Glaukos Corporation (GKOS) Q3 2020 Earnings Report, Transcript and Summary

Welcome to Glaukos Corporation’s Third Quarter 2020 Financial Results Conference Call. A copy of the company’s press release issued after the market close today is available at www.glaukos.com. [Operator Instructions] This call is being recorded and an archived replay will be available online in the Investor Relations section at www.glaukos.com. I will now turn the call over to Chris Lewis, Director of Investor Relations and Corporate Strategy and Development.

Thank you and good afternoon. Joining me today are Glaukos President and CEO, Tom Burns; CFO, Joe Gilliam; and COO, Chris Calcaterra. Following our prepared remarks, we will 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 sales, our products, our pipeline technologies, our U.S. and international commercialization efforts, the efficacy of our current and future products, our competitive market position, financial condition and results of operations, as well as the expected impact of the COVID-19 pandemic on our business and 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. Finally, please note that during today’s call, we will also discuss certain non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into Glaukos’ ongoing results of operations particularly when comparing underlying results from period to period. Please refer to the tables in our earnings press release that is available in the Investors section of our website for reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I will turn the call over to Glaukos President and CEO, Tom Burns.

Thank you, Chris. Good afternoon and thank you to everyone for joining us today. I am pleased to report third quarter net sales of $64.8 million that exceeded expectations across our glaucoma and corneal health franchises globally, with momentum that continued into October. Our performance this quarter reflects the resiliency, dedication and resourcefulness of our customers and employees around the world who continue to steadfastly move forward during these unprecedented times. Our strong third quarter performance not only illustrates our effective ongoing response to the current market environment, but it is also a reflection of the progress we continue to make towards our broader strategic vision. Consider our accomplishments this quarter in addition to the solid revenue performance. One, we fortified our U.S. MIGS market leadership position with the initial commercial launch activities for iStent inject W, the next generation of our market-leading inject platform. Two, we continue to execute on our corneal health franchise integration, expansion and market development plans, evidenced by record Photrexa sales and a record number of new Photrexa starts in the U.S. during the third quarter. Three, we advanced our industry-leading proprietary pipeline that we believe has the ability to significantly expand our addressable market opportunities beginning in 2021. Four, we continue to expand and strengthen our pharmaceutical R&D capabilities, adding product development expertise while advancing numerous preclinical initiatives across glaucoma, corneal health and retina. And five, we executed financially, not only through strong sales recovery trends, but also with improving gross margins, disciplined operating spending and continued preservation of our strong balance sheet. Let’s first focus on our commercial performance, both in the U.S. and abroad, which should come as no surprise that procedural recovery trends vary and remain dependent on localized dynamics related to COVID-19, including related governmental restrictions and the site of service for ophthalmic therapies and procedures. Joe will elaborate more on the near-term trends later, but I have been encouraged by how physician offices, ASCs and hospitals are navigating the new normal. At the same time, patient-related and practice efficiency headwinds persist and there is a limit to how much the system can withstand from a COVID standpoint. We are monitoring what appears to be a second or third wave in the U.S. and Europe, in particular the response of governments and health care systems accordingly and any potential impact on our customers as we move forward. Our U.S. glaucoma franchise experienced a strong recovery during the third quarter, where practices continue to improve their operational efficiency and new patient demand increased as the COVID-19 dynamic stabilized and related restriction eased. Things are not yet back to normal from a market perspective, but the trends were encouraging throughout the quarter into October. Our field sales professionals are slowly regaining access into accounts, and we continue to supplement these activities with well-received virtual tools and training for our sales force and physician customers. We have even identified opportunities to collaborate with ophthalmic practices to manage ongoing cases by virtually proctoring ongoing surgeries as part of our commitment to ensure procedural proficiency and optimal outcomes. As expected, in early October, the AMA hosted a CPT editorial panel meeting where 3 items related to our business were discussed and approved to move forward, including the creation of new category – or 3 CPT codes for iDose and stand-alone MIGS and the creation of a new Category I CPT code for MIGS in combination with cataract surgery. We look forward to working closely with the AMA, CMS and AAO as we navigate each of these processes going forward. I am pleased to announce that in mid-August, we successfully launched the iStent inject W in the U.S. to select customers, followed by an official, full-scale launch in early October. The iStent inject W builds upon the proven foundation of our inject platform and is designed to offer ophthalmic surgeons the same established safety and efficacy of iStent inject with added benefits designed to optimize stent visualization, streamline implantation and deliver procedural predictability. Thanks to our team’s solid execution from a commercial and operations perspective, many of our U.S. customers have already begun using this next-generation technology. Among U.S. surgeons who are utilizing iStent inject W, feedback and real-world results remain very positive and mirror what we have heard from markets such as Germany, where we’ve already introduced the W platform. Surgeons most commonly highlight the improved visualization and enhanced procedural predictability that iStent inject W may offer. And while it remains early in the commercial launch, we are encouraged by the ophthalmic community’s initial response that reaffirms our confidence in the commercial prospects for this important technology. It is our plan for this next-generation product to supersede the current iStent inject device globally as regulatory approvals permit. We have also begun to launch iStent inject W more broadly in many of our key international markets, including various European countries, Japan and Australia. This adds to a number of recent accomplishments in our international glaucoma franchise that positions us well for long-term growth, including stand-alone indication approval in Australia, iStent and iStent inject regulatory approval in India and continued progress across many of our key market access initiatives. Similar to the United States, we also experienced a strong recovery – or revenue recovery trends in our international glaucoma franchise during the third quarter, driven by a broad-based recovery in key European and Asia Pacific markets. Looking ahead, we have seen the more recent emerging restrictions related to COVID-19 across Europe and are monitoring these developments closely. Nevertheless, we are continuing to invest in our international infrastructure from a sales, marketing market access and product development perspective. Within our corneal health franchise, we also experienced strong revenue recovery trends during the third quarter as we continue to execute on our corporate integration milestones, commercial strategies and market development initiatives. We are ahead of plan on the cost savings targets we announced at the time of the deal, but more important is our progress commercially. We have continued to successfully stabilize the reimbursement dynamics associated with Photrexa, drive increased awareness of keratoconus broadly across the optometric and ophthalmic community, advance the diagnosis of this important debilitating condition and train cornea health professionals on our iLink procedure. As evidence of our progress, the third quarter saw record highs in Photrexa sales and number of new Photrexa starts in the United States, an encouraging sign that our strategies and programs we’ve introduced are resonating. While we remain in the early stages of unlocking the combined organization’s full potential, we are encouraged with this performance and excited about the opportunity ahead of us as we approach the 1-year mark of the acquisition. Moving on to our pipeline, we anticipate in our planning for a robust cadence of new product introductions over the coming years that we believe have the potential to significantly expand our addressable market opportunities and drive long-term sustainable growth over time. These programs include our previously disclosed FDA approval targets for the PreserFlo MicroShunt in the first half of 2021, iStent infinite in late 2021, and Epi-On and iDose TR in 2022, respectively. We have discussed at length on prior calls the initiatives we implemented in response to COVID and the considerations for our fully enrolled versus actively enrolled clinical trials. We continue to navigate these unique circumstances, and we’re encouraged by strengthening enrollment trends in September and October, but we are continuing to monitor and analyze time line expectations for iDose, in particular as the COVID-19 situation evolves here in the United States. We also remain in early preparations for a potential U.S. commercial launch of Santen Pharmaceuticals’ Preserflo MicroShunt, an elegant ab-externo surgical implant for late-stage glaucoma management. We advanced our commercial preparations for this promising opportunity during the third quarter ahead of an anticipated approval and commercial launch in the first half of 2021. In addition to the exclusive distribution agreement with Santen in the U.S., we are excited to announce we recently expanded our agreement with Santen to secure exclusive sales and distribution rights for the Presoflo MicroShunt in Australia and New Zealand. We look forward to commencing commercialization plans in these markets following appropriate regulatory approvals over the coming years. Beyond these near to medium-term opportunities, we also continue to invest in and advance our key earlier-stage R&D programs, including in dry eye and retina. While these opportunities remain in preclinical development stages, we are excited with the initial progress we’re demonstrating within these programs. Our pipeline has the ability to fundamentally transform Glaukos by significantly expanding our addressable markets over time. To enable this, we have built a strong balance sheet to provide us with the financial flexibility to remain on offense as the COVID-related dynamics play out by expanding our global infrastructure, strengthening our pharmaceutical expertise, upgrading our enterprise systems, advancing our core R&D programs and supporting our clinical programs as they progress towards commercial realities. In summary, the progress we are making to advance our key strategic priorities reflects the commitment of our teams to rapidly adjust during the COVID-19 pandemic and ensure we are executing on our plans. We are confident that the investments we’re making today will drive Glaukos forward as a unique strategic vision care leader with tremendous potential for long-term growth and profitability. So with that, I will turn the call over to Joe to discuss our third quarter 2020 financial results. Joe?

Thanks, Tom. As a reminder, I will be discussing our financial performance on a non-GAAP or pro forma basis and will summarize our GAAP performance later in my prepared remarks. I encourage each of you to review our GAAP to non-GAAP reconciliation, which can be found in today’s press release as well as the Investor Relations section of our website. Glauko’s net sales for the third quarter of 2020 were $64.8 million, representing sequential growth of 105%, which reflects the continued recovery versus prior quarters despite ongoing COVID-19-related headwinds. Overall, we exited the third quarter with a revenue run rate that was approximately 95% of pre-COVID daily averages versus approximately 80% exiting the second quarter and approximately 10% during the April trough. Now turning to our U.S. glaucoma franchise specifically, our third quarter U.S. glaucoma sales were approximately $39.2 million, representing sequential growth of 114%, which we believe reflect the combination of COVID-related dynamics, a stable competitive landscape and stable pricing. Internationally, our glaucoma franchise delivered third quarter sales of approximately $12.8 million, representing sequential growth of 91%. The COVID-19 impact to our international glaucoma business has varied by market but our overall recovery in the quarter was led by Europe broadly and Australia. In corneal health, third quarter net sales were $12.9 million, representing sequential growth of 95%. The third quarter performance was driven by record U.S. Photrexa sales of $10.4 million and a quarterly record for new U.S. Photrexa starts. As Tom noted earlier, we continued to see progress in October commercially across each of our franchises. While the overall market appears to still be facing headwinds in terms of new patient consultation visits and the ability of surgical practices to operate at full capacity, we are encouraged by the fundamental performance of our business. Having said that, we recognized that as we prepare for this call, many of our key markets are now unfortunately experiencing a real-time COVID resurgence and as such, we remain cautious on the near term ahead of a widely available vaccine or therapeutic solution. Shifting gears toward the remainder of our P&L. Our non-GAAP gross margin in the third quarter was approximately 85% versus 87% in the same quarter in 2019 and 78% in the second quarter of 2020. The sequential improvement reflects the benefits of the increased production associated with the overall recovery and initial inventory build of iStent inject W as well as favorable corneal health margins driven by revenue mix. It is worth noting that our non-GAAP adjustments to COGS include substantial adjustments related to Avedro acquisition accounting. Our overall non-GAAP operating expenses were approximately $57.5 million in the third quarter of 2020, up 10% sequentially compared to the second quarter. We remain disciplined in the third quarter but continue to reverse temporary cost-saving initiatives and restore expansionary spending as the recovery warranted a trend that we would expect to continue going forward. Our non-GAAP SG&A expenses in the third quarter were approximately $37.4 million, up 11% sequentially compared to the second quarter, and our non-GAAP R&D expenses in the third quarter were approximately $20.1 million, up 8% sequentially compared to the second quarter. We finished the third quarter with a non-GAAP operating loss of $2.4 million and non-GAAP net loss of $4.1 million or $0.09 per diluted share. Our GAAP net loss was $15.7 million or $0.35 per diluted share for the third quarter of 2020. We invested in approximately $1.3 million of capital expenditures in the quarter. And looking ahead, we expect our capital expenditures to increase substantially over the next 3 to 4 quarters as we move forward with our facilities plans. As of September 30, 2020, we had cash, cash equivalents, short-term investments and restricted cash of approximately $398 million compared to $404 million at the end of the second quarter 2020. Finally, we believe the range of potential outcomes for the fourth quarter and heading into 2021 remain more sensitive to the extent and duration of any COVID-19 resurgence than it does business fundamentals for which we have a degree of control. And as such, we will continue to keep our guidance suspended as the path forward for this pandemic remains uncertain. With that, I will now turn things back to Tom for a few closing remarks.

Alright. Thanks, Joe. I’d like to conclude by acknowledging how proud I am of the actions of our organization has taken throughout the COVID-19 pandemic while advancing our key strategic priorities in a rapidly changing environment. While it is possible that this pandemic may well persist into 2021, leaving the near term uncertain, we are prepared as a company. I am confident that the response plans we have executed over the past several quarters have only helped strengthen our relationships with customers, clinical investigators, suppliers and employees and will leave us well positioned to execute on our plans going forward. While we navigate this moment, we remain focused on the near- and long-term fundamental growth prospects of our business and our unwavering commitment to create a strategic vision care leader with disruptive franchises across glaucoma, corneal health and retinal disease. So with that, I will open the call to questions. Operator?

[Operator Instructions] And your first question comes from the line of Brian Weinstein with William Blair.

Hi, guys. Good afternoon. This is Andrew on for Brian today. Maybe to start on the quarter, first, nice performance sort of across the board, but in U.S. glaucoma specifically, can you be a little bit more specific and categorize sort of the patient volume we saw in the quarter sort of more catch-up of the patients in the backlog or more reflective of current demand?

Thanks, Andrew. It’s Joe. I think as you might expect and probably consistent with what you’ve been hearing on other calls, there was certainly a shift in the quarter from, as you’d expect, out of the gate on the recovery practices were more consumed with backlog, right? They prioritize those patients who are already in the queue, folks who already had partial surgeries done and things like that. As we move forward into the third quarter and progress through, you start to see much more of a balanced mix between that backlog and new patient demand. So I think, in many ways, we are much more back to normal from that standpoint certainly than we were in the second quarter.

Okay, great. And then as a follow-up, shifting gears maybe a little bit to iDose and recognizing you’re still a couple of years away from that launch. Can you just sort of level set us on how you’re thinking about that opportunity still a couple of years out around sort of initial market penetration, reimbursement efforts and then commercial scale-up ahead of that launch? Thanks.

Yes. I’ll be happy to answer that one, Andrew. So we continue – we’re really pleased with the continued reengagement of our clinical investigators and the favorable traction we’ve seen in September and October in recruiting. And we’ll monitor the trial as we look at recruitment in these uncertain fall and winter months with the resurgence of COVID-19. And certainly, we’ll keep investors fully informed. We remain very, very excited about the potential for this drug delivery system. There’s no question that there is an existing strong appetite for the need for a long-term, sustainable drug delivery mechanism that can respond to the ubiquitous noncompliance that occurs with the use of topical drops. We’re seeing that with the initial launch of DURYSTA from Allergan, where a product that has experienced some setbacks in labeling continues to be perceived as an advancement in care for patients who need a response to the noncompliance in the treatment of glaucoma. One of the things that I’m most excited about is the sustainability of the product. And as we talked about before, we have – this tiny device has shown in the Phase 2b study to really provide sustained reduction of intraocular pressure and reduction in drug burden. And I think we will see that during 2021, we will be in a position to share some of the results from the Phase 2b clinical trial with you, which will convince you how promising this technology is. When you think about what is on hand in terms of the economic value of the product, I would ask you to look towards the predicate that’s been established by DURYSTA in the market. And the numbers we’re hearing for the J code and reimbursement are very promising as a predicate for the treatment of glaucoma and for the predicate for the pricing for our iDose device. So if you think about it, DURYSTA now, which is showing capability of providing sustained release on the order of 4 to 6 months, depending upon what clinical study do you see, you can imagine when you see a product like iDose, which presumably may promise orders of magnitude difference in sustained release over that initial product from DURYSTA, we think that we have a very, very opportune ability to price and to realize a revenue-generating new addition into the marketplace. So what I’m very encouraged by coming out of the AMA CPT committee is that we were able to shepherd and sanction a formal Category III CPT code for iDose. That means we’ll have a stand-alone opportunity to be able to have a professional fee and an APC assignment for iDose when we launch the product. And it also means that we’ll be in position to move forward quite quickly after our commercial launch to be able to advance our product for appropriate payment from payers. So, for all of these reasons, iDose represents a more than significant opportunity and extending our opportunity for us moving forward. As we have talked about before, it moves our TAMs from appropriately – or approximately 600,000 patients now with iStent inject in combination with cataract surgery to nearly 3 million annual patients upon commercial launch. Now just as a mechanism and full disclosure, this will not happen overnight. We’ll continue to a call trade and move the market forward to where the product iDose will be most extensively used in advancement of patient care. And that will happen. It will happen in combination with cataract surgery and with other intraocular procedures. It will happen with patients who have shown noncompliance. It will happen with patients who are allergic to topical medications. It will happen to patients who have shown some distinct issues with ocular surface disease and the use of preservatives with topical medications. All of these patient subsets will become an accruing and cumulative opportunity for us to be able to advance iDose into the marketplace.

That was great. Thanks for taking the question.

You are welcome.

Your next question comes from the line of Robbie Marcus with JPMorgan.

Hi, so you’ve got Sarin on here for Robbie. Thank you for the color on the kind of cadence throughout the quarter. Could you share anything about how new physician training could recover in the third quarter? Is that something that’s been able to pick up as the quarter evolved, then you’ve kind of returned to something that’s more of a semblance to normal volumes?

Sure. Thanks. It’s Joe. I’ll start off, and if Chris wants to add anything, he can on that. I think as you might expect, with some of the recovery trends that we experienced in the quarter, and certainly, we can talk a little bit more about in the context of October, alongside of that has come a little bit more access into the counts slowly over time. And with that comes a restoration of new doctor training and the things that you’d expect around from a market growth perspective. So our teams have been creatively pursuing new opportunities throughout the pandemic. Certainly in the third quarter, we were encouraged by the restoration of new doctor training dynamics. We were exceptionally pleased with the number of new starts for Photrexa on the corneal health side. So I think the things there were trending fairly well, obviously, in a much more COVID-stable environment than perhaps we’re going into here in the coming months. But certainly, over the course of the third quarter, we were pleased with where we were trending.

Great. Just a quick follow-up. Any clarity on how competitive trends might have evolved through the quarter as these volumes pick up? Are you seeing anything in terms of competitor views? Are doctors trying new products right now?

Yes, Sarin. This is Chris Calcaterra. And I just would say that largely – large part, things are stable to maybe slightly positive for us from a competitive standpoint. Everything that we said in the past remains true for this quarter as it was in Q2.

Got it. Thank you.

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

Good afternoon. This is Kevin here. Congrats on the nice quarter. I just wanted to spend a minute on the procedure trends you saw in October. You mentioned upfront that momentum continued to be robust. And then you also said that you exited Q3 at 95% of pre-COVID, which is obviously very encouraging. I’m curious if in October, you continue to see improvement versus Q3 or a step-up kind of in headwinds from COVID, and that’s driving some cautiousness on your behalf for Q4. And then big picture is the October run-rate, the right way to think about Q4 or are you expecting something different?

Thanks, Kevin. It’s Joe. Great question. I’m going to answer that in two ways. First, I think the way you started a little bit was on the market front, and then I’m going to translate that into how we’re seeing things and thinking about them in the here and now. From a market standpoint, you have to sort of break it down into the two primary components. Obviously, the first one is the average practice and their ability to operate normally, right, their throughput, really regardless of whether they were MIGS users in 2019 versus 2020. And on average, our channel checks suggest that the average practice is running still at about 80% of normal, call it. Obviously, there’s variance from one account to the next there. The second layer you have to think about then is what growth factors are and the growth really considerations for MIGS. We’re starting to talk about this on one of the prior questions in terms of new doctor training, Photrexa new starts, the things that would drive the variance of that overall throughput for the MIGS category specifically. And as obviously those trends are down versus what we would have expected coming into the year given COVID and we are – but we are getting back at it slowly. So net-net, I think the market is probably not down that full 20% that we talked about in the context of the throughput of these practices in MIGS and certainly isn’t in keratoconus given all the success we’ve had in Photrexa new starts since the Avedro acquisition. Now when you think about that for us, what I said on the quarter was we exited at 95% of the March pre-COVID levels. I think as we get closer to those levels, it probably makes a little bit more sense to think about the trending from a year-over-year perspective and break it down in between the three sort of areas of our business. In the U.S. glaucoma franchise over the course of the third quarter, the growth was actually down 18%. But as we went into October, we were essentially flat year-over-year for the month of October versus 2019. Now there are some compounding variables there, the most notably the W launch that Tom talked out earlier. That probably had a bit of a headwind to the third quarter, especially in the month of September and a bit of tailwind to October. I think if you put all that together, from a normalized standpoint, we’re probably running at about a run rate of – that’s roughly down about 10% year-over-year today. On the international glaucoma side, obviously, we grew mid-teens for the quarter and really saw that as an exit trend going into October and over the course of the month of October at a similar rate, corneal health, very similar, mid-teens over the course of the quarter, exiting the quarter and over the course of October. Now the challenge is when we think about that, and we want to provide is up-to-date information as we could on the performance of our business. The challenge obviously going forward is it’s not really our expectation that those trends necessarily will hold in November and December given the resurgence patterns of COVID that we’ve seen over the past few weeks. And if I added on the margin, I would say there’s a few less selling days in the quarter this year than they were last year and certainly versus the third quarter this year. So you have to factor all of those things in when you’re thinking about setting your models for the fourth quarter and for 2021.

Super helpful, Joe. Thank you for the answer. My follow-up is just on the on the competitive landscape. My sense is from your results that it just continues to become more benign over time. I just wanted to kind of gauge the reaction to a couple of pieces of that landscape. So the first piece is kind of have you seen less headwinds from Omni since the reimbursement change? The second is this recent Palmetto LCD conference call. Do you have any sense for a time line there and what – any expectations? And the third is kind of the Ivantis trial. I know you remain optimistic there. I don’t know what you can say on it, but do you expect it’s going to get delayed a little bit next year? And that’s it for me. Thank you.

Hey, Kevin, this is Chris. I’m going to address the first two, then hand it over to Tom for your third question. As it relates to Omni, I think it’s fair to say that we’ve seen less momentum than they had in the past. As you know, the edit went into effect in July. We’re very happy with that edit. We think that that’s fair. And we continue to sell the advantages of our product, the advantages of it being safe, efficacious and the ease of use and the MIGS leader in terms of non-tissue sparing – or excuse me, a tissue-sparing device. In terms of the Palmetto situation, there was a call on that on Monday. That was a follow-up to the draft LCD that came out September 3. And in that meeting, that was nothing more than an opportunity for interested parties to discuss their points, make their points clear, discuss any clinical data that they might have. And we had expected that to be the last opportunity for comments, but they extended the commentary period to this Saturday, the 7, because of the COVID pandemic. We’re not really sure when they’ll come out with a final draft but we remain diligent in following this. There’s not much that we can do at this point, but it’s not surprising that a MAC such as Palmetto, which roughly 27% of covered lives are in Palmetto, would come out with the draft LCD such as this due to the fact that there has been an increased utilization and not a lot of clinical data. So we’ll wait and see. Tom?

Yes. I’d be happy to cover the litigation. So you may have been tracking the potential trial of a trial coming up. And there have been several pretrial motions that we’ve exchanged with Ivantis, many of which have resulted in quite favorable rulings to Glaukos. And there, I’ll just ask you to consult our 10-Qs for further information. But what I would say is that we’re well prepared and we’re confident going into trial. The trial is currently scheduled for March 9, 2021. And I think it will depend what we see here in the fall and winter months on COVID resurgence, whether or not there is any delay into that trial. But as we speak today, again, we are well prepared and confident going into trial into March of next year.

Sounds great. Thanks everyone.

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

Thanks guys. Good afternoon. Joe, some real-time math here, but the initial U.S. glaucoma guidance for you guys was around $195 million. You’ve done $90 million year-to-date. So let’s just say 2020 ends up being $135 million to $140 million. Those are obviously my numbers. Of the $55 million or so that gets pushed for COVID this year, can you help us think about the recapture rate and over what period of time? You guys have talked about these procedures. Obviously, they don’t go away. They might get deferred. But you can’t put them off forever. So maybe just help us with – at a high level that math? And do we think about that $55 million of a true number is the vast majority on-boarded onto your P&L in ‘21 or a little bit into ‘22?

Jon, it’s Joe. I think I may need you to send me your Microsoft Excel for that before I can really go through all of that and address it directly. Look, I think clearly I’d go back to thinking about the way we do a little bit, which is, for 2019, our U.S. glaucoma franchise did a little shy of $190 million, right? And you just heard in terms of the last question kind of where we’re at right now. If you think about it from a normalized standpoint and here and now, we’re probably running somewhere in that neighborhood of flat to down 10% call it right and on a normalized basis. And so where we go from here over the course of the next handful of months and certainly into 2021 has a lot more to do with any individual views you might have or others around the pandemic, the length of the pandemic, the depth of the pandemic and the things that are going on there. What you’re hearing from us and Tom, Chris, myself is that we feel good about the underlying fundamentals and our execution of our products on the things that we can control in the marketplace. But obviously, we don’t have a control over the pandemic-related considerations here.

Okay, fair enough. Maybe I can follow-up with you offline on that. And just to pivot, Chris, I think this one might be for you. On the AMA CPT committee, maybe just talk to us. I mean, for the Cat III going into the Cat I on 0191T or inject, I mean, did you want that to go into effect Jan 1, 2022? Were you hoping it got pushed to 2023? And then also, if you don’t mind giving us some clarity, is that on the pro fee or pro ed facility? Thanks guys.

Yes, Jon, this is Tom. I am actually going to take that question. And so we were pleased with what came out of the AMA CPT committee meeting in October. And there were a number of favorable developments that we’re able to usher in, in conjunction with working with the ophthalmic society. So I guess the first real promising development was this formal approval of a Category III code for a stand-alone use of trabecular bypass stent. And what’s important here is that this is based on the full perioperative procedure, which we think will give us a more robust procedural fee as we move into Category III and eventually into Category I. That Category III code will be effective June of next year, which will be in advance of the iStent infinite launch. So that’s especially promising because we will seek LCD reconsideration with MACs prior to the iStent inject approval and subsequent to iStent infinite approval over the course of the next several months. And so that’s a very promising development. That’s what we were seeking and what we got. We also were looking for formal approval of Category III code for iDose. As I mentioned earlier, that too is approved and that’s going to be effective June of next year. And what I really like about this is it’s a favorable development which allows us to have a professional fee established for iDose. And then, of course, as we will have a carve-out for the iDose product itself and the J-code, which will be paid separately and in full once we achieve the appropriate fee with CMS. What’s important to me as well is because we have two stand-alone codes, remember I have been driving this business towards the option of using combination therapy in the future to use multiple modalities to treat glaucoma progression. And so by having these two stand-alone codes, we provide a prescriptive financial opportunity for physicians to use both prosthetics and drug delivery devices in combination so that they will get 100% of the professional fee for the first device and 50% for the lower pain procedure. That will provide the financial impetus for these surgeons to do what clinically we believe is the more – most robust treatment for patients who are in the more monitor advanced advance categories. And then predictably, the RUC committee moved for approval of a Category I code for combination cataract surgery for trabecular bypass stents. What this does is it assures us continuous and widespread national payment for the iStent. And in transitioning to Category I, the procedure will be subject to the RUC process, which, as I’ve already stated, could introduce some risk to the professional fee payment side. And likewise, as we work with CMS to construct an appropriate APC payment for the combined procedures, there are a variety of outcomes that are both positive and negative, as you would expect, that we can envision, while we’ll work with our capable teams to realize what we believe will be a fair facility payment structure for the iStent infinite procedure. And we expect both the professional fee and APC adjustments to be effective beginning in January of 2022.

Great. Very helpful color. Thanks, Tom.

You are welcome. Thanks.

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

Good afternoon and thank you for taking the questions. Maybe we could shift gears just a little bit here. Coming out of ESCRS, we had heard not only the really get positive data on pulsed custom corneal cross-linking with Epi-On, which I am sure you guys are familiar with those papers and those presentations. But also that there was improved supply when we think about some of the testing that’s done for keratoconus. So I was hoping you could help us, one, with just maybe a quick update on your thoughts on Epi-On here in the United States. And similarly, maybe help us kind of come back again to this very strong third quarter results with the record Photrexa sales and help us think a little bit about what kind of funnel has been built and how COVID-19 affects that pull-through? And I’ve got a quick follow-up.

Hey, Chris, it’s Joe. Maybe I will start in reverse and then let the guys build upon the sort of broader Epi-On fundamentals and diagnostic trends and all the things there. In the quarter, yes, we were pleased, obviously, with the result. And if you think about it, we have been building to this place now for a while. Really, since taking over the business in late 2019, we continue to see the benefits of the synergy of our combined sales organization and what that’s driving in terms of new Photrexa starts and ultimately now starting to see some of the pull-through from that broadening of our base and the efforts that we’ve been putting behind Photrexa here in the United States. So if you have heard during the prepared remarks, the third quarter not only saw another record of new Photrexa starts here in the U.S. but also saw robust growth in terms of Photrexa volumes and a record number of Photrexa dollar sales in the third quarter as well. So we feel really good about where that franchise is at and the efforts that we have been taking to realize the value in front of us on that front. Tom or Chris, do you want to talk about Epi-On?

Yes. I think one I would like to just say as well that since we have had the integration – the integration to me has been a phenomenal success. We have come together quickly. I think we have pulled together our resources in the marketplace, then we have had dramatic impact, and we would expect more even as we face these headwinds with COVID. So I am very, very pleased with the early commercial promise of the combined businesses. As far as Epi-On, Epi-On represents another kind of incendiary emerging opportunity for us. And we are really pleased where we are at. As we finished the clinical trial of this last year and that we have been having the – we are now in a position to basically go to a data lock with the Phase 3 study, and we will be doing that over the next several weeks. And so I expect we will be able to present data from Epi-On in 2021 for your review. And I am hopeful that, that data is as encouraging as we see in many of the independent studies, where surgeons are undertaking single-site examinations of Epi-On. And we are very, very hopeful that Epi-On will be a next step in generation for us to really drive even further penetration into the ranks of these keratoconus patients.

And Chris, this is Chris. I will just add a little color on the execution. And certainly, the integration has gone well. But one thing we have not mentioned is we have done a fantastic job with our market access team in terms of ensuring good reimbursement. We’re at 97% or so coverage on this from a commercial payer standpoint. We’ve also increased the awareness about keratoconus. We worked closely with the OD community. There has been a number of initiatives that have really obviously paid off. Here we are in a COVID situation and we are having record number of Photrexa sales and new starts. It’s been a very positive thing for our business.

Appreciate all the detail there. And then just my follow-up is just on the operating expenses, just really impressed with the company’s ability to continue to maintain discipline through the middle of the P&L in this environment plus the ramping on the R&D front? I just want to make sure I understood your comments earlier, Joe, when you talk about that’s obviously going to start coming back up a little bit as we go through the fourth quarter and into calendar ‘21. Could you help us think a little bit about maybe kind of the ramping of those expenditures? I assume primarily in the sales and marketing line, but outside of the trial expense that we are all aware of, but just maybe if you could maybe a little bit better dialing in on the ramp there of the OpEx would be beneficial?

Yes. Sure, Chris. Happy to do that. I mean I think the way I would say this is you’ve now seen in the second quarter kind of the trough, right? We were at roughly $52.5 million of operating expenses in the second quarter, and that increased sequentially about $5 million in the third alongside the recovery trends on the revenue side that we have talked about. So what you’re seeing is that we have implemented a degree of cost-saving measures, both as it’s related to the original Avedro acquisition where we’re ahead of schedule on that, as well as the measures we put in place in response to the COVID pandemic. And as a team and quite frankly throughout our organization, we continue to manage expenses closely and trying to evaluate week-to-week, month-to-month based upon the environment we find ourselves in on the top line. So I would tell you that from where we go from here is probably fairly highly correlated to where we go from – on the top line over the coming quarters. But you will recall that at the beginning of the year, we said our operating expense expectations were for about $300 million over the course of the year, split about two-thirds SG&A, one-third R&D. So I think as we progress back towards normal, you would expect that our spending would progress and trend back towards that level of overall operating expense line.

Thank you.

And your next question comes from the line of Ryan Zimmerman with BTIG.

Hey thanks for taking the questions. Good afternoon everyone. So Tom, just a follow-up on iDose a little bit. We have seen DURYSTA sales remain, I guess, softer than we would have expected since their launch. And I am wondering if that’s a result of physicians really only being allowed to bill for that onetime or fares around endothelial cell loss. And what that may say or may not say about kind of how they are thinking about iDose, I’d love kind of your thoughts there. I know we’re waiting on data to see some of these dynamics, particularly around the cell loss. But if there’s any commentary you can provide right now, I think it would be very appreciated.

Yes, I would be happy to, Ryan. I mean, as I said before, what you may not be picking up is kind of the pulse in the marketplace and the appetite for the use of a sustained release drug delivery system. That, to me, has gone to nascent to really apparent, and I can feel that in the marketplace and get many, many calls from clinicians asking about our eventual approval for iDose because I think the pent-up demand for that is truly emerging. What I would tell you is that there’s no question there’s a need. There’s no question that DURYSTA has some advantages. But as you mentioned before, I would have to say and I would point you to your channel checks, that the fact that there is a pretty significant labeling restriction and a relatively high rate of endothelial cell loss associated with a product that really has not a truly long-lasting duration of effect, I think, would lead me to believe that the sales you’re seeing are indicative of some of those impediments that Allergan faces. So when I look at DURYSTA, the only thing I look at there is that a predicate for us is really twofold. One, the underlying appetite that exists, it’s clear to me that the ubiquitous nature of noncompliance in glaucoma has been the alternate move for some time, but there’s not been any solution to it, and we provide that solution moving forward. I think that’s exceedingly important, and I think we’ll take advantage of that moving forward.

Okay, appreciate that thought. And just a follow-up for that, and then just one on the broader MIGS market, but I think we are going to get three month data early next year on iDose, if I recall some of the catalysts that you guys have coming. And so with the washout rates we saw 1 year for DURYSTA, is 3 months the appropriate metric for approval? Or do you think you’re going to need to wait – particularly for payers out to a year or longer for them to get comfortable in terms of reimbursement around that?

Yes. Well, remember, the FDA sets the regulation. Three months is the basis for approval, and this again will be versus our control, which is BID timolol. So that is a basis, in fact. But what I would tell you is I’d refer you to the comments I’ve made all along, is that I think we would need six month durability for a commercially viable device. And as I have said, if we reached a year, I felt that, that would be ideal and as we will be presenting data to the FDA in our NDA that will include a year’s worth of efficacy and safety. So that we think we will be in a great position to be able to go to payers with that data in hand as we do seek ultimate commercial approval. Likewise, Ryan, you should note, too, that with this Phase 2b study running with a significant number of patients, we will have data out to three years, of which we will be able to count and show payers what the true potential durability of this product is. And then having said that, remind investors that, hopefully, we have been prescient in coming up with this second-generation product, the iDose TR extended or iDose TREX, which is going to hold nearly twice the amount of medication at the current iDose product. And so if we are successful in an expedited path to approval on the heels of an iDose TR launch, I think we’re going to be in an incredibly enviable position to be able to have a truly set of long-term duration activities for surgeons to choose from to patients – to treat patients with glaucoma.

Okay. That’s very helpful. And then just lastly for me and I will hop back in queue. Joe, one of the things you have talked about, I think, is at least when we go back to the launch of inject was using the original iStent as more of a value-oriented product right to compete on price. And so given some of the changes we have seen in reimbursement, the NCCI edits, love to get your views on kind of what utilization you are or are not seeing. And maybe this is better for Chris. But around the use of iStent as a more value-oriented product, if there is demand for that and whether that’s something you’re taking advantage of?

It’s Joe. I will start and then Chris can jump in. I would just say from a financial perspective and from a results, it might not surprise you. The vast, vast majority of our sales now are iStent inject or iStent inject W as we transition that. And that has – post our training of doctors and the really the initial wave has remained quite stable to continue to improve and favor the iStent inject franchise. Chris, maybe you want to talk about some of the dynamics around that?

Yes. We like having a choice and there are doctors who still prefer the iStent. And because there is only one stent versus two, as you alluded to, yes, it is, from a value proposition, less expensive. But we like having the ability to have choice. There are some customers who make a decision based on value, and that for us then is our value product. But the vast majority of our utilization is with iStent inject and to the iStent inject W.

Thank you.

Your question next question comes from the line of Joanne Wuensch with Citi.

Yes. This is [indiscernible] in for Joanne. First question is around Photrexa. And congrats on the great new starts numbers you guys provided. How long does it take for those new starts to kind of ramp up to full speed? And kind of what do you see as kind of their quarterly run rate once they are up to full speed?

Yes. Hard to get it at a quarterly run rate, but it does take some time to get going – by the way, this is Chris, because you’ve got to build your network of referrals. You have got to get the equipment in, get the equipment installed, purchase the product. So I would say – and I’m somewhat following here a couple of months to get up and going before you’re running.

You will recall that when Avedro was a public company, they talked about the sort of average utilization. They were in the 2.5 to 3 treatments per month per start, if you will. But it takes a while to get there. And what I will say is there’s a pretty significant delta underneath that from those early day customers to those who’s been around and are really up and running fully on Photrexa in general keratoconus treatment.

And the COVID effect.

Yes.

Okay, no, that’s helpful. And then just kind of sticking on with COVID then, we are seeing second waves, resurgence, whatever you want to call it, how are you seeing ophthalmologists prepare themselves differently this time around than when back in April, no one was prepared for what the worst was?

So it’s just all the procedures and things that they have in place to try and ensure the safety of the patient and their employees on the protocols that they have in the OR and in their offices so that they’re less – hopefully less inclined to have to shut down. But that remains to be seen. It’s all across the board. I’m aware of a surgery center that shut down because one of the nurses came down with COVID. So given that she was in contact with everybody else, they shut down the surgery centers. So there’s going to be these fluctuations and it’s hard to predict where and when and how and what people will do. But I do think that, to answer your question directly, physicians and surgery centers and health care professionals are better prepared because they’re taking precautionary steps that they didn’t otherwise do back in November through March.

Yes. I think I would just add. I mean, as Tom said, I think we’re encouraged – and Chris here, we’re encouraged by where their preparedness for this relative to, obviously, what was an unexpected series of events as we entered into late March. Having said that, you clearly can’t control if patients, particularly elderly patients, decide to more proactively shelter in place amid a resurgence. And you can’t control surgery cancellations that result from that, too. So there’s still a fairly high degree of elasticity between COVID and procedures like ours. It’s a temporary deferral, not permanent, but it’s something we have to factor in as we go back in these early days here now of a potential resurgence.

I appreciate the color. Thanks very much.

And your next question comes from the line of Anthony Petrone with Jefferies.

Thanks and I hope everyone is doing well. Two quick questions here on market opportunities and one on Avedro. One would be on stand-alone cataract. Maybe just to kind of refresh us on the opportunity shifting from combo therapy to stand-alone cataract. And how long do you think it will take to sort of realize that market expansion? That would be the first one. And then the second one would be on the three Epi-On studies, two specifically are linked to refractive surgery. And so I am wondering if you can sort of review for us what the incidence of keratoconus and corneal ectasia is following refractive surgery just to sort of get that piece down and whether or not you see that as the larger opportunity here for KXL? Thanks.

Okay. It’s Joe. I will start off with the stand-alone MIGS opportunity, the size and sort of the timing question. And then I can let Chris and Tom talk a little bit about the keratoconus opportunity and then some of the broader – I think what you were asking was around cross-linking and then just broader utilization, not just in keratoconus, but in addition and adjacent to refractive surgery. So I will let them talk about that. From a stand-alone MIGS standpoint, the – obviously, we talked about the past, the size here. It depends a little bit on the stage of progression of the disease, right? So for stand-alone MIGS, as you think about end-stage disease, we have said in the past that’s depending upon how you measure it, anywhere from 125,000 to maybe 200,000 potential annual procedures here in the United States. Obviously, as you go abroad, it’s a much larger number than that. The timing of penetration, there are puts and takes in that. So obviously, unlike in MIGS and as a team at Glaukos has built the MIGS category over time, where you’re teaching a new way of treating a patient. When it comes to late-stage glaucoma management, doctors are already very familiar with intervening with surgical solutions. So there is less convincing there to be done in the context of how you treat those patients. Having said that, there are fewer of them, and so you have to get out with your sales force and train these doctors on your procedure and the like. So I think it’s – the way we look at it is it will be – we do things in a methodical way. We train the right way, as Chris often says, and we’ll be focused on getting the right outcomes as we bring some of these late-stage procedures to market in the stand-alone opportunity. So that obviously includes both the PreserFlo MicroShunt as well as iStent infinite as that comes out. If you think about the broader stand-alone opportunity and you start moving into the more mild to moderate stand-alone MIGS opportunity, we’ve said that our best estimates are that provides another probably 500,000 potential procedures a year here in the U.S. And obviously, that’s a little bit longer term down the line but something that we’re obviously enthusiastic about over the planning period. Tom or Chris, do you want to talk about that Epi-On or keratoconus?

Yes, I would be happy to do it. And so if we think about, again, it’s worth looking at the long term and the larger market, which is the keratoconus market. Again, the prevalence for that when we look at triangulating a number of epidemiology studies, there’s around 600,000 patients here in the U.S. We are looking at about 1.1 million eyes, 17,000 patients newly diagnosed or with incidents each year and around 30,000 eyes that are potentially treatable. That is the clear large market that we’re approaching, and we’ll be able to penetrate with both Epi-Off and Epi-On. It’s an interesting question on corneal ectasia. I have seen some of the numbers and it’s interesting you asked because we are in the process of meeting with a number of refractive surgeons, as we speak, to triangulate and come up with our own analysis of what we believe that market is. It is clearly far smaller than the overall keratoconus market. But yes, we believe it can be a meaningful additional market. So stay tuned. And as we do our information and pull together estimates like we like to do in a sophisticated way, we’ll be able to present that at an upcoming meeting.

That’s helpful. But just one quick follow-up, when we look at market scope data, it’s a good starting place, 4 million refractive procedures in the U.S., and then obviously, you have to get smarter on what the incidence of corneal ectasia is. Is that a good starting place? Thanks again.

Well, it’s a good starting place just for overall. But now we have to look at the actual rate of corneal ectasia and how we look at that over time, how these corneas are healing. What is the asymmetry in some of the arcuate issues with the cylinder and the cornea change. And then how many of these ectasia patients truly can be arrested with a progression by the use of cross linking. And so it’s rather convoluted and sophisticated. It’s analysis that we are looking at and undergoing as we speak. And again, I believe we will be able to pull together a sophisticated and accurate analysis of what that market is.

Thank you.

You are welcome.

And your last question comes from the line of Ravi Misra with Berenberg Capital.

It’s Berenberg. So just the first – I guess I will just have two for tonight. It’s been a long day, I think, for everyone. First, just in terms of PreserFlo or kind of the new iStent coming out this year, can you talk about some of the specific kinds of training that might be required? I mean – or is this kind of really a once the surgeon is comfortable with the product, however many cases that may be, if you could provide some insight on that, it’s off to the races kind of for it? Or is it more of a measured type of launch? And then maybe my second one is a little bit more of a philosophical question. You guys have, I think, done a good job at kind of converting the business from a single product MIGS company into a more comprehensive eye care portfolio. Just looking forward, if you’re talking to an investor saying, hey, this is what’s in our pipeline around the retinal area, could you just maybe talk about some of the areas that you’re really excited about and kind of some of the catalysts and timings on when we expect that data again?

Ravi, this is Chris. I will address the first one and then turn it over to Tom for the second one. In terms of PreserFlo, that will require a lot of training. The iStent, iStent inject, iStent inject W, lots of similarities there in terms of the training. It’s all ab interno. There’s not a lot of cutting in tissue. And we had to teach people certainly a new procedure. The PreserFlo will be similar to a more extensive glaucoma surgery. And so for a glaucoma specialist, there will be some similarities. But there’s some nuances with the PreserFlo device that will require some additional training. And we’ll approach it the same way we approached iStent and inject and W, we will be very thorough. There’s no magic number of cases that will be required except to say that it will be a situation where the sales representative and the doctor feel good about where the doctor is in implanting that device. But it’s a much more extensive procedure, takes a lot more time. There is a lot of variables involved and some nuances with this device. So we want to make sure that doctors understand so that this leads to good outcomes. Good outcomes lead to increased utilization. In terms of the iStent infinite, that will be more like, obviously, inject and W. It will be W, but there will be three stents instead of two, and it comes with a different insertion device. So I would say there that the training versus W or inject will be very similar, and therefore, the number of cases required to convert will be much less.

And I am happy to address some of our embryonic work that we are doing in retina. And again, we are moving towards becoming a full-scale purveyor both in glaucoma, in corneal health and in retina. So with specific regard to retina, we are very excited about our work with a triamcinolone implant. As, this marketplace should be for treatment of diabetic macular edema. This marketplace right now is being served by a product called OZURDEX, primarily from Allergan, and it’s over $400 million worldwide marketplace. And we have an implant that we have been able to extrude, which is already showing some very, very good pharmacokinetics with 0 order drug delivery over a six month period and then does what it’s advertised, goes away very shortly afterwards. It’s with a very potent steroid, triamcinolone, which we feel strongly about. And we think with this kind of delivery, we may have both advantages and strengths to be able to have a meaningful entry into this marketplace. So in preclinical development, as you know, and moving forward and we hope to be moving forward into the clinic late next year or early in 2022. In terms of the work we’re looking at for long-term treatment of age-related macular degeneration, we’re looking at cross-linked hydrogels, which we will be able to sequester the use of really demonstrated anti-VEGF compounds for the treatment of age-related macular degeneration, and we are making some significant headway there in understanding the pharmacokinetics, the release of the product and the potency over time, as I have described in previous meetings. That work is early. The efforts to get to this are Herculean and yet we’re undertaking them. And one of the reasons why we feel that we have such a promising position as we’ve been able to recruit some top talent from Allergan Pharmaceuticals with some of the balkanization that’s happened with that company. And so we think we have some of the best minds that are looking at some of these problems. And these – if we get there, these are exciting opportunities. And the final area would be in the area of looking at a small molecule for the treatment of age-related macular degeneration. And we’re looking at a multi-kinase inhibitor, which is showing really strong release, good pharmacokinetics over an extended period of time. And both the multi-kinase inhibitor and anti-VEGF products are showing really promising results in persistent retinal vessel leakage models, which are a strong indicator of potency. So for all these reasons, we are a company that – as I’ve said, we’re moving to become a hybrid medical device pharmaceutical company. We’re on the throes of doing that. We are aspirational. We are making good progress in these promising areas.

Okay, thank you. Good job.

Thanks, Ravi.

And there are no further questions at this time. I will now turn it back to the company for any closing remarks.

Okay. Thank you very much, and thanks to everybody for all your time and attention today. We hope everyone is staying safe. And again, thank you for your continued interest in Glaukos. Goodbye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating and you may now disconnect.