Welcome to Glaukos Corporation's First Quarter 2021 Financial Results Conference Call. A copy of the company's press release, issued after the market closed today, is available at www.glaukos.com or http://www.glaukos.com. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. This call is being recorded, and an archived replay will be available online in the Investor Relations section at www.glaukos.com, or http://www.glaukos.com. I will now turn the call over to Chris Lewis, Senior 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'll open the call to questions. To ensure ample time and opportunity to address everyone's questions, we request that you limit yourself to one question and one follow-up. If you still have additional questions, you may get back into the queue. Please note that all statements other than statements of historical facts made on this call that address activities, events, or developments we expect, believe, or anticipate will or may occur in the future are forward-looking statements. These include statements about our plans, objectives, strategies, and prospects regarding, among other things, our 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 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 their 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 a reconciliation of these measures to their most directly comparable GAAP financial measure. With that, I'll turn the call over to Glaukos President and CEO, Tom Burns.

Thank you, Chris. Good afternoon to everyone, and thank you for joining us today. We hope everyone is staying safe and doing well. As we pass the anniversary of the initial pandemic-related shutdowns and reflect on this past year that has challenged all of us in extraordinary ways. I am confident that we have evolved into a more efficient and stronger company, well positioned to advance our mission and execute our ambitious plans. We remain focused on our near-term execution as we drive new adoption and deeper penetration globally for transformative MIGS and ilink solutions. At the same time, this company is advancing novel platforms with the goal of disrupting conventional treatment paradigms, improving the existing standard of care, and enriching the lives and treatment alternatives for patients worldwide. We continue to invest in and advance our fulsome pipeline based on our core platforms, where we anticipate and are planning for a robust cadence of new product introductions over the coming years that have the potential to significantly expand our addressable market opportunities. 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. Today, Glaukos reported first quarter net sales of $68 million, up 23% versus the year-ago quarter. Joe will discuss our financial results and forward outlook in more detail later in the call, but I will begin that discussion here by providing an update on the continued commercial progress and the market conditions overall. Fueling our strong start to the year was solid execution on our key strategic initiatives across our Glaucoma and Corneal Health franchises globally. We have been pleased with the continued strong recovery trends in the market overall, and our business specifically, through the first quarter and…

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. Glaukos' global consolidated net sales for the first quarter of 2021 were $68 million, representing year-over-year growth of 23%. As a reminder, our sales were materially impacted in the last few weeks of the first quarter 2020, as COVID-related restrictions emerged. These results to start the year exceeded our expectations and reflect the continued recovery, despite ongoing COVID-19-related headwinds and associated volatility. With respect to the pandemic impact, we believe the underlying markets continue to face mid- to high single-digit headwinds throughout the first quarter, with a pronounced softness in February due to spiking COVID cases internationally, as well as by the vaccine rollout and severe winter weather dynamics here in the U.S., but the latter was followed by a healthy rebound domestically in March that continued in April. Now turning to our U.S. Glaucoma franchise specifically, our first quarter U.S. Glaucoma sales were approximately $39.9 million, representing year-over-year growth of 22%, which we believe reflects a combination of pandemic-related dynamics, a stable competitive landscape and pricing environment, and underlying seasonality trends. Internationally, our Glaucoma franchise delivered first quarter sales of approximately $13.8 million, representing year-over-year growth of 20%. This performance reflects growing demand in many key markets and favorable foreign exchange tailwinds, which were offset by the ongoing pandemic impact in certain markets and a onetime catch-up provision associated with government rebates in France. The performance in the quarter was led by our Asia-Pacific region, including Japan and Australia,…

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 3 years, we expect to have several 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-released pharmaceutical platforms. 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. So, with that, I'll open the call to questions. Operator.

[Operator Instructions]. We have our first question from Brian Weinstein from William Blair.

This is Griffin on for Brian. Just the first one here, on the deferred cataract surgeries from the pandemic, how should we think about the pacing of churning through that backlog and the magnitude of the tailwinds there?

Sure. Griffin, it's Joe. I'll start off, and if Chris wants to add any color, he can. So clearly, we've talked about for a while here the generation of or generating a backlog for many practices throughout the country and world. I think as we look forward and think about this, I think the actual playing out of that backlog will be more elongated. You have to take into consideration the actual operating dynamics for most of these accounts, where there are still only so many surgeons in so many hours and a day for them to be providing procedures. So I think as they work their way through it, it should be a tailwind for the overall market, but one that's perceived over many quarters versus many months.

Okay. And then just one more. Can you revisit the investments that you're going to need to commercialize some more of these high-profile products in your pipeline? Maybe how are you preparing for regulatory and reimbursement considerations there?

So, as we think about prioritizing the commercial investments associated with our pipeline, there's a lot of planning going on. We've talked about, I think, historically, each one is a little bit different. As we think about products like iDose and Epi-On, obviously, those are highly synergistic with the commercial infrastructure that we have today. And so, while we would foresee incremental investments there, whether it be, as you mentioned, market access reimbursement, marketing, or to a certain extent, the commercial infrastructure, those are highly synergistic with what we have. And as we continue to sort of go beyond that, and as Tom talked about some of the other earlier-stage programs we have, like the transdermal drug delivery platform, at that point, you start thinking about larger-scale investments in the broader infrastructure to support an opportunity like that on the pharmaceutical side.

Understood. And just one more quick one on Epi-On. Can you talk about how you think about segmenting the market between Epi-On and Epi-Off? And do you anticipate the need of a separate reimbursement code for Epi-On? So maybe what does that look like and timing there?

Yes, Griffin, I'm happy to address that. This is Tom. And so, as I said before, I think our positioning could follow in the line much like we do in Glaucoma, which is position according to disease stage severity. So, when we're looking at Epi-On, we may position that for more earlier invention patients, and with Epi-Off, we may position that for later-stage or more progressive keratoconus patients. We don't have any direct comparisons between the two procedures, but it is our conceptual belief that Epi-Off probably delivers more of a reduction in Kmax versus the Epi-On procedure. And so thus, I think physicians will see it the same way, and we think they'll want to carry both of these different procedures into the marketplace to best serve patients. With regards to how we seek reimbursements, I would just say we have no obligation either way, but we can choose to create a separate J-code for Epi-On, if we choose to do so. Those decisions are under consideration, and I'll advise you once I feel that I'm making the appropriate decision for investors.

We have our next question from Matt O'Brien from Piper Sandler.

This is Drew on for Matt. I just wanted to start off a little bit on the performance of the business as of late. Maybe you could kind of help us understand what you're seeing on the ground as far as what percentages of your customers are open back up to capacity, maybe exit rates March into April, if you're willing to provide. And then, second part is a bit of a clarification. You mentioned that you expect your markets to kind of normalize to 2019 levels. Your Glaucoma business was about a $230 million business in '19, so should I interpret that comment to mean that you expect that level of sales in '21, or should we anticipate a little growth off of that?

Drew, this is Chris. I'll handle the first part. In terms of physicians' offices being open and ambulatory surgery centers and facilities, in the U.S., I would say that they're all open to different degrees. There's still a restraint on how many patients can come into the practice, still some headwinds in terms of how reps are able to get into these practices, and even into the OR, but that is definitely loosening up. As you look across the globe, you do see different scenarios. Here recently in France and Germany, things were really shut down because of the second wave and -- or third wave and spike in COVID cases, and so patients are being restricted, as well as reps, into the practices and offices. Some of that has also occurred in Japan. All in all, it continues to get better. But on a global basis, there's still a headwind from these COVID-related issues.

Okay. Then I'll take the second part of your question. First, on exit rates, building upon what Chris was saying, I think for us, the U.S. Glaucoma franchise, as well as Corneal Health, in particular, saw a very strong sequential improvement from what I'll call a lull in February through into March, and then again into April, so good trend lines there. The international Glaucoma business is a bit more mixed for all the reasons that Chris was just saying. I think in the Asia-Pacific region, we've seen strong trending, both in the fourth quarter of last year, but then again in the first quarter, and that's really continued. While on the opposite side of that spectrum, we've seen the Latin America, Brazil, et cetera, markets continue to struggle with COVID and the related dynamics, and that continued through the first quarter and has continued really through the month of April. Meanwhile, in Europe, you see relatively mixed results, where we saw a degree of recovery in the fourth quarter, but it's really been somewhat muted since that point, as some markets have moved forward and other markets has taken a step back as they handle this third or fourth wave of COVID, depending on how you look at it. As it relates to the 2019 comparison and we talk about markets getting back to more normalized levels relative to 2019, you referenced, obviously, our results for the full year. We're talking about those trends getting back to that level in the second half. And to get any more precise than that, I think, would be a little bit difficult at this stage.

Okay. That's super helpful. And then can you just remind us or give us an update on the CPT coding process, where you sit with the Category I transition and then the Cat 3s for stand-alone and iDose? And then, as far as pricing of those codes, can you just remind us of the steps of that process and what your expectations are for some of those new codes, or where some of those new codes will be priced maybe relative to your current iStent business today?

Yes, Drew, I'll be happy to take that one. So let's first step back and remind ourselves how favorable the AMA CPT committee was for the business, and this occurred in October of last year. A couple of major favorable developments came out of that. First of all, the creation of the committee of a Category III stand-alone code for iStent inject, and then a separate creation of a Category III code for iDose. And these are two major seminal events that we were seeking for some time, and we were able to secure those codes. And once we have those codes in place, we are then able to really kind of aggressively pursue reimbursement at the carrier level for both of those, and I can discuss that a little bit later how we will do that. Second major development, by combining those two codes together, this gives us a tremendous opportunity for our vision in the future of using iDose in combination with the trabecular bypass prosthetic procedure, which I think will become the norm for patients with more moderate to progressive glaucoma. So that sanctions and gives us the ability to move forward. The third major event that came out of that meeting was the movement from the committee to transition the Category III 0191T code into a transitional code that would combine both cataract surgery and the implantation of a trabecular bypass device. And so, as we said, just to give you a status update on the professional fee side, the new Category I CPT code is referred to the AMA RVS update committee, the RUC committee, to conduct physician surveys in order to assign a relative value unit scale and into a professional fee calculation. So that survey, to our knowledge, is going on as we…

We have our next question from Robbie Marcus from JPMorgan.

This is actually Alan on for Robbie. So I just had one quick question on kind of the quarterly cadence and then another quick follow-up. Looking at your guidance for second quarter, it looks like you're not guiding towards growth over 2019 levels, roughly in line with what you did in 1Q, even though, as you said, 1Q kind of had headwinds to both domestic and international. And in the second quarter, hopefully, U.S. continues to improve, even if OUS remains a bit impaired. So I guess what's driving -- obviously, is prudent to remain conservative, but is there anything specific that you would call out there that is driving that conservatism? Or is it just normal COVID-19 caution?

Yes. Thanks, Alan. It's Joe. I think a little bit of both. I mean, the reality is, we've seen positive trend lines at least once before during this pandemic as we went into, call it the October time frame at the beginning of the fourth quarter, only to see some, obviously, setbacks, as another wave of COVID kind of took over here in the U.S. as well as internationally. So, as we continue to navigate the dynamics and watch some of the hotspots with emerging variants and the like, I think it does make sense to still be a little bit on the cautious side. I think the second dynamic that we're trying to factor in, you'll recall, with seasonality in our business, one of the aspects over the course of the middle part of the year is just summer holiday season, both here as well as in some of the international markets. And as I think we all come out of this long COVID stretch, I think it's our expectation that people are going to take some time off, and that could cause a little bit of disruption relative to traditional trends as we get later into the quarter.

Got it. And then just a quick follow-up on iDose. It's really nice to hear that you finished enrolling the first trial, that you plan to finish enrolling a second trial pretty soon. But when -- like should we expect to see top line 3-month efficacy data? Or should we, kind of similar to the Phase II trial, wait just to see the full year like in 2022?

Yes. So, Al, we haven't committed either way, but I will tell you that I think I would be more inclined to show the 3-month data when we have locked it, and we've analyzed it to show that to investors, rather than waiting for the 12-month data. And I think as well, I'd be inclined to show the 3-year data from the Phase IIb study, because I think that will be important when we start to gauge the longetivity of this device, which has really far exceeded our initial expectations. So I won't give you timing, but I will tell you that that's my inclination, so investors have a full view of the performance and commercial capability of the iDose product.

Next is John Block from Stifel.

This is Trevor on for John. I just wanted to dig into the recent trend commentary that you laid out a little bit closer. So, in the fourth quarter, you mentioned some patients were electing to defer procedures just in the context of the pending vaccinations that we're going to roll out. So could you maybe give us an update on how that trend has played out in the first quarter, just as a lot of people, especially in the older demographics, have become vaccinated at this point, and how does that -- how has that played into some of the trends that you saw across February, March, and April? And if you could quantify that at all, that would be great.

Trevor, it's Joe. Yes, when we made that comment, I think it was on the fourth quarter call, it was less with respect to the fourth quarter performance and more about what we were seeing in the month of February. So clearly, in particular, in markets where the vaccination efforts hit full steam out of the gate -- the U.S., the U.K., et cetera -- we experienced a bit of a pause where it's our belief that many patients decide to wait until they are fully vaccinated to go in and get their procedures. And so, that certainly was a factor in February. It's hard to separate that versus some of the other things we saw in that month, which was pretty extreme winter weather, as you will recall, throughout the South and in the Northeast here in the United States in particular. But those two things definitely led to a pronounced softness in that month, and we've thankfully seen a nice recovery from that point, both in March and then again in April.

Okay. Great. And then maybe just a follow-up on iPRIME. Could you give us any comments on how you intend to position that in the market? Is it going to be something that you'd bundle with another device, or would you sort of stand on its own?

Trevor, this is Chris. And we hadn't really disclosed that. We're excited about having yet another product in our bag. We see this as -- potentially as a stand-alone as well as complementary to our trabecular bypass products. Anytime you have a multitude of options, it always puts you in a good position in terms of negotiating pricing contracts with ASCs and hospitals.

Next is Ravi Misra from Berenberg Capital Management.

Devin for Ravi for the Berenberg team here. I wanted to ask you, in regards to the COVID normalization and surgeon training, how do you see that playing out in second half of '21? Is that kind of in line with the rest the business and opening up, or do you see that kind of bifurcating between global and U.S.

Yes, this is Chris, and we haven't disclosed any specific numbers around physicians trained. What I will say is that things have definitely started to open up. We're pleased with where we were in the first quarter. And with the introduction and excitement around iStent inject W, we continue to train physicians, and we would expect to do so on a go-forward basis.

And I think with respect to your portion of the question on international versus the U.S., obviously, it's an important driver for our business, regardless of the geography. And we continue to train doctors worldwide.

Okay, great. And one quick follow-up to that. In regards to expansionary, I think you mentioned restoring expansionary spending in 2021. Is that -- trying to get some color where sales force expansion falls into that when you look at the new product line -- for example, iDose CR and the pharmaceutical aspect there. How far ahead does kind of the expansion start when you look at the commercialization? Is that a year ahead, a few quarters ahead? Just trying to get an idea of cadence there.

Yes, it's Joe. Chris, if you want to add something, you can. I think it's not in 2021. With respect to the way you asked the question on iDose, that's not a significant 2021 spend, other than all the things that you would imagine we're doing around health economics and market access and reimbursement well in advance. From a commercial infrastructure standpoint, that's not something that we would -- we'd end up spending much in 2021. As you start getting into 2022 and transition to 2023, you'd expect a gradual uptick there, as you begin to prepare for commercialization and launch, both from a marketing standpoint as well as commercial infrastructure.

The only thing I'd like to add to that is, there'll be a good amount of leverage with our existing sales organization for iDose. I know it's a pharmaceutical product, but remember that this will be implanted either in a physician's suite or in an ASC or hospital, and so there'll be a component that will -- or excuse me, they'll be -- we'll be utilizing our existing sales organization to a large part.

Next is Anthony Petrone from Jefferies.

This is Briana on for Anthony. I have two questions, and I'll ask them upfront. Is the Ivantis case trial still on track for October, is my first question. And then second is a follow-up to some of the reimbursement questions that were asked. So, with iStent physician fee code changing from Category III to Category I, do you expect the stock to be sensitive to what CMS proposes for the new physician payment levels? And then, if so, how much do you think the stock would move on these payment levels that are plus or minus 20% from the status quo in the $900 to $1,300 range?

Well, Briana, I'll take your first question, and that's regards to the Ivantis trial. The -- where the trial jurisdiction will be is Santa Ana, which is in Southern California, and they in Santa Ana, have indicated that they're opening up trials in May in both civil and criminal proceedings. And so, it's our expectation at this standpoint that we would have the trial and the trial would commence in late September. That's how we're preparing. And we remain fully confident of our position, based upon a multitude of motions that have been favorably resolved in our favor. So that's our position at this time. We'll keep investors posted if there's any changes.

And then, Briana, it's Joe. I'll try to take a stab at the second part of that question. Obviously, I wouldn't make predictions with respect to stock price movements on anything related to our business. But what I can say is, as you think about the Category I code conversion and the physician fee that you asked about, clearly, we have some experience here. If you think back to the dynamics around the Noridian region that really took hold, I believe, in the middle part of 2017 and only recently had some recovery in that physician fee. And at the time, we told investors to expect that while we didn't welcome that pullback in the physician fee, that what we were seeing was a modest headwind to growth as it related to that, but not a significant impact to the net underlying demand. And so here, I think that's something people will have to take into consideration as they think about any movement around the physician fee later this year.

The only thing I'll add to this, that -- this is Chris -- is that trabecular bypass is becoming more of a standard of care, and as such, more and more physicians are doing it, more and more patients are asking for it, and so I think that plays into it as well.

We have our next question from Steven Lichtman from Oppenheimer.

This is David on for Steve. Just starting off with the iStent infinite slated to launch towards the end of this year, could you maybe just refresh us on your initial market assumptions, reimbursement efforts, and any commercial scale or investments necessary ahead of that launch?

Yes. I'll take the first part of this. This is Chris. So we're hoping for approval by the end of the year. We would launch shortly thereafter. It will come out as a Category III. We're expecting the code or the Category III designation in January, similar to what we did with iStent when that was approved in 2012. But we will be working with all the MACs and commercial payers to get a fulsome reimbursement, both for the facility fee and for the physician fee. It will be likely to be -- have a label that is approved for advanced glaucoma, and that's how it will be positioned by our organization. So I would see that that will start as a slow ramp up and will continue to grow over time as we get more payment from these organizations.

I think from a market size standpoint, I would just add that out of the gate, we see it as a couple of hundred thousand, call it 200,000 potential procedures a year in the United States, larger than that on a global basis. And over time, from a market development standpoint, we hope to expand that. And I've said in the past that that could ultimately be as large as, let's call it, 0.5 million procedures a year in the United States, depending upon how that market evolves.

Great. That's helpful. And then just one more on the Corneal Health business. You guys posted another strong quarter here, and just curious, can you talk about maybe what's been driving the growth there? Is that more a function of greater utilization within existing accounts or expanded installed base?

Yes, this is Chris. I would say it's a whole lot of things. It is both. It's expansion within existing accounts. It's new starts. It's the training of ODs and physicians around identifying keratoconic patients. It's the implementation of customer-friendly programs making it easier for them to acquire the equipment. It's the fact that we've done a lot of work in reimbursement to ensure that payment is fulsome and consistent. There's a whole lot of things -- and good direct-to-consumer campaigns. There's a whole plethora of initiatives that we put in place that I think is driving that number.

No further questions at this time. I turn the call back over to the company.

Okay, so with that, I want to thank all of you for your time and attention today. We hope everyone is staying safe, and thank you for your continued interest in Glaukos. Goodbye. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.