Glaukos Corporation (GKOS) Q1 2018 Earnings Report, Transcript and Summary

Welcome to Glaukos Corporation’s First Quarter 2018 Financial Results Conference Call. A copy of the company’s press release issued after the market closes today is available at www.glaukos.com. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] This call is being recorded and an archived replay will be available online in the Investor Relations section at www.glaukos.com. I will now turn the call over to Mr. Chris Lewis, Director of Investor Relations and Corporate Strategy and Development. Please go ahead.

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, our 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. These statements are based on current expectations about future events affecting us and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, they may cause our actual results to differ materially from those expressed or implied by forward-looking statements. Review today’s press release and our recent SEC filings for more information about these risk factors. You’ll find these documents in the Investors section of our website at www.glaukos.com. With that, I will turn the call over to our President and CEO, Tom Burns.

Good afternoon, everybody, and thank you for joining us. Today, Glaukos reported a strong start to the year with first quarter net sales of $40.1 million up 12% versus the year ago quarter. We’re also reaffirming our 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. We continue to make progress towards our aspirational mission of transforming glaucoma therapy worldwide. Our portfolio of micro-invasive surgical devices and sustained pharmaceutical therapies are capable of providing an optimized treatment solution at each stage of glaucoma disease state severity, from the earliest manifestation to the most severe and in both combo cataract and standalone procedures. 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. In this context, let me provide an update on the progress being made to achieve four of our key 2018 objectives which are one, to obtain FDA approval and commence the U.S. commercial launch of iStent inject. Two, to begin the patient enrollment of key pivotal studies. Three, to drive increased penetration in our international markets, and four, to expand our pharmaceutical capabilities through continued investment. Beginning with iStent injectors announced previously, we achieved our goal to submit the final clinical module of our iStent inject PMA to the FDA by year end 2017. Recall that the iStent injectors are two-stent combo cataract product that allows the surgeon to enter the eye once to inject stents into multiple trabecular meshwork locations in a facile click-and-release motion. We remained hopeful for approval in the latter part of this year and are moving ahead with preparations for a U.S. commercial launch later in 2018. These actions include scaling manufacturing and building necessary launch inventories, finalizing our marketing campaign and preparing the sales force to implement surge in training and launch activities. It was also the iStent inject prospective multi-center clinical trial which included 41 investigational sites and 505 randomized open-angle glaucoma subjects were recently presented at the American Society of Cataract and Refractive Surgery or ASCRS meeting by Tom – Dr. Tom Samuelson, an ophthalmic surgeon at Minnesota Eye Consultants. In this study, 387 subjects were randomized to iStent inject in combination with cataract surgery and 118 subjects were randomized to cataract surgery only. Subjects were followed through 24 months with annual medication washouts. We are delighted that the iStent inject met its primary and secondary efficacy endpoints with an overall favorable safety profile. Particularly, we’re pleased with the analysis of the primary efficacy endpoint showing roughly 75% of the iStent inject treatment arm achieved a 20% or greater reduction in unmedicated IOP at 24 months despite our study’s treatment arm having a lower pre-operative mean baseline IOP than comparable mgs pivotal trials and therefore less runway to lower IOP as the percentage change. A 24 months observed data show that the iStent inject cohort achieved a 31% mean reduction or 7.7 millimeters of mercury in unmedicated IOP, from an unmedicated mean baseline of 24.8 millimeters of mercury to 17.1 millimeters of mercury. While across to our comparisons are difficult, we believe the iStent inject final IOP is comparable to or lower than this reported efficacy measure from all other major pivotal studies. In addition, a 23 months observed data showed that the iStent inject cohort achieved a 75% reduction in the mean number of medications representing a 50% greater reduction versus the control group. Finally, the safety profile of iStent inject appears to be exceptional. Through 24 months, the overall rate of adverse events for the iStent inject in combination with cataract surgery cohort was similar to the cataract surgery only cohort. We are confident in the real world clinical performance of this product. We now have nine peer reviewed clinical publications on iStent inject and numerous studies that have been presented, where seasoned iStent inject surgeons are achieving results that appear to outperform those obtained in pivotal studies. Two recent studies presented at last month's ASCRS meeting that evaluated iStent inject and combined cataract procedures testified to this clinical trend. First to Dr. Fritz Hengerer of Germany presented a case series study of 81 eyes implanted with iStent inject in combination with cataract surgery, showing a mean IOP reduction of 37% to 14.3 millimeters of mercury and a 68% reduction in med burden at three years post implantation. Secondly, Dr. Paul Harasymowycz presented a case series of 179 eyes with mild to severe glaucoma implanted with iStent inject in combination with cataract surgery that achieved the mean IOP of 13.8 millimeters of mercury and a 43% reduction in med burden and up to one year post implantation. Finally, Dr. Ike Ahmed and colleagues presented a case series study earlier this year at the AGS showing subjects implants with iStent inject in combination with cataract surgery achieved IOP at or below 15 millimeters of mercury while reducing medications of one year. This study further concluded that iStent inject may be more efficacious in reducing medication burden versus 2 generation 1 iStent implants. Given its stellar clinical safety and efficacy results the elegance and the facility of the implant procedure, the products predictable performance, rapid rate of adoption in international markets where over 30,000 iStent injects have been implanted in industry surveys demonstrating profound surgical awareness, appetite and interest we believe the iStent inject will be a compelling treatment option for U.S. ophthalmic surgeons who reliably manage their comorbid cataract glaucoma patients. Beyond iStent inject Glaukos continues to build an enviable product pipeline that advances a cascade of novel products targeted for U.S. commercialization over the next five years. We believe this expanding product portfolio can 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 more fulsomely in this growing global glaucoma market. We continue to make progress on this development plan during the first quarter of 2018 beginning with the iDose Travoprost. Our initial iDose drug delivery platform product aimed at addressing the ubiquitous problem of patient non-compliance with topical medications. Preparations for the Phase III iDose Travoprost trial remain on schedule and we expect to meet our goal to begin patient enrollment by mid-2018. This prospective randomized double-blind pivotal trial will be similar to Phase II, but we’ll enroll approximately 1,000 ocular, hypertensive or open angle glaucoma subjects at U.S. and international clinical sites. Our efforts to seek regulatory approvals for iDose Travoprost in European markets and Japan are also progressing as planned. At the recent ASCRS Annual Meeting, Dr. John Berdahl presented the iDose Phase II 12-week and longer term study results to the clinical community for the first time and the feedback was very positive. Recall that these results showed that in an interim cohort of 74 subjects filed through 12 months, the fast eluding and slow eluding versions of iDose Travoprost achieved average ILP reductions from baseline of 8.2 millimeters and 7.9 millimeters of mercury, respectively compared to 7.6 millimeters 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 elution group and a low overall rate of adverse events. If ultimately FDA approved, we believe the iDose Travoprost will not only be instrumental in addressing the challenges of patient non-compliance with topical glaucoma medications, but also pave the way for a new treatment algorithm where surgeons use iDose alone or in combination with other therapies to more effectively manage patients’ intraocular pressure. What's more we believe the powerful iDose Travoprost data available thus far underscores the potential of our iDose drug delivery platform to produce future generations of sustained therapies for glaucoma and other ocular diseases. Moving on to our next generation surgical pipeline products, I'm pleased to report that we recently enrolled the first patient in the IDE pivotal trial for the iStent SA, achieving an important milestone in line with our previous timing expectations. This multi-center randomized trial will have a primary efficacy endpoint of non-inferiority to SLT at one year post-operative. Similar to the iStent SA is our most recent addition to the pipeline, the iStent infinite, a three-stent standalone procedure for severe refractory glaucoma patients. Following the submission of our IDE application to the FDA at the beginning of 2018, we continue to be in productive discussions with the FDA around the study design and protocols for a prospective multi-center single-arm clinical trial. The concept for the iStent infinite was born out of a Glaukos-sponsored dose response study authored by Dr. Katz, at all that reveal the potential for incremental IOP reductions with three stents. Dr. Richard Lewis presented the latest findings from the study at ASCRS, which continued to show favorable performance and durability of our three stent approach. At 4.5 years post-operatively patients who receive three trabecular bypass stents achieved 33% reduction versus unmedicated mean IOP, and 91% of subjects achieved IOP reductions of greater than or equal to 20% without medication versus pre-op unmedicated baseline IOP. Finally, the two-year patient follow-up in the pivotal trial for iStent Supra, or suprachoroidal shunt progresses through early 2019. As we said, given the benefit to risk profile, we continue to see the suprachoroidal space as a viable second line MIGS enhancement treatment option or more moderate and progressive open-angle glaucoma patients. An important aspect of building such a robust pipeline is the ability to protect our proprietary inventions with a formidable portfolio of intellectual property. To that end, we've retained a leading patent litigation firm and filed a patent infringement lawsuit against Ivantis, alleging that their Hydrus Microstent infringes are core glaucoma technologies. This lawsuit reflects our unwavering commitment to protect our proprietary inventions for the benefits of patients, customers, shareholders, employees, and others who rely on us. We believe that the iStent, the iStent inject, iStent SA, iStent infinite, iStent Supra and iDose Travoprost combined to represent the most comprehensive portfolio in the global glaucoma landscape, a portfolio capable of meeting the needs of the entire disease stage continuum from ocular hypertension to refractory glaucoma. We believe our pipeline platforms if approved will significantly expand our market opportunity at a solid cadence over the next several years and uniquely position Glaukos for growth and leadership well into the next decade. To put this in context using our treatment algorithms and in combination therapy expectations, we estimate our U.S. addressable market opportunity to expand sevenfold from the roughly 600,000 procedures available today to a pool of over 11 million diagnosed and treated eyes, of which we believe over 4 million can be treated annually. Our third key objective for 2018 is to drive deeper into our international markets. Momentum continues to build in our direct international markets as evidenced by first quarter 2018 OUS sales growth of 62% year-over-year. Brazil, Germany, Japan and the UK drove the international year-over-year growth this quarter. We currently have direct sales operations in 16 countries outside the U.S. including 13 that were fully established in 2017. Our OUS focus is on building quality, experienced, surgical sales teams, while working to establish favorable reimbursement, train surgeons and leverage our compelling clinical data to grow makes awareness and adoption. Our fourth key objective is to expand our pharmaceutical capabilities through continued investment. Our team of over 30 seasoned scientists, chemists and other experts, most of whom have extensive prior experience at leading pharmaceutical companies remain actively exploring a novel sustained pharmaceutical treatment options and pathways. In addition to organic growth, we're beginning to evaluate in-licensing products and technologies that can augment our device and pharmaceutical growth and sustain our leadership position in the coming decades. To that end, we are pleased to announce the recent addition of Jane Rady as Senior Vice President of Corporate Strategy and Business Development. Jane is a seasoned highly respected medical device and pharmaceutical business executive within ophthalmology, who has served in a variety of senior roles at AMO, Abbott Labs, and most recently Johnson & Johnson vision, where she led the business development efforts for the ophthalmic surgical business. We are privileged to have her to join our team to help lead and implement the strategic vision for our company. To assist us in advancing, our fulsome pipeline to commercialization, we have also made some significant new investments in people and capability. I'm pleased to announce the recent hiring of Nick Tarantino, as Senior Vice President of Global Clinical and Medical Affairs. Nick has taken over the responsibilities of Jeff Wells, who served Glaukos with distinction as Senior Vice President, Clinical Regulatory and Quality Affairs and recently retired in late March. You have made so many positive contributions to Glaukos and was integral to helping us build one of the richest pipelines in ophthalmology. We're grateful to Jeff. for his many years of distinguished service and we wish him all the best in retirement. Nick comes to Glaukos after longstanding leadership positions within an Allergan and AMO, where he had global responsibility for the clinical research and development, medical affairs and medical operations and most recently AcuFocus where he served as Chief Clinical and Regulatory Officer and Head of R&D. Nick has earned a sterling reputation in ophthalmology over his 30 plus year career span and we're excited to have him join Glaukos to deliver on the opportunity presented by our robust in accruing pipeline. So with that, I'll turn the call over to Joe for a summary of the first quarter financial results.

Thanks, Tom. As noted earlier, net sales for the first quarter of 2018 were $40.1 million a year-over-year increase of 12%. The U.S. represented 84% of our sales in the quarter and international 16%. In the U.S., first quarter 2018 sales were $33.6 million, an increase of 5% from the same period a year ago. Year-over-year U.S. sales growth was impacted by modestly higher ASPs and the introduction of competition. Outside the U.S., first quarter sales were $6.5 million, an increase of 62% in the same period a year ago. This quarter Brazil, Germany, Japan and the UK drove the majority of the year-over-year increase lead by growing iStent inject sales. Our gross margin in the first quarter was roughly 86%, consistent with the same quarter in 2017. 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 and in the months following of potential U.S. launch. SG&A expenses in the first quarter rose 26% to $27.2 million versus $21.5 million in the year ago quarter. This rise reflects higher personnel 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 22% in the first quarter to $10.9 million versus $8.9 million in the same year ago period. This 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 commence key pivotal trials over the course of this year. We finished the first quarter with a net loss of $2.7 million or $0.08 per diluted share compared to net income of $900,000 or $0.02 per diluted share in the first quarter of 2017. As of March 31st, 2018, we had cash and cash equivalents and short-term investments of $113.8 million compared to $119 million at the end of 2017, reflecting the timing of several key expenditures that shifted from the fourth quarter of 2017 into the first quarter of 2018 as we previously discussed on our fourth quarter earnings call. As we've said before, it is very important to remind you that as we progress through 2018, our primary focus remains on long-term growth as we prudently invest to build the 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. Finally, as Tom indicated earlier, we are reaffirming our 2018 net sales guidance of $160 million to $165 million. This guidance outlook takes into account the 2018 considerations we outlined on prior calls, including the full year impact of an evolving competitive landscape, the iStent inject launch and broader U.S. reimbursement dynamics, as well as expansion of our international sales, which we expect to be towards the high end of the range of $23 million to $26 million for the full year. With that, I'll now turn the call back to Tom.

All right. Thanks, Joe. So, to recap, Glaukos is off to a strong start in 2018 as we continue to advance our aspirational mission to transform glaucoma therapy. We believe Glaukos’s robust pipeline of five distinct products targeted for introduction to the U.S. market over the next five years is capable of truly changing the glaucoma treatment algorithm, setting a new standard of care, and positioning Glaukos for sustained competitive advantage in an expanding global market that will enable us to drive shareholder value for years to come. So with that, I'll open the call to questions. Operator?

[Operator Instructions] Your first question comes from the line of Robbie Marcus from JPMorgan. Please go ahead.

Oh! Great and thanks for taking the question. I was hoping you could give us your thoughts coming out of the ASCRS conference, where we had the iStent inject data presented. How are you thinking about iStent inject impacting 2018 especially with the other competition in the market? And how should we think about the cadence through the year? How long will it take to train reps, how long will it take to bring it to market and move on to training new doctors?

I'll take the first part of that question, Robbie. I think you were there and we were present to see the reaction of the – of the clinical surgical groups. And I think we're beyond delighted with the presentation of the data and the data that we were able to show in full. So we showed data that showed, observed intraocular pressures – pressure decreases of over 30% from a baseline of 24.8% pre-operative means, down to an unmedicated baseline after terminal washout of 17.1%. To us, that was comparable and in some cases better than the data that we’ve seen from competitors. And in addition to that, when we looked at the, again the elegance of the procedure, the facility of the procedure backed by additional supplemental papers that you saw, I mentioned a few of them here Dr. Fritz Hengerer, Dr. Paul Harasymowycz, as well as Dr. Ike Ahmed, we overall were very, very pleased with how we came out of the -- how we came out of the meeting. Now with respect to introduction, I’m going to ask Joe and Chris to weigh in.

Sure. Hi, Robbie. I think I would just add that as we've said we continue to expect inject approval and commercial launch in the latter part of this year. And as we’ve I think said now consistently and we will have a controlled launch of that product. And Chris can elaborate on that further. But all of those dynamics as well as surgeon training dynamics that we've talked about in the past all continue to be in play as we think about the inject launch.

Hey, Robbie, this is Chris. And similar to what we did with iStent, we're going to follow the same blueprint for launching iStent inject, where we will have superlative training of the sales reps. We’ll have a new marketing campaign, and then we’ll focus on that skill transferred to the surgeons and we’ll do that in a very controlled manner so that we can ensure the outcomes that we’ve been seeing with this product abroad.

Okay. Great. And as I think about the rest of the year, can you help us think about the cadence the second quarter is going to be up from first quarter? And then how do we think about maybe what's baked into your estimates for market growth for the year and how competition is going to impact you in 2018? Thanks.

Sure. Thanks, Rob. I mean I’ll start with the quarterly cadence part of your question. You know I think as you unpack the 2018 key drivers that we’ve spent a fair amount of time talking about on prior calls, the impact that you should expect is really a less pronounced seasonality for our business in the U.S. for 2018 than we’ve seen in prior years over that the overall cataract typically experiences. So, whether you say it’s less pronounced or muted is sort of how we think about the quarterly cadence over the course of 2018. From a market growth perspective, that’s not an estimate that we intend to provide quarterly, but I can’t say we continue to feel good about the approximately 20% market growth estimate that we have out there for the year. And I think it’s worth noting that implied in our Q4 call commentary regarding 2018 is an expectation that growth will be a little faster at the start of the year versus the second half especially when you consider the doctor training dynamics in and around the iStent inject launch.

Great. Thanks a lot.

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

Great, thanks. Just two quick questions, first I want to just talk a little bit about the quarter and then a question on iStent inject. First, maybe I’ll start with Joe, a few questions on just on Q1. In the U.S., your comments on price was that maybe 1% to 2% benefit from price? And then the other part is sort of the guidance question is, what’s implicit in your guidance for expectations on local MACs, just any update on local MACs and what you’re hearing there?

Sure. Hi Bob, it’s Joe. So, first with respect to the contribution to growth, I think what I can say is that ASCs have remained stable from Q4 through Q1 and I think when you do that math, you'll conclude somewhere similar to what we suggested which is you have a little bit of impact from price, but not a substantial impact on price in the first quarter given that we did have some pre-price increase loading activity in the first quarter of 2017. Regarding the reimbursement, so I think we said in the fourth quarter call, it continues to be true here that our expectations around reimbursement in the way we think that investors to assume that that we’ll probably continue to see the potential for map changes to reimbursement in the physician fee area. And we assume in our guidance that that can happen and as long as it happens in the zip code that we've suggested is less impactful the $300 to $500 range that that's all contemplating in our guidance.

Okay. And then, the more important question on iStent inject, so I guess two quick things. You mentioned the marketing campaign, can you just highlight what are maybe one or two most important things that you'll be sort of aggressively pushing when it comes to the marketing campaign around iStent inject? And then, you mentioned also success outside the United States with iStent inject, what sort of the single best example you can give us of success in the territory outside of United States to degree you can quantify that would be great, you can kind of get us encouraged for the U.S. launch? Thank you.

Hey, Bob. This is Chris. And as it relates to the marketing campaign, as you could imagine, this is something that is work in process and we’re not quite ready to disclose what the key things that we’ll be focusing on. However, many of things that we’ve done in the past will continue with the launch of this product and things that we've done internationally which is superlative physician training and skill transfer to the surgeons, making sure that they are identifying the right patients, making sure that they're using proper surgical technique and so forth because with good outcomes, comes good utilization. In terms of examples, there's a lot of them. Certainly, Australia has been a big success for us, Germany and more recently the UK, where we introduced iStent inject earlier this year. There's been a significant uptick in the utilization of iStent inject in the UK. And then as we talked about in the past, Australia Canada, Germany, their percentage of utilization of iStent inject compared to iStent is in the low to mid 90s and it's helped to expand the market. So we're quite excited about the prospect of launching iStent inject in the U.S.

Okay. We’ll get this in a little more detail next week, looking forward to see you next week. Thank you.

Thanks, Bob.

Thanks, Bob.

Your next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.

Hello Adam.

Hi guys. It's Adam Maeder on for Larry thanks for taking the questions. I guess, the one – hey Tom, I just wanted to start with litigation I know you're somewhat limited in what you can say there, but can you help us better understand next steps and timelines with the advances litigation and then I had a follow up?

Yes, sure could. So as we said in our press release, this lawsuit reflects our commitment and obligation to protect our proprietary inventions and further as you we outlined in our complaints, we do believe that Ivantis and Infringes our are patents. So we’ve asserted two primary patents, each of which contains dozens of claims. And so we believe that this time, this is an appropriate and efficient approach to addressing advantage Ivantis’ infringement. So in our complaint, I think as you're aware, we've requested a judgment of infringement, a judgment for damages. And an injunction preventing for any further infringement. So our expectation is that we filed this complaint that Ivantis will respond sometime in late May, early June timeframe. And as you know the response could consist of a host of different defenses, which include things like seeking to invalidate the patents that we’ve asserted in the court and at the patent trademark office. These are kind of predictable chess moves that happen in this infringement proceedings and we do expect their response in late May, early June.

Okay. That's helpful. Thank you. And then maybe just two quick ones on competition. One related to CyPass and one related to Ivantis. So on CyPass anything new to share there? And how do you expect CyPass also to impact adoption? And then with Hydrous would you expect the uptake to be faster than CyPass, I think they're going to use the 0191T code? So basically our understanding is that they won't have to go through the same headaches and heavy lifting with the max. Thanks for taking the questions.

All right, Adam thanks. Adam, this is Chris, as it relates to CyPass, the competitive dynamics that we've laid out in the past remained largely the same. Training docs we are implanting $0.05 to $0.10 that are typically are given as samples, they’re gaining some traction with Max and with some commercial payers, we expect that they'll have full Med coverage by the end of the year. We do expect that over time that will help to expand the market, but at this time they're really focusing on our customers. And I think that many of the things that we have talked about in terms of the high risk profile associated with this type of device going into the Suprachoroidal space are coming to fruition. I think that people are seeing that there is a higher risk benefit with this product, and we continue to educate the marketplace on this. As it relates to Ivantis and the ability for them to have perhaps a faster start because of the fact that they'll use our code 0191T for trabecular bypass, that is true that they will get quicker coverage. We've taken this into account with our guidance. We think that they’ll similar to Alcon will do a fair amount of trialing, free product to get them started, and we're prepared for that.

Thanks very much.

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

Hi, guys. Thanks for taking the questions. This is actually Andrew on for Brian today. Tom, I appreciate you going through the different studies that were shown at ASCRS. I was wondering if you could also provide some comments on the head-to-head between the 2 generation-one iStents and Hydrus? And then as a follow up to that you guys plan on doing any head to head trials as well?

Yeah. So what I would say there is, Andrew I've been doing this for 30 years leading different ophthalmic companies, and never once have I seen a comparative controlled study sponsored by a competitor, that shown data, that’s either inferior or comparable. So they control it, so the competitive product that they’re facing. So this is not a surprise. We expected this data to come out and largely expected to see what we saw. What is kind of a surprise I think and I think you should talk with and do your channel checks with surgeons is the fact that the sponsor of the study changed the efficacy endpoint very, very late in the trial. And that's an aberration something I haven't seen in a long time. And sometimes when that happens you're in search of a P-value. And I think that's something that troublesome surgeons that I've talked to. But what I'd ask you to focus on is just the depth and the bench that we have in this study. So as I mentioned in our opening remarks, we have nine peer reviewed studies on iStent inject that are published to-date. We have another 16 additional studies that are in multiple stents. These studies all show you know very, very marked reductions in interocular pressure and in reductions in drug burden and much like with the iStent, I suspect that we'll see in the real world data that comes out of these surgeons, who use these products with good facility that are far better than we see in the pivotal studies. And so as you do your channel checks and as you really look at the mass of bench data that we've produced I'm really comfortable as we go head to head with really any competitor that we're going to do quite well.

Great. Thanks. And then do you guys plan to do any head to head studies as well.

Yeah. I would say that always remains an option for us and I don't want to be equivocal but I just want to say we continue to look at that we may or may not undertake that, we will keep you posted.

Understood. Thanks, guys.

Your next question comes from the line of Joanne Wuensch from BMO Capital Markets. Please go ahead.

Hey, guys, this is Steve [ph] on for Joanne. Could you just give us an update on where you are in resolving the private payers issue? Are you still on track to fully resolve these issue in the first half 2018? Is there any upside to the numbers as these payers adopt the newer ASC pricing?

Hi, Steve, it's Joe. Yeah, I would just say we're on track, nothing's changed there. I think that the team continues to make excellent progress in knocking down those issues one by one. And so it's still a status quo with respect to that.

Okay. Great. Thanks. And just as a quick follow up, could you maybe share what you've learned about the iStent SA trial so far? And then, further we've heard some positive things about a new feature or a new insertion feature to sort of self-heal. Will this pivotal trial include this design update or be part of the broader iStent SA commercial launch or are we still in the development phase there?

Yeah, so as I mentioned before Steve, we have begun the clinical trial for iStent SA in line with our expectation and what we communicated. And yes, as I've mentioned to many, the iStent inject SA has an outer sleeve component that is capable of making the initial paracentesis or the initial incision into the chronia, such that, the fluid inside the eye will not leave, it’s called dehiscence and that will keep the intraocular pressure in the chamber at such a state we will be able to – we hope and we’re targeting at some point be able to have a cell sealing introduction in a close chamber procedure that really will incorporate some of the most beneficial features of injection therapy. So our goal is to really create an injectable prosthetic, and we think we have the current product and prototype and development, which is part of the clinical study, which will allow us to get there.

Great. Thanks for taking the questions guys.

You're welcome. Thanks.

Your next question comes from the line of Matthew O'Brien from Piper Jaffray. Please go ahead.

Good afternoon. Thanks for taking the questions. Just a couple for me. Some assumptions I have to build in my model here on pricing in the U.S., but when I looked at the volume number that I calculated it's actually down a little bit year-over-year again. Some assumptions I have that are probably not accurate. But I'd love to hear if you can – maybe Joe, just deconstruct if that's true or that's flat, where that pressure on a year-over-year basis comes from given the market growth, be it the buy in last year that you saw in part of the price increase competition reimbursement, because what I'm really trying to get at is, are you starting to see any of the CyPass users come back to you, are you starting to see things loosen up in areas where reimbursements changed et cetera?

Sure. Maybe I'll start, and then Chris you can add any commentary in that last part. So I think some of those assumptions that you put in there, I think are a bit off with respect to the growth. I mean, as we've said and I think we've sort of been consistent around the SP assumptions, we've had stability now for at least three straight quarters in terms of that pricing assumption that's there. When you think about the broader market growth dynamics or the dynamics for growth for us, we are obviously benefiting somewhat from as the commercial payer issue is resolved as we’ve suggested and I think we – Chris can talk more about the CyPass dynamics as he has before, but clearly, we’re continuing to I think hold our own in that competitive dynamic. Chris?

Hey, Matt. As it relates to the CyPass and the success or – that they're having out there and have any of these customers come back to us. I'll just say that, we continue to see validation of what we've said all along about the CyPass device and the super Cordel space that the efficacy is going to be similar to trabecular bypass and that the adverse event profile is more significant than the trabecular bypass. And we've also mentioned that this is going to be a product, it’s likely to be more prominently used by glaucoma specialists and we continue to see that. I think that the myopic shift challenge that this product has presented for many physicians has started to become a bigger problem and as we've said all along it's a bigger problem for the cataract refractive surgeons than it is with the glaucoma specialists, who are used to working in that space. This is really a procedure that's similar to a 100-year old procedure, cycle dialysis clef where now they're putting in a tubular implant and it’s getting many of the same responses that procedure has had. So, yes, we've had some successes with people who have tried this product and utilized this product and coming back to a product such as iStent that is less variable in the outcomes more consistent and certainly safer.

Hey, Matt. One last thing for me, just to help you a little bit on that. I think while we don't get into specifics of ASP versus volume drivers of growth, I can’t say that we are continuing to see volume growth.

Got it. And then as the follow-up, that's helpful. Thank you so much. On the investment side, you were getting close to kind of providing leverage on the SG&A line versus growth. Last quarter, it's flipped here again, I know Q1 has been a little more money on folks, but can you talk a little bit about where those investments are going? Just qualitatively domestic versus OUS, and then kind of better than that question I'm trying to get at is, what kind of growth outlook do you think we should think about for the OUS business over a multi-year period? I know Japan is a huge market. Germany, it seems like it's a pretty big opportunity for you as well. Can you just frame that up a little bit? Thank you.

Yeah, so -- and this is Joe. I think I'll start with your question around the operating expansion and sort of where that's – where that's coming from. On a year-over-year basis, the overall operating expenditures were up about 25%. That really did come from a balance of kind of all four key drivers, if you will. The international and infrastructure and the people that we added over the course of 2017, obviously, we're now seeing that in the first quarter of 2018. We did continue to expand that the broader commercial infrastructure in the U.S., some of the behind the scenes resources more so than the direct field representatives. And then within R&D, as you know, we expanded the team around sort of the car – core pharmaceutical research activities. And we're now starting to see that the team expansion to support the – the pivotal trial activities that we'll have over the course of 2018. So I think the way to think about operating expenditure for this course of this year is it should trend down slightly from a growth -- year-over-year growth perspective versus the 25% we saw in the first quarter and in R&D you should probably see the SG&A growth in that context. Then on your second question which – it was a bit different around the sort of a longer-term international growth dynamics, we’ve really not commented more broadly than to suggest that. When you look at mature markets the U.S. versus or OU.S. mix in ophthalmology tends to be about 50-50, but that’s something that we don’t expect to achieve anytime soon given the sheer number of products that we’ll be introducing into the United States in the near-term.

Thank you.

Your next question comes from line of Joe Block from Stifel. Please go ahead.

Thanks. Good afternoon. I’m actually juggling calls I really apologize if I’m asking something that was previously addressed, but maybe two questions. Joe, the first one, just any market growth commentary with -- on the last call you talked about expectations for 20% mixed market growth in 2018 were sort of 4-ish to 5-ish months into the year, do you believe we’re tracking accordingly above or below, would love your thoughts there? And then I just got a follow-up.

Sure. Hi, Jon. Yeah. We did actually answer that a little bit earlier in the call and so I’ll repeat it out. It’s not an estimate that we’re going to provide quarterly, but we continue to feel pretty good about the 20% estimate for the year. And I added that, I think it’s worth noting that when you think about the commentary we had on the Q4 call regarding the 2018 kind of market drivers, there’s an expectation that in that that growth will be a little faster than that 20% estimate at the start of the year versus the second half, when you factor in the doctor training dynamics we’ve talked about in and around in inject launch.

Got it. Got it. Helpful. Thank you. And then just to pivot, any high level thoughts on competition and Aventis being iStent that’s obviously placed in the trabecular meshwork, if they're approved in trial. I guess what I'm trying to get at, do you think the trailing would sort of be more of a one-for-one replacement of iStents into would be trabecular for trabecular swap if you would or do you think any sharing roads from Aventis would be somewhat split between you guys and the other existing players side pass? Thank you.

Hey, John, this is Chris. Given that it is a trabecular bypass stent, I would think and given that our share market share it's certainly going to impact us more than side pass. But I don't think it excludes side pass either. We continue to be very bullish on our position with the iStent inject, the overall efficacy, the safety profile and the elegance of the procedure. So we do expect them to have trialing, we do expect them to have an impact on our results in the third quarter and fourth quarter whenever they were to get approval, but we prepared for that and we've given that and stated that in our guidance.

Great. Thanks, Chris.

And I'm currently showing no other questions at this time.

Okay. So with that, thank you, everybody. Thank you for your time and your attention today, and for your continued interest in Glaukos. Thanks very much. Good-bye.