will start with the first of your many questions on that, so on that market outlook the 20% U.S. MIGS smart growth is volume driven for 2018. And how does that compare to 2017, it's obviously a slight deceleration from what we saw in 2017 and that's largely driven by some of the things we talked about in the prepared remarks where our ability to train new doctors in 2018 will be impacted by the dynamics in and around the iStent Inject launch.

So the 20% is a volume 20%, is there a difference in other words between price -- between volume and revenue?

Well it is a volume based estimate. There will be a slight difference in that as you recall in Q1 for Glaukos specifically we still have some benefit of price in the first quarter as we implemented our price increase last year over the course of the first quarter.

Got you and as you go through 2018 in your own modeling and the guidance you provided here, what do you assume the impact for the year is a price on your growth?

Our assumption is that price remains relatively stable over the course of the year versus what we've been experiencing post the price increase in 2017. And so the only impact we have from price as I just mentioned in context of the overall market would be the slight benefit or tailwind to our results in the first quarter.

Got you, understood. And then two last questions here, so if you think about your growth and the guidance you gave here over the course of the year, how would you characterize your growth rate, I don't think you gave specific commentary in the first quarter but how would you characterize your year-over-year growth in the first quarter say versus the fourth quarter? And the last question I promise is on Tom's commentary about the independent survey. That was so bullish for iStent Inject, could you just share with us more on that survey, who did that survey, where was it, and can we see it, thanks?

Okay, so Mike I will take the first one here. I think what you're really getting at is on the quarterly cadence of sales in 2018, right and so your first I think everybody at this point kind of understands this sort of cataract market seasonality where you see 21% to 22% of the volume in the first quarter, 25% in Q2 and Q3 and then 28% to 29% in Q4 in a typical year for cataracts. 2017 we obviously saw a slightly different trend into how that translated for us given the myriad of headwinds we saw in the second half. And so sitting here today in 2018 I think the best way of thinking about it is seasonality will still play a role but when you roll out all the various puts and takes for us over the year I think it'll be a bit more muted for us over the course of 2018 than a typical cataract market.

And on your question Mike, the independent stores that we look at is a source that you may be familiar with is called Market Scope and this is the last publication and they looked at pre-approval MIGS products and you can reference the data there. To me it was truly outstanding in an affirmation of what the appetite is for iStent Inject and it's coming in the potential approval.

Got you, thanks Tom. I will let others jump in. Thanks

Thanks Mike.

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

Thanks, I appreciate the opportunity to ask a couple questions. Maybe I'll just start off by following up on the last series of questions, just to be clear I understand what you're saying for 2018 in terms that 20% in the U.S. I'm just curious and I understand there's changing dynamics here but if you think about the back half of 2017, what was the unit volume growth of the market, your best guess kind of year-over-year in the back half of 2017 where you are guiding to 20% for the market in 2018, I am just kind of curious where things were in the back of a 2017 because it seems to me like it was closer to maybe 10% or even less market growth but I'm not sure, I really appreciate your help on where you think the market grew in the back half of 2017?

Sure, thanks Bob, it's Joe. I think over the course of 2017 we continue to see the linear trends in terms of the scaling of the market and what that meant for overall growth. But I would say similar to what we were -- what I said in answer to Mike's question that the back half of the year I think also saw market growth that was a little bit in excess of the 20% we're talking about for 2018, we didn't see it as being something as low as what you're suggesting there.

Okay, so you think the U.S. market in the back of 2017 was right around that 20% in terms units, okay.

Probably a little bit higher than that Bob.

Okay, so the second -- two other quick things I wanted to hit on, I would love to get your latest update on what's going on from a local MAC [ph] perspective and where you think we are in that process and is that stable or is there potential for more dislocation, just curious as an update from your perspective on that front?

Hey Bob, this is Chris. As it relates to MAC and Pro fees things are stable right now. We haven't seen anything new but per I think Joe's comments I don't think it's unrealistic to think that the MAC may go down into the $300 to $500 range as you plan out over the planning period here. But as of now there hasn't been anything new to really speak of.

Okay and nothing you anticipate in the near-term horizon or that you're hearing about from a near-term perspective?

Not that I'm aware of.

Hey Bob it is Joe, I would add, I think when we think about our outlook for the year as Chris is saying we assume that that can continue to happen in a reversion to the mean if you will.

Okay and then lastly I was wondering if you can just give us a little help on the data presentation coming up in April just in terms of setting expectations. I know you guys are good about sharing a lot of data with us as it comes out, should we expect for some reason meaningfully different data from iStent inject relative to the multi-stemmed data that you've been showing us, just maybe set expectations a little bit for that conference and for that data set?

Well the expectations that offset Bob are that we're going to present the data at ASCRS. As you can imagine we've taken -- we have striven to not disclose or color the data in advance of our presentation. That's largely for competitive reasons and allows us some liberty to prepare for how we want to present the data at that meeting. So unfortunately I won't be able to give you any color but I do want to let you know we said what would happen in the first half of the year, it's going to, it will happen at the ASCRS Meeting.

Fair enough, I guess the point of the question is really is there something structural that perhaps make it different from what we've seen previously but I hear your response and will be there in April.

Okay.

Your next question comes from line of Brian Weinstein. Your line is open.

Hey guys, thanks for taking the question. Couple of questions first, just wanted to see how you guys are thinking about -- you talked a little bit about Q1 and how to think about it but how you're factoring in the potential for more, if you have seen any impact from flu in there in particular we know that the UK has suspended active procedures in many of the nice hospitals in the month of January and obviously other companies have reported that there's some impact on surgical volumes as a result of that, so how have you thought about that to begin with and then I have a couple others, thanks?

Hi Brian it is Joe. I am aware that in several other calls that that topic has been coming up in somewhat recurring theme, I think of course you can have some modest disruption, patient cancellations, or rescheduling in a severe flu season. I think that for us the impact is much less in terms of what we're seeing these procedures tend to be you know rescheduled and get in there. So if you had a particular spike in that dynamic at the end of the quarter you could see some procedures shift into the next. But right now I think it is a less of material impact for us.

Okay, and then on reimbursement, you obviously made some pretty clear comments there but can you talk about what you've seen as far as volumes in those territories where you've already seen that reimbursement cut, previously you've talked about a modest impact, would you still characterize it is such and if you're thinking about this going to 300 to 500 eventually Tom how do you think about the potential then to push into that level with one CPT code, would that not seem to make a stronger argument to do that sooner?

Yeah, you go ahead.

Hey Brian, it is Chris. Really it is unchanged. Speaking of radiant where it is a low Pro fee right now. We really -- it's consistent with what we said in the past and that is it's had a modest impact to that specific area of the country. Specifically it may have had a slight impact on new physicians starting out with iStent. But to our overall business it's a minimal impact overall.

And Brian I'll answer the second part of your question and so, what I would tell you is that we're -- overall we're pleased with where we are with the category three assignment and on balance how it's serving us in the marketplace. So even if these fees goes down to $300 to $500 range we believe they will continue to be robust adoption of the technologies moving forward. And one of the principal reasons that would make us hesitant to convert to category one code is if we went into rut and our view analysis on the current procedure it would be valued as an ancillary procedure as part of the cataract, overall combo cataract procedure which we think would minimize the overall value that would be ascribed to the procedure. So you can imagine we want to wait for a standalone opportunity to present a perioperative case which would include all the pre-operative methodologies that are entailed as well as post-operative treatment period which would give us the most robust value for a standalone procedure. So you can see we'll continue to monitor this but we like where we're at and will continue to review this from time to time.

Thank you guys.

Thanks Brian.

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

Hey guys, thanks for taking the question. Just a couple of follow ups and then one on the competition. So Joe, if I'm understanding the pricing commentary earlier, are you not planning now to price Inject at a premium, I interpreted it that way because you said price would be stable, do you still expect I guess the question is to price Inject at a slight premium?

Yeah, I think I'll answer that Larry. I think Joe was talking principally about the ASP that would continue over the course of the year. I think I would reaffirm that when we do have iStent Inject we would expect to price at a modest premium to the current iStent product. And so we are consistent, we have been consistent in that position from the start. We think there's enough headroom in the APC to do so. We think the product deserves that premium value.

That's helpful. And just two last ones from me, the U.S. cadence of growth Joe, I mean it looks like the guidance is implying basically flat year-over-year sales in the United States, any color on what the growth rates might have -- how the growth rate might look different through the year given that you have Inject in the back half? And just lastly on competition, anything new you can share on CyPass Tom, I know you've read a lot about and you've also mentioned myopic shifts with CyPass, I mean it does seem to be percolating in the clinical community, is it too early to assume that their share has kind of peaked or has this not started to really impact prescribing? Thanks for taking the questions guys.

Sure, thanks Larry. So I'll start with your first question there around the quarterly cadence of sales and the relative growth rates. So if you think about over the course of the year the only I think it was Mike that asked the question around the confusion. Well, if you get additional price benefit to a certain extent in the first quarter but beyond that as you think -- as you translate into the second half of the year obviously our expectation is that we will have Inject coming online and we'll start to make that measured launch of that product. But you also could have the additional impact of additional competitive trying and trying in the second half that offsets it a bit which is the reason why the net of that I think is a slightly more muted seasonality than you would typically expect it from directly translating the cataract markets.

That's helpful.

Hey Larry this is Chris, I am going to address your second question around CyPass and I would just say that the competitive dynamics on CyPass that we've laid out in the past remained largely unchanged and what you're hearing and what you are seeing happening out in the field really validates and reaffirms what we've said all along. And that the benefit to risk ratio for the trabecular bypasses is preferred and that the majority of people trying the CyPass are glaucoma specialists who are more prone to be able to work in that space. And that over the long haul the comprehensive ophthalmologists we believe is going to gravitate to trabecular bypass because of the safety profile and the efficacy that it gives. Really when you look at all the literature that's out there, the efficacy profile of both is similar but the safety profile for the suprachoroidal shunts are a little bit riskier. And I think that's playing out.

Thanks for taking the questions guys.

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

Hey guys, good afternoon, thanks for taking the questions. I guess first one and Joe this is for you or Chris, is there an update on the commercial payer scenario and I think that was called as sort of one of the bigger headwinds in 2017 when you had several moving parts, is there an update and does the guide still assumes sort of a mid-year resolution specific to the commercial payers and then I've got a lengthy follow up?

Sure, thanks Jon. So first this is Joe. On the commercial insurance side what we said was over the course of the third quarter we brought on additional resources and programs to help alleviate that and our expectation was that we would resolve that in a somewhat linear fashion from that point through the first half of 2018. And at this point that is on track. The folks that we've brought on board are making considerable progress in the field. We're pleased with the -- what they're accomplishing and so sitting here today we continue to expect that resolution to happen in a somewhat linear fashion over the remaining part of the first half of the year.

Okay, got it, very helpful. And then let me try the second question, I sort of need to put a stake in the ground for 2017 our market share but if you assume 90% iStent share for full year 2017 I believe the U.S. implied guidance on market share would be around 75% in 2018 considering a 20% growth you gave and the fact that the U.S. sales would be somewhat flattish year-over-year. So I guess a couple questions; one, is the trend line seem to be in the right ballpark and then the second part of the question would be is that where you expect the competitors to sort of max out on share in and around one quarter of the concomitant market? Thanks guys.

Thanks Jon, I'll start off that and Chris or Tom may have additional comments. So I would say I think we're not going to comment on specific market share estimates that are out there from a -- I think we have given the information that's needed to sort of understand what we think the market growth dynamics are going to be and what we think is going to happen for our business. And I think from that you can translate into what you think the relative market share is based on your diligence and your assumptions. And then I think on the second part of your question so much speaking for Chris here, you can sort of answered in that I think we continue to see CyPass gaining MAC [ph] coverage doing the things you'd expect in the marketplace. We remain confident in what that -- in our position for the long-term. But to put a stake in the ground with respect to just the specific timing of that is probably a step too far at this point.

Your next question comes from the line of Matt O'Brien from Piper Jaffrey. Your line is open.

Hi good afternoon, this is JP on for Matt. Thanks for the question. I just wanted to go back to the guidance on the U.S. outlook for this year and just trying to reconcile, just your overall penetration of the MIG market is still 20% and I'm just trying to understand that this early in the game why the U.S. is going to be flat and when you bake in the price increase volume maybe down a bit, is it maybe on the commercial strategy or is it just everyone waiting for Inject, a little color there would be helpful?

Sure, JP it is Joe. So I think when you try to reconcile between what we're saying about the market growth dynamics and what we're implying from our guidance here is really two primary elements that you need to consider. The first is obviously CyPass really came online in the second half and as they were gaining MAC coverage over that period of time you have to start by assuming a full year impact of that alone. And then from there you can make whatever adjustments based upon your diligence and thoughts on what their ultimate market share will be over the course of the year. And second you have to factor in the potential for additional competitive filing that may occur in the second half of 2018. And when you factor those two things in there I think you'll get back to something that looks an awful lot like what we're seeing in our guidance.

Okay, and then just maybe on Inject when you introduced that or you asked some of the market can you talk about maybe what the -- I am just trying to get how many surgeons just kind of on the sideline waiting for Inject and whether we should see an acceleration in 2019 or not based on that product introduction?

Hey JP this is Chris. What I would say is where we've launched iStent Inject we've been very successful. And that the majority of the time we're converting the iStent customers for about 90% to even as high as 95% of them switch over to iStent Inject. And while I don't have exact data, does it help to expand the market or there is people who enjoy and have waited for -- enjoy using the product and waited for the product, the answer to that would be yes.

Okay, thank you.

Your next question comes from Joanne Wuensch from BMO Capital. Your line is open.

Hi, thank you for taking the question and good evening. A couple of questions in that particular order, did you have any pull forward or recovery from the last hurricane revenue in the third quarter?

Thanks Joanne. I think what we said in the third quarter call was we recovered the majority of that at the very tail end of September in the third quarter. So there probably was a little bit of carry over into the fourth but not a significant or material amount.

Okay, one of the things that we spoke about last year was sort of some push back on the private pay side of the world, could you give us an update on where you are in doing that or addressing that?

Yeah, so I think consistent with what we said earlier in the call on the commercial insurance side we're on track. We made investments in the third quarter and those investments in terms of the people on the ground are making the progress we would expect and so we remain on track for a somewhat linear resolution to the first half of 2018.

And then the competitive front you mentioned CyPass but there are other mix like products which are coming to market, can you sort of address your thoughts as you think about that?

Overall thoughts Joanne are in the context of our guidance.

Alright but I mean do you see for example [indiscernible] gaining momentum throughout the year, CyPass sort of petering out, I mean how do we think about this or are we going to enter a whole another round of competitive trialing?

Well I'll start with specific to our 2018 guidance which is that we factored in the potential production [ph] trying and trialing of competitive products in the second half of the year. I don’t know if you want add anything in color commentary Chris.

Yeah, the color there is in ophthalmology and I'm assuming elsewhere as well, these doctors like to try new products in particular when they're given to them free of charge. So we expect that if they do get approval, when they do launch that similar to what happened with CyPass that there will be a number of physicians trialing this product or trying it and being given product to do so.

Okay, and my last question I promise is does that mean when you launch iStent Inject you will be giving it away to help in the trialing process of that one? Thank you.

Yeah, I don't know that I want to disclose what I'm going to do from a competitive standpoint. But I'll just leave it at that.

And I would just say that to give some color we are really highly confident that when we do have iStent Inject that the perception in the community will be that it is a far more elegant, sessile, and truly micro invasive procedure versus some of these other products that may or may not reach the marketplace. And so we continue to remain very, very confident of our positioning. It seems that we are on track in validating how we thought about CyPass. I think we will set the same marker and be validated with how we see new products and how we compete with them in the future as well.

Thank you.

Thanks Joanne.

Your next question comes from Chris Cooley from Stephens. Your line is open.

Good evening and thanks for taking the questions. Maybe just change gears here on the expense side and so an easier one for Joe. You mentioned in your prepared remarks there were a number of expenditures that were typically in the 4Q which had slipped into the first half, I'm assuming explicitly the 1Q. Could you just maybe help us quantify those expenditures and how much of those some of your 100% come to pass here in the 1Q and then I do have a follow up on the market?

Sure, thanks Chris its Joe. So I think probably the word expenditure is -- these are awfully crude and things that were -- though they are more timing of payments. So my point was that the cash balance at the end of the year might have been a little bit elevated and that some of the timing of larger payments actually happened earlier in the first quarter than at the end of the fourth quarter. And it is less about the actual expense run rate in the first quarter versus fourth.

Okay, thanks for clarifying that, I probably misunderstood that. And then on the market I guess I'll take my shot at this, I'm just a little bit curious when you think about the 20% volume growth and how you're deriving that, are you assuming greater utilization so I guess more broadly when we look at the relative number of practices and the physicians that are using MIGS today, are you contemplating a little bit more of a I guess going deep within the existent users and getting that 20% volume step up. I am assuming sounds like you're having a little bit of a zero sum game in the back half of the year when we have three potential competitive entrants in the marketplace at that time. I am just trying to triangulate a little bit more? Thanks.

Sure, well I think in the context of the market and directly to answer your question first, we do you assume that there is incremental same store sales growth for the marketplace in 2018. But the more material driver of that is we take into account the number of doctors we expect to train and their productivity in the doctor turnover statistics. And then as I said before the same store sales related trends that we expect for the year.

Okay, thank you very much.

Your last question comes from the line of Justin Kim from Cantor Fitzgerald. Your line is open.

Hello, and thank you for taking the question. Just wanted to shift gears maybe and ask about iDose, could you share any additional details on in what way is the Phase III design would match or differ from the Phase IIb study apart from size?

Yes, so Justin this is Tom. I can tell you that we are currently really finalizing the protocol with the FDA as we speak and we expect it to be similar in construct to the Phase II data, right. So you have got a fast alluding stent to slow alluding iDose Travoprost stent which will be compared with topical Travoprost which will be dosed twice daily. And what we'll look for is, what the FDA will look for is the submission when we file the NDA we will be looking at a 12 month or sorry a 12 week efficacy end point that we can file at one year. And so much like we have conducted the Phase IIb trial we expect that with some differences but differences typically and liberalizing the protocol we would expect the Phase III trial to be conducted in a similar way with the Phase II.

Okay great, and then in terms of sort of the finalization of the protocol, should we expect that sometime in the second quarter given the start of the study?

Yeah, so what I would tell you is it is similar to what I just had mentioned in January that we will be finalizing the protocol and we expect to be in a position to start enrolling patients in the first half of this year. And so we're on track to do so. We like where we're going, we like how we're finalizing the protocol. We're also making some significant progress moving forward with the voluntary harmonization procedure in Europe with Ireland as our health authority leading the charge there. And we also have had as you know some initial discussions which have been very favorable in Japan meeting with the PMDA on this issue. So we remain just immensely excited about iDose and how we are tracking to get it into clinical trials.

Okay, great. Thanks for taking the questions.

Welcome. Okay, if that's it thank you all for your time and attention today. And especially for your continued interest in Glaukos. Thanks and goodbye.

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