Glaukos Corporation (GKOS) Q4 2020 Earnings Report, Transcript and Summary

Welcome to Glaukos Corporation's Fourth Quarter and Full Year 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. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] This call is being recorded and 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, integration and market development 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 pinned in 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, it 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 these tables in our earnings press release that is available in the Investors section of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I will turn the call over to Glauko's President and CEO, Tom Burns.

Thank you, Chris. Good afternoon, everyone, and thank you for joining us today. Before we discuss our fourth quarter results, I want to spend a few minutes reflecting on the year 2020. By all accounts, the COVID-19 global pandemic created an unprecedented past year and challenged the conventional ways our companies, employees and customers operate both personally and professionally. The response plans we prioritized and implemented in 2020, including protecting the health and safety of our employees and their families, supporting our customers, preserving jobs globally, protecting core research and development projects and maintaining our strong financial and operating position following the pandemic have allowed us to stay focused and advanced our key strategic priorities during uncertain times. As a result, I believe we exited 2020 a more efficient and more capable company with fundamental prospects that have never been stronger. As the corporate pioneer of MIGS and corneal cross-linking, we have been honored to partner with our customers and clinical investigators to help them navigate a rapidly changing environment through the implementation and expansion of various virtual and digital programs, including customer support, training, case proctoring and educational initiatives. I'm confident that these efforts have helped deepen our customer relationships and prepare us for the future well beyond COVID-19. Finally, I want to thank these very customers for everything they are doing to serve the needs of patients worldwide during the pandemic. Overall, I'm proud of our performance this past year and of our team's resiliency and steadfast dedication to advancing our mission to create novel platforms that disrupt conventional treatment paradigms, advance the existing standard of care and enrich the lives and treatment alternatives for patients worldwide. In doing so, we strive to create a world-class global vision care leader uniquely positioned to drive innovation across glaucoma, corneal health and retinal disease. Within each of these areas, we are moving full speed ahead with the same pioneering discipline, pipeline development expertise and skilled commercial execution that has made us the worldwide leader of the MIGS marketplace today. Our ability to execute our plans over the past year not only illustrates our effective ongoing response to the current market environment, but it's also a reflection of the progress we continue to make towards our broader strategic vision. Consider our key 2020 accomplishments: one, we executed on our corneal health franchise integration, expansion and market development plans, evidenced by record new starts in Photrexa sales; two, we successfully launched the next-generation iStent inject W device in the U.S. and select international markets; three, we reported strong international glaucoma sales and secured new market expanding regulatory approvals in key markets such as Australia, Japan and India; four, we advanced key market access and reimbursement initiatives, including the creation of new category three CPT codes for iDose and stand-alone makes; five, we implemented a global systems upgrade transformation designed to support long-term growth; six, we executed financially during unprecedented times, not only through encouraging sales recovery trends but also with strong gross margins, disciplined operating spending and continued preservation of our strong balance sheet, bolstered by a $288 million convertible debt financing to further strengthen our ability to aggressively invest in our pipeline and future growth opportunities; and last but certainly not least, we advanced our industry-leading proprietary pipeline that we believe has the ability to significantly expand our addressable market opportunities beginning this year. As most of you know, our goal is to leverage our development expertise and commercial infrastructure to provide a portfolio of novel solutions that meet the full algorithm of customer needs. A key color on delivering on this strategy is the continued progression of our deep pipeline. So I'd like to spend a few minutes highlighting exciting new clinical data shared earlier this year for two of our key glaucoma pipeline programs: iDose TR and iStent infinite. Starting on iDose TR, our travoprost drug delivery implant we were delighted to announce what we believe is powerful and compelling data that further underscores the potential for this technology to safely provide multiple years of sustained glaucoma pharmaceutical therapy and 24/7 compliance to tackle the significant problem of patient non-adherence to topical glaucoma medication regimens. The recently announced 24-month interim analysis of our ongoing 36 month Phase IIb trial showed compelling results with both iDose arms continuing to demonstrate robust IOP lowering over 24 months to the magnitude of approximately seven to eight millimeters of mercury or nearly 30% reductions from baseline over the first 24 months. Interestingly, a subset analysis showed at least 20% of iDose subjects achieved robust average IOP reductions from baseline of at least 40%. Importantly, these results were achieved with a single iDose implant compared to the terminal control arm that received twice daily drops over the 24-month evaluation period or nearly 1,500 eye drops per eye. As a reminder, iDose TR is implanted into the trabecular network to avoid migration through a very facile procedure and the most recent Phase II data readout demonstrated a favorable safety profile with no clinically significant corneal endothelial cell loss, no serious corneal adverse events and no adverse events of conjunctival hyperemia reported to date in either iDose solution arm. We believe there is an important unmet clinical need and strong appetite within the ophthalmic community for safe, effective and durable sustained release pharmaceutical alternatives to traditional topical medications. And this powerful 24-month interim data reaffirms our excitement about the potential commercial prospects of iDose. We continue to progress towards enrollment completion in our ongoing iDose TR Phase III clinical program, which will mark another critical step in bringing this technology to the market. The 12-month Phase III trial results are expected to support our anticipated NDA submission for iDose TR in 2022, and we are targeting FDA approval for this promising technology in 2023. The powerful iDose data available thus far underscores our confidence in the potential of this novel drug delivery platform to produce future generations of sustained therapies for glaucoma and potentially other ocular diseases. As such, we continue to invest resources to expand our pharmaceutical development capabilities and to develop future iDose solutions. With that in mind, we are in late-stage development with finalized designs for next-generation iDose TR extended-release implants, also known as iDose TREX, which is in a similar size and form factor to the original iDose TR, is designed to provide nearly twice the drug capacity to extend efficacy durations even longer. We will be engaging with the FDA in the near future to determine the most appropriate and expeditious regulatory pathway for this novel product. We are also seeking additional drug classes that may be synergistically used in conjunction with the iDose platform. Through our research and development agreement with D. Western, we are currently assessing multiple ROCK compounds, which are showing positive results in animal models, and we're establishing prototype implants for lead candidates in these same models. ROCK inhibitors when used in conjunction with prostaglandins have been shown as a powerful treatment in reducing intraocular pressure in U.S. pivotal studies. Moving on to iStent infinite, our three stent system designed for use in a stand-alone procedure for late-stage glaucoma patients, we are excited to have recently announced strong 12-month IDE Pivotal data that showed 76% of subjects achieved 20% or greater reduction in month 12 mean IOP on the same or lower medication burden, with more than 50% of subjects achieving month while IOP reductions of at least 30%. Subjects also achieved a 13% mean reduction in medication burden at 12 months, and the safety profile in the study was highly favorable with no explants, infections, or device-related interventions or hypotony reported through 12 months. When pairing these strong pivotal results with the advanced disease progression profile of the enrolled subjects that were on an average of three medications with two failed prior surgeries, we believe ophthalmic surgeons will view iStent infinite's risk-benefit profile very favorably and as a compelling new treatment option. We continue to target FDA approval of iStent infinite in late 2021. Beyond these important glaucoma pipeline programs, we also remain in early preparations for the potential U.S. commercial launch of Santen Pharmaceutical's PRESERFLO MicroShunt, an elegant ab-externo surgical implant for late-stage glaucoma management. We continue to ramp up our commercial preparations for this promising opportunity ahead of an anticipated FDA approval and commercial launch. We also recently announced that we are in late-stage development of iPrime, a highly complementary new visco delivery device designed to be a truly minimally invasive system to further support the needs of physicians and patients. Within Corneal Health, we issued a separate press release this afternoon announcing positive Phase III results for our next-generation corneal cross-linking iLink Epi investigational therapy. We're excited to announce results from the multi-center, randomized, placebo-controlled Phase III pivotal study that met the primary efficacy endpoint with statistically significant improvement in maximum corneal curvature, or Kmax. Kmax is an objective measurement of the steepest corneal curvature based on corneal topography, where an increasing Kmax denotes corneal steepening and keratoconus disease progression. At six months, the Epi-On treatment arm showed a Kmax mean improvement of 0.2 diopters from baseline compared to a Kmax mean worsening of 0.8 diopters from baseline in the placebo control arm, resulting in the statistically significant mean treatment effect of one diopter meeting the study's primary efficacy endpoint. Most importantly was that the Epi-On therapy demonstrated the ability to halt or reduce the progression of keratoconus, while disease progression was observed in this study's placebo control arm. The treatment was generally well tolerated and the majority of adverse events reported were mild and transient in nature. These positive results underscore our view that Epi-On may provide the ophthalmic community and keratoconus patients with the first non-invasive bioactivated drug treatment alternative designed to reduce procedure times, improve patient comfort and shorten recovery times. The positive Phase III results are expected to support a U.S. NDA submission in 2022, and we are targeting FDA approval for Epi-On in 2023. 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 developmental 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 becoming commercial realities. And speaking of commercial realities, we've been pleased with the strong recovery trends in our business since the peak of the pandemic that continued through the fourth quarter. While procedure recovery trends remain somewhat volatile, I've been encouraged by how physician offices, ASCs and hospitals are navigating this new normal. And I'm pleased to report fourth quarter net sales of $73.2 million that exceeded our expectations across our glaucoma and corneal health franchise globally. During the fourth quarter, we commenced an official full-scale launch of the iStent inject W in the U.S. The iStent inject W builds upon the proof and foundation of our inject platform and is designed to offer ophthalmic surgeons the same established safety and efficacy of iStent inject with the added benefits designed to optimize stent visualization, streamline implantation and deliver procedural predictability. The early feedback and real-world results for iStent inject W remain very positive and reaffirms our confidence in the commercial prospects for this important technology. We've also launched 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 2020 accomplishments in our international glaucoma franchise that positions us well for long-term growth, including stand-alone indication approval in Australia, iStent inject W regulatory approval in Japan, iStent and iStent inject regulatory approval in India and continued progress across many of our key market access initiatives. Finally, over the course of 2020, we made significant strides to firmly establish Corneal Health as a new franchise and future growth engine for our organization. Not only are we ahead of plan on the cost savings targets we announced at the time of the deal, but more importantly we continue to execute on our commercial strategies and market development initiatives, which include driving increased awareness of keratoconus broadly across the optometric and ophthalmic community, advancing the diagnosis of this important debilitating condition, streamlining the referral pattern from initial diagnosis to treatment, implementing customer-friendly programs to drive new account starts, optimizing reimbursement, investing in health economics to further solidify the value of corneal cross-linking to the patients in healthcare systems; and finally, training corneal health professionals on our iLink procedure. To support this progress, we continue to opportunistically expand our U.S. Corneal Health commercial team. We're pleased to see another new record for U.S. Photrexa sales established in the fourth quarter, 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're encouraged with this performance and excited about the opportunity ahead. So in summary, we're creating a unique vision care leader prepared to drive a robust cadence of innovation that can significantly expand our market opportunities and drive sustainable growth and profitability over the next decade. While we, of course, remain cautious on the near-term uncertainties associated with the COVID-19, the strong foundation and team we built leaves me confident in our ability to execute on our plan and advance our mission to transform the treatment of chronic eye diseases for the benefit of patients worldwide. So with that, I'm going to turn the call over to Joe to discuss our fourth 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 fourth quarter of 2020 were $73.2 million, representing sequential growth of 13%. Net sales grew 11% versus fourth quarter 2019 reported sales of $65.8 million and increased approximately 1% on a pro forma year-over-year basis adjusting for a full fourth quarter 2019 contribution of Avedro, given that transaction closed in November 2019. These results exceeded our expectations and reflect the continued recovery despite ongoing COVID-19 related headwinds and associated volatility. With respect to the pandemic impact, it is worth noting that performance in the quarter was strong across each of our franchises, but we did experience more intra-quarter volatility than normal, including a more pronounced softness around the holidays in November and exiting the year than we might typically experience. Now turning to our U.S. glaucoma franchise specifically. Our fourth quarter U.S. glaucoma sales were approximately $43.7 million, representing sequential growth of 12%, which we believe reflect a combination of COVID related dynamics, a more stable competitive landscape and continued stable pricing. It is also worth noting that we began to see an uptick in new doctor training during the quarter, an encouraging sign even if we are not fully back to normal yet. Internationally, our glaucoma franchise delivered fourth quarter sales of approximately $14.6 million, representing sequential growth of 15%. The COVID-19 impact for international glaucoma business has varied by market, but our overall recovery in the quarter was led by Japan, Australia and the other major European markets, while the situation in Brazil and Latin America generally remains challenging. In Corneal Health, fourth quarter net sales were $14.9 million, representing sequential growth of 15%. The fourth quarter performance was driven by a record U.S. Photrexa sales of $12.5 million and the continued trend of strong new U.S. Photrexa starts as our commercial integration and strategies continue to deliver despite the pandemic. Shifting gears for the remainder of our P&L, our non-GAAP gross margin in the fourth quarter was approximately 83.4% versus 84.7% in the same quarter in 2019 and 84.9% in the third quarter of 2020. This reflects the modest headwinds associated with iStent inject to iStent inject W transition and the sale inventory that had been produced less efficiently during the height of the pandemic. 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 $61.5 million in the fourth quarter of 2020, remained below pre coved levels, but up 7% sequentially compared to the third quarter as we continue to reverse temporary cost saving initiatives and restore expansionary spending as the recovery warranted, a trend that we would expect to continue in 2021. Our non-GAAP SG&A expenses in the fourth quarter were approximately $40.2 million, up 7% sequentially compared to the third quarter, reflecting increased commercial activity and our non-GAAP R&D expenses in the fourth quarter were approximately $21.3 million, up 6% sequentially compared to the third quarter as we continue to restore earlier stage pipeline programs and human capital investments across the organization. We finished the fourth quarter with a non-GAAP operating loss of $0.4 million and a non-GAAP net loss of $0.8 million or $0.02 per diluted share. Our GAAP net loss was $10.6 million or $0.24 per diluted share for the fourth quarter of 2020. We invested in approximately $2.1 million of capital expenditures in the fourth quarter. Now looking ahead, we expect our capital expenditures to increase substantially over the next two to three quarters as we enhance and expand our facilities in Southern California and Boston to meet our expanding development and operational needs. As of December 31, 2020, we had cash, cash equivalents, short-term investments and restricted cash of approximately $414 million, an increase of $16 million compared to $398 million at the end of the third quarter 2020. Finally, let me make a few comments on the state of our markets and opportunity today and how we believe things are unfolding for 2021. We believe the competitive landscape and pricing dynamics remain stable across each of our major business areas. And as Tom mentioned earlier, our integration efforts and strategies are driving increasing penetration in Corneal Health alongside a successful launch of iStent inject W globally in glaucoma. Not surprisingly, the overall ophthalmic market still face COVID related headwinds in terms of new patient consultation visits, practice closures due to personnel testing positive and the ability of surgical practices to work fully staffed and at full capacity given enhanced safety protocols. Having said that, we've been encouraged by improving trends on each of these fronts through the fourth quarter and thus far in 2021. We've also been encouraged by our improving new surgeon training trends and are increasing access to practices, albeit with restrictions that make typical day-to-day commercial activities challenging still. We do recognize, though, that the dynamics associated with COVID-19 and its variants remain fluid. For example, as the global vaccination efforts ramped in late January and February, it appears that some patients may be predictably electing to defer procedures until after they've been fully vaccinated. This is a short-term but relevant trend. To put this in context, our performance thus far in 2021 has exceeded our plan as we experienced year-over-year growth trends across each of our franchises in January with the vaccine dynamics and several loss selling days throughout much of the U.S. due to the recent severe winter weather led to a softening of those trends in February. As we put all this together in the context of our expectations going forward, we expect first quarter 2021 net sales to increase approximately 15% to 20% compared to first quarter 2020, which reflects our typical seasonality patterns and the first quarter trends I disclosed earlier. It is worth noting that we believe the range of potential outcomes for the full year 2021 remain more sensitive to COVID-19 and the dynamics associated with the rollout globally of vaccines with an increasingly solid underlying fundamentals for which we have a degree of control. Having said that assuming that pandemic related trends continue to gradually improve from here, we would expect our second quarter sales to increase sequentially versus the first. And with that, I'll now turn things back to Tom for a few closing remarks.

All right. Thank you, Joe. I would like to conclude by acknowledging how proud I am of the actions our organization has taken throughout the COVID-19 pandemic while advancing our key strategic priorities in a rapidly changing environment. We are focused on near-term execution and excited about our long-term future, where in just the next three years, we expect to have five major new product introductions. Beyond that, we have a fulsome portfolio of pipeline opportunities as we seek to build and expand upon our core microsurgical and sustained-release pharmaceutical platforms. While the ongoing pandemic may well persist through 2021, the strong foundation and team we have built leaves me confident in our ability to execute on our plan as we strive to create a strategic vision care leader with disruptive franchises across glaucoma, corneal health and retinal disease. And with that, I'll open the call to questions. Operator?

Your first question from the line of Andrew Brackmann from William Blair.

Hi, guys. Good afternoon. Thanks for taking the questions. Tom, maybe to start on your iDose commentary from earlier in this year, when you released that 24-month beta, you showed obviously this was in a sort of trial, which was kind of in a vacuum because of the shorter compliance. So maybe two questions here. First, how are you thinking about those results in sort of a more apples-to-apples or real-world comparison? And then secondly, as we think about future reimbursement efforts here and commercialization efforts, how well do you think that dynamic is understood by payers and then ultimately users onto this product?

Well, thanks, Andrew. Happy to answer your question. Well, first of all, I think when we look at the data, I think the people who have been following my comments in this area for many years, we initially said that we needed to have a product that provided consistent IOP reductions in pressure for at least six months to have a commercially viable program or product. If we reached 12 months, we thought we had the ideal. What I'm so excited about when I look at this data is that we're now looking out at two years with average mean IOP reductions of 78 millimeters, nearly 30% reductions in pressure from pretreatment baselines. So this is pretty extraordinary. And this is an intercameral implant that is done with a facile procedure. It's not subject to migratory change, like you'll see with erodible implants. It has a superlative safety profile. We saw minimal endothelial corneal cell loss with the iDose versus placebo. And we didn't see conjunctival hyperemia or hyperchromia. So the data is superlative. We're going to continue to track the data out for three years and see if we can get some additional hang time by following these patients out. So I am extraordinarily pleased with the data we've been able to present. And I think that gives us powerful prospects when we do seek reimbursements going forward when we commercialize. We clearly already have a Category III CPT code established for the professional fee payment side well in advance of commercial approval and then we'll seek and generate a J-code, which will allow them to carve out and receive a fair value proposition for the iDose when we commercialize. We're doing all of the extensive pharmacoeconomic work that you'd expect behind the scenes. But importantly as investors when you look for instance, at DURYSTA, an erodible implant that lasts typically in the range of four to six months, we're seeing that the J code established for that product is around $2,000. So I'm not going to suggest any proportionality based on sustained release delivery, but I will tell you that that's an excellent precedence and predicate for us as we establish the basis for our J code when we do commercialize. So I can't tell you how excited we are about the data, the appetite and the pulse that exists, the resonating feedback we're receiving from surgeons since we've introduced this data. And I think it becomes a powerful platform for us to enter the next stage of our development and growth.

Great. Thanks for that Tom. And then, Joe, maybe one for you, a little bit more granularity on the trends that you're seeing here so far in 2021. Anything specific that you'd point to in terms of prevalence of COVID or reopening in certain states that gives you more or less confidence here as it relates to how you think the U.S. market looks sort of on the other side of post vaccination or more uniform declines in cases? Thanks for taking the questions.

Yes. Thanks, Andrew. Yes, I – what we tried to say in the prepared remarks, obviously, the U.S. dynamics remain fluid. I think first and foremost as it relates to the COVID trends themselves, we see the same data, obviously, that all of you are seeing as it plays out here in terms of improving underlying trends of the disease transmission. And so we saw that really through the fourth quarter and thus far into the first, what we're seeing now is a little bit of, I think, transitory or transient impact from the vaccine rollout, probably to be expected that as patients are in the category that can get vaccinated, they tend to hold off a bit more on their procedures until after they've been fully vaccinated. And so that's what we were trying to talk about in the context of a really strong January for us that softened a little bit in February as the vaccine rollout started to happen. As you think about that beyond and obviously, a comment on this, we would expect sequential improvement from here all else being equal with respect to COVID its variance and the global rollout of those vaccines. But I think as we look forward and we've tried to resist making too many predictions about the way COVID will play out over many periods of time. But sitting here, we're increasingly encouraged with the trend line that is emerging for the year.

Great, thanks guys.

Your next question from the line of Matt O'Brien with Piper Sandler.

Hi, guys. Good afternoon. This is Drew on for Matt. Thank you for taking the questions. I appreciate the color on the first couple of quarters here. And I know you don't want to provide guidance for the first year – for the full year. But maybe you could help us a little bit directionally as we think about 2021. I guess in 2019, your glaucoma business is about a $230 million business. Is there any reason to think that 2021 can't post a little bit of growth off that 2019 figure?

Thanks, Drew. Well, obviously, we're not giving that full year guidance directly or indirectly. And I think it has a lot more to do with the pace and how the vaccine rollout happens globally with some of the dynamics that we're seeing in the U.S., how they do or don't emerge in the ex-U.S. markets, especially as vaccines pickup there as well and the timing of all that. But what I would all say is kind of what I said in the first question here. I think we're increasingly encouraged by the trend lines that are underlying what's happening. And if the world, including the United States, continues to progress the way we're seeing it, both in terms of COVID-19 and the vaccines, I think we're set up for, hopefully, incremental growth as we progress throughout the quarters of 2021.

Understood. And then obviously, I just wanted to touch on the Epi-On data. Congrats. It looks like very good data. I just wanted to drill down a little bit more into it. And I apologize I'm going off memory a little bit here, so correct me if I'm wrong. But I believe in your Epi-Off FDA studies, you are getting a little bit closer to that 2 diopter mark between both the treatment and [indiscernible] at six months and then a little bit of improvement out to a year. Obviously, Epi-On comes with much improved safety profile. But I guess, one, is that an appropriate comparison? And how clinically significant is that delta? And then two, what role do you see for the combination of these therapies ones you have both available? Thank you.

Great question. This is Tom. As we look at the data, it's hard to draw comparisons between the data that we see, that we just disclosed versus the earlier data with Epi-Off because even though the patients have similar inclusion criteria, clearly in the Epi-On study, we had patients where we recruited more earlier intervention patients, who are slower progressors. So it's hard to do an apples-to-apples comparison. I will tell you that we're excited about the data the fact that we can perfuse ocularly on the surface of the eye using surfactant to be able to drill through the corneal epithelium and using a higher UVA rays per radiation protocol, we were able to achieve this 1 diopter difference versus placebo and be able to shut off progression and halt progression in the patients. What I do think is I do think by removing the corneal epithelium, you will see a greater reduction in Kmax. And so to answer your question, I see an excellent opportunity to bifurcate and segment the market and to use Epi-On in earlier stage, earlier intervention, perhaps in patients on a little more modest to moderate disease progression and then be able to reserve Epi-Off for patients who are in more advanced stages, who need to have not only a halt to the progression but need to have a nice reduction in Kmax moving forward. So to me, it offers us a great opportunity to bifurcate segment and be able to serve the market algorithmically much like we do on the glaucoma side where we have different technologies for different disease stage management.

Hopeful, thank you.

You're welcome.

Next question from the line of Robbie Marcus with JPMorgan.

Hi, this is actually Allen on for Robbie. So I had a quick question on kind of the market dynamics that you saw entering the year. You highlighted that competitive trends had stabilized. But just kind of diving a little bit deeper into that, when we look back to the last we saw of "normalized trends," it did look like there was a little bit of that going on, even though you said the market was still growing kind of healthy double digits. So when you say that's stabilized, how should we really think about that with respect to that double-digit growth number? And also whether or not you're still seeing any amount of competitive erosion from like both similar MIGS devices and also more invasive search alternatives?

Thanks, Allen. It's Joe. Maybe I'll start, and Chris, if you want to add some color, if you can. I think the way to think about the competitive landscape, but obviously, there's an awful lot of other things going on in the marketplace from COVID. So I probably will resist from commenting on the specific percentages and numbers that you were referencing. But I'll say this, obviously, if you go back a year, as we're entering into 2020, we talked on this very call about some of the emerging competitive landscape dynamics and what we thought that would mean for the business as it unfolded in 2020. Obviously, a lot happened over the course of 2020. We feel good about the way we've navigated that. We feel good about our product introduction in the form of iStent inject W and generally our access to accounts and the relationships that we have there and what that's meant for our business. So what we're saying is, I think, if you look back versus a year ago and how things have transpired, we feel like that competitive landscape, noise, if you will, has settled a bit and is much more stable relative to sitting here 12 months ago.

I have a little color as well, Allen. This is Chris. I would say that going back to a year ago, there was a lot of trying and trialing going on. And since then, there's less of that. Speaking of Ivantis, it's been out there. The Ivantis has been out there for two years. And we've had a very good recapture rate of those accounts that have been trying that product. Additionally, in July of last year, you had the NCCI edit on the omni device, that too has had an impact. And then finally, as Joe mentioned, the iStent inject W has done very well for us and has been well received by the ophthalmic community. And I think all of those factors have led us to say that the competition competitive environment is stable to improving.

Got you. And then just a quick follow-up, you're slated to still launch your kind of first forays into the more moderate-to-severe environment with MicroShunt and infinite. That's – it's a market where there's already competitive license out there already. So how should we think about your ability to really drive uptake with those products? And whether we should expect any kind of revenue benefit in 2021 or if that's more of a 2022 story? Thank you guys.

Sure. I'm going to talk about the product itself and the first part of your question, Joe will follow-up with the financials and so forth. As we talk to key opinion leaders, and do our channel checks on this product, with those who have been in the investigational stage, and by the way, it's also in Europe. At this stage, it's a less invasive procedure. The material itself is more biocompatible. And there really hasn't been a lot of new products in end-stage therapy glaucoma. And we're excited about this product because it serves as a capstone to our overall product portfolio and our algorithm, and there's a place for this product. And we think that while the market is not as big as the combo cataract market, it's still significant. And this product has the potential to really have an impact on the marketplace and we're excited to have it, and we see it as an important product within our portfolio.

Yes. In terms of the numbers, Allen, I think, obviously, based upon the commentary from our partner, Santen, we continue to expect that we should be able to see MicroShunt in 2021. And as a result, we would hope that that has some contribution this year. We're certainly preparing organizationally for a commercial launch around that product as soon as they are able to hopefully gain an approval. But whether it comes to that product or iStent infinite or the others, clearly, there'll be a more pronounced impact to 2022 as we turn the corner there and get hopefully a full year benefit of sales for both iStent infinite as well as MicroShunt.

And your next question from line of Chris Cooley with Stephens.

Good afternoon. Thanks for taking my questions and hope everyone is well. Maybe just two for me. We could start with record sales of Photrexa. Could you give us some additional color there whether you're seeing that as a result of an expanded installed base? I know there were some metrics that you provided at the time of the Avedro acquisition announcement just kind of curious how you track relative to that? Or if you're just seeing greater utilization within some select practices now that better understand the therapy and have good protocols for diagnosis and pulling those patients through the channel? And I've got a quick follow-up.

Chris, it's Chris, and I'll address your question. I would say it's a combination of several factors. I think the fact that we've expanded the sales organization, both by adding Corneal Health sales managers as well as integrating our existing glaucoma sales reps into the process. I would say it's a stabilization of reimbursement, our market access team, which is clearly the best in the industry, has done a fantastic job of stabilizing reimbursement. I think it has a lot to do with our marketing programs where we've reached out to the optometric community to identify early diagnosis and then referral patterns into those practices, who do the iLink procedure. I think it's also the flexibility that we've had around the capital equipment placement by providing different programs to ensure that the equipment was an impediment to the sale. And a lot of direct-to-consumer campaigns and digital campaigns and webinars, all of these things have combined to increase placements as well as utilization within existing accounts.

Yes. I would just add one quick thing to that, Chris, which is numerically, 2020, when you look at – despite the pandemic, as you've heard us say, I think, on multiple cases over the course of the year, we had record new starts or installations of systems in the U.S. So the numbers back up what Chris is talking about in terms of expanding access to Photrexa. And then within those accounts driving incremental utilization through all the referral networks and the things that Chris was talking about. So I really think it's been a combination of both when you think about building your models.

I appreciate all the color there. And then just lastly from me, I'll throw out a trouble work here to see if we can get anything. But on the fourth quarter, obviously, the operating expenses there were below pre-COVID levels. And while you gave us top line guidance for the first quarter, just would appreciate any color you could provide about how we should think about the operating expenses in aggregate as we start to flow back through the year, obviously, assuming there's going to be some more travel higher sales. So, hopefully, with that greater commission. But just trying to think about that, coupled with the investments you're doing. Any kind of commentary you could provide around expenses on the operating line would be appreciated. Thank you so much.

Sure, Chris. Happy to do that. I think what you've seen now is a little bit of the pattern of how we're trying to manage our spending relative to the recovery, right? You've seen sort of the low watermark of where we could get the business to in Q2 and then how that sort of recovery has managed from a spending standpoint relative to the sale of recovery in Q3 and now Q4. What I can say is we're working to remain extremely disciplined around how we think about spending within the organization. But as you saw in the fourth quarter, and as I would expect to continue the course of 2021, we are continuing to restore the investments we're making both from a commercial standpoint as well as from an R&D and pipeline standpoint. And part of the reason why we raised the capital that we did was so that we could remain prudently on office through the cycle, and we hope to continue expanding that spending quarter in and quarter out here as we move forward in 2021.

Thank you.

Next question from the line of Jon Block with Stifel.

Hi. This is Trevor on for Jon. Thanks for taking my questions. First one is for Joe. You mentioned earlier in the call that you expect 2Q to grew sequentially over the first quarter, assuming that the favorable COVID trends continue in the United States. So just looking back a couple of years, in 2019 and 2018, 2Q was up around 10% versus the first quarter. So is that the good ballpark to think about this year? Or is the flow more or less dramatic? Any color you can give there? Thanks.

Hi, Trevor. Yes, that's a great question. I don't know that we're prepared to get quite that granular on it. What I'd tell you is – what you're seeing underlying both our fourth quarter performance and when you guys run the numbers on what we're saying for the first quarter is, we've kind of gotten back to a place where we're established a little bit of growth on a pro forma basis. If you include Corneal Health or Avedro in some of those numbers, we've gotten ourselves back from a market perspective and Glaukos, specifically, to where we're seeing a little bit of growth, and we hope to continue to expand that growth quarter-on-quarter as we move forward here.

Okay, great. And then just another one on the guidance – or just from 2020 that is – so you initially guided to $190 million, did $140 million in U.S. glaucoma business. So if you do a little bit of math there, it's about $50 million, $55 million that was arguably deferred as a result of what happened. So do we think about that as being like a 2021 phenomenon just in terms of the recapture? Or any sort of commentary you can give there would be great.

Yes, sure. I think that the recapture dynamics are going to be fairly elongated is the way to play out. I think that's going to be driven more by the ability of the accounts themselves to execute on procedural volumes. There's only so many hours in the day and so many days in the week that they can be doing procedures and bringing in these patients. So I think what we're likely to see is a more prolonged market tailwind when we get on the other side of the majority of the vaccinations as well as hopefully a lessening in the COVID cases themselves.

Great, thank you.

Next question from the line of Ravi Misra with Berenberg Capital Markets.

Hi. How are you doing? Thanks for taking question. So I just want to kind of – if I can ask about the – sorry, I just kind of lost my train of thought. If I can ask you about the timing of maybe iStent in India and the market analysis that you have over there? Can you help us maybe size that opportunity and some of the penetration dynamics that you're thinking about in terms of timing of how you plan on kind of getting into that arena? And then I have a follow-up. Thanks.

Hi, Ravi. This is Chris. We're very pleased that we were able to secure FDA – excuse me, approval in India for both the iStent and iStent inject, okay. So we'll have both products. We're currently working through the commercialization plans. It is our hope that we would initiate that sometime here in the near future. But beyond that, we're not in a position to be able to give more details. Obviously, given the size of the market in India, we're very excited about it, and we do understand the economic and reimbursement dynamics there, and we are bullish on what we can possibly do. So, more to come.

Great, thanks. Then maybe one on Epi-on. You're talking about segmenting the market. If I remember right, when you kind of first talked about the rationale behind the Photrexa and kind of Avedro deal, market development was something that really needed to be done to generate awareness of the condition. And I'm curious kind of given the timing expectations around the kind of approval and commercialization that you're shooting for now on this, is this something that you're going to be kind of building in advance? Or is it something kind of from an investment perspective, you're going to be holding off on to drive that?

So Ravi, this is Chris again. I would say that it dovetails. We're doing all those things now with Epi-Off, really have made a big investment in terms of getting out outreach with optometry and working with them to diagnose this disease earlier. Working with reimbursement to ensure stable reimbursement, all the things I mentioned in an earlier question. I think when Epi-On comes, then there'll be the added benefit of this product being less invasive than the Epi-Off procedure, and we'll continue to invest. But at that time, there'll be more awareness of keratoconus and the treatment and the FDA approvals of Epi-Off and then Epi-On, and we will be focusing more on the product itself and the fact that this should appeal to more patients and more surgeons given the less invasive nature of that procedure.

Great, thanks. And then maybe if I could sneak in one last one. Just from the ROCK inhibitors commentary and the kind of process planned in. And it sounds like you're saying it's an animal model with some of the testing right now. Should we think about that kind of from a kind of three-year window, five-year window, a seven-year – like how to help us kind of frame when something like this could potentially come to market? Thank you.

Ravi, this is Tom. And what I would tell you is that the development process is probably multiyear, so I keep at a higher level. The reason we're excited though is when we look at the additive value of ROCK inhibitors when used in combination with prostaglandins, we see some really significant differences in ability to be able to reach target levels in IOP reduction that hadn't been reached with other combination products. So it's one of the reasons I'm bullish on being able to front and define the right ROCK inhibitor that we can put into the iDose vessel that will be a complementary combinatorial treatment with iDose in the future. I believe strongly that if we get this right that we'll see the use of iDose TR in combination with iRock in a number of patients with either a moderate to progressive open-angle glaucoma. So it's an exciting area. We are operating within the parameters where we have to find a compound that has really high resilience in terms of stability and really potent – a highly potent milli or nanomolar concentration ROCK inhibitor. That's why we're picking through a number of primary candidates. We'll find the right one, and we'll advance that. It will be multi-year. But when we have it, there will be, I think, an extraordinary addition to the glaucoma portfolio.

Next question from the line of Anthony Petrone with Jefferies.

Hi, good afternoon. I hope everyone is doing well. I have two quick ones in there based on channel checks we've done. First on iStent W, our understanding is that solution, the major feature there is surgeon ease of use. And so I'm wondering, a) how many iStent inject users have actually transitioned to W? And do you believe W will be market expansive on the surgeon adoption and because of ease of use? And then the second is on reimbursement coding. Our understanding is new coding for omni is allowing omni to be used with the MIGS stent implants, and that can go down the severity curve. And so, I'm just wondering how that's going to play out in the marketplace when you consider the additional reimbursement for surgeons. Thanks.

Anthony, this is Chris. Let me start with W. I think your channel checks are right. I think people do see the W has a big improvement over iStent inject. That is because of the flange being larger. That's the component that is visible within the angle of the eye. And with that that brings more predictability. What a lot of doctors maybe haven't told you in your channel checks is that we've also improved the insertion device itself and that is made for more predictability. So we feel like this has been a big advancement, and that the acceptance level of this product has been very high. And I do believe that this has helped us to recapture share and is helping to expand the market with this product. And to be clear, iStent inject W is replacing iStent inject. So right now in the U.S., the two choices are iStent and iStent inject W. Moving to your thoughts on omni, that is a visco delivery system. There are doctors who are utilizing this product in combination with trabecular bypass. This is a new trend. So it's complementary to what we have. Some people do it in stand-alone as well. But the concept there is that you expand the canal and then you place a trabecular bypass device in as well. So, two separate codes. They're able to be used in harmony with each other. We think that given all the advantages of iStent inject W, that it's the ideal trabecular bypass device to be utilized with this technology because of its predictability, its visibility, its efficacy and its superlative safety profile and perhaps even ease of use. So I think that addresses your question.

Yes, very much. Thank you very much. I will hop back in.

Yes, Anthony, I will go ahead.

Go ahead.

This is Tom. I'll just add a few things. One, I'd like to believe this is something we foresaw. So when we look at the NCCI edits, which precluded surgeons from using viscocanalostomy codes in conjunction with goniotomy, we presumed and thought that there'd be a natural pivot to using the viscocanalostomy device in conjunction with stents, in this case, the trabecular bypass stent. So wasn't lost on us. And so, I believe we've been pressured now. If you can see our development plan and product development plan, we now have iPrime under development. iPrime then you can fast forward and think about it in use in conjunction with iStent inject or iStent infinite to treat these patients. It gives us tremendous flexibility, either using a viscocanalostomy device or viscodilation device as a stand-alone treatment or in combination with a plethora of products that we have. It's extending our algorithm. And I think it's going to give us the ability to continue to generate robust growth within the glaucoma area in the future.

Very helpful. Thank you.

And your final question comes from the line of Steven Lichtman with Oppenheimer & Company.

Thank you. Hi, guys. Just a couple for me. Heading into 2020, you targeted 500-plus physicians train on MIGS. Obviously, COVID changed that. I am wondering where you round up coming in last year? And any goals you're willing to provide on physicians trained in 2021?

Hi, Steve. It's Joe. Yes, I think, first, with respect to the 2020 target, you're right. Obviously, COVID took a big chunk of that. I will say without getting too specific, we ultimately landed much closer to that number than I would have predicted back in the March, April, May timeframe. It really speaks to the commercial organization, the creativity that they engaged virtually in bringing forward a lot of physicians who had maybe a little lesser time on the hands and ultimately bringing it forward. So I think that we were encouraged by that. As you heard in the prepared remarks, we're very encouraged by the fourth quarter in particular, hopefully, the realization of the full year of work. And as we turn the corner to 2021, I think we're not giving a specific number. There's too many variables there in play with COVID and the like, but our guys continue to get increasing access, and hopefully, we can continue to drive that important market driver.

Great. And then just secondly, you're also heading into 2020, you had guided to your $300 million of OpEx spend, but you're able to keep that well under response to COVID. I know you mentioned that you're going to keep a close eye on OpEx spend given the variability in the marketplace. But is that still a place where we should -- a number we should be sort of targeting on a run rate when things get normalized? Is that – or have you found some underlying cost savings that and perhaps we'll get you back up that $300 million in the near future?

I think it's a fair question, Steve. The way I would think about that is $300 million represented obviously ex-COVID, where we saw that the business and our investment is trending that's based upon fundamentals, both in terms of our commercial infrastructure expansion as well as our R&D pipeline. So I think that still remains a pretty good bogey in terms of where the spending can go. Where we get between our current run rate and there has more to do, obviously, with the pace of recovery from a COVID standpoint as well as the normal things, right? I mean, any time you're trying to bring forward exciting new technologies from a – especially from a development standpoint, the pace in which some of those things click and where they increase their spending as you move into the clinic and things like that can really drive how close to get to the $300 million in the given point in time. But clearly, that's the direction that we're heading. And there's, as you know, been no significant change in our overall strategic plan and what we're trying to accomplish from an R&D standpoint.

Excellent. Thanks, Joe.

And I would now like to turn the call back over to Chris Lewis for closing remarks.

Okay. This is actually Tom. I want to thank all of you for your time and attention today. We hope and trust that everyone is staying safe, and I want to thank you for your continued interest in Glaukos Corporation. Good bye.

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