Glaukos - Q4 2023

Transcript

Operator (participant)

Welcome to the Glaukos Corporation's fourth quarter and full year 2023 financial results conference call. Copies of the company's press release and quarterly summary document, both issued after the market closed today, are available at www.glaukos.com. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. 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, Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Chris Lewis (VP of Investor Relations and Corporate Affairs)

Thank you, and good afternoon. Joining me today are Glaukos Chairman and CEO Tom Burns, President and COO Joe Gilliam, and CFO Alex Thurman. Similar to prior quarters, the company has posted a document on its investor relations website under the Financials and Filings quarterly results section titled Quarterly Summary. This document is designed to provide the investment community with a summarized and easily accessible reference document that details the key facts associated with the quarter, the state of the company's business objectives and strategies, and any forward statements or guidance we may make. This document is designed to be read by investors before the regularly scheduled quarterly conference call. As such, for this call, we will make brief prepared remarks and transition into a question-and-answer session. 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, products, pipeline technologies, and clinical trials, U.S. and international commercialization, market development efforts, the efficacy of our current and future products, competitive market position, regulatory strategies and reimbursement for our products, financial condition and results of operations, as well as the expected impact of general macroeconomic conditions, including foreign currency fluctuations 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 investor 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's ongoing results of operations, particularly when comparing underlying results from period to period.

Please refer to the tables and our earnings press release available in the investor relations 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 Chairman and CEO Tom Burns.

Thomas W. Burns (Chairman and CEO)

Okay. Thank you, Chris. Good afternoon and thank you all for joining us today. Glaukos reported today record fourth quarter consolidated net sales of $82.4 million, up 16% on a reported basis and 15% on a constant currency basis versus the year-ago quarter. For the full year 2023, consolidated net sales of nearly $315 million grew 11% on a reported basis and 12% on a constant currency basis versus 2022. We are also reaffirming our full year 2024 net sales guidance range of $350-$360 million. These record results, which further exceeded our preliminary pre-announcement from early January, were driven by broad-based double-digit growth across our glaucoma and corneal health franchises globally.

Our strong fourth quarter performance caps off a successful year of execution, both from a commercial and development perspective, leaving us ideally positioned as we enter into what should be a transformative period for our company in the years to come. From a commercial perspective, strong execution of key strategies within each of our core franchises drove the solid performance. Within our U.S. glaucoma franchise, we delivered sales of $38.7 million on growth of 10% year-over-year, driven primarily by the continued commercial rollout of iStent infinite. Market receptivity and adoption of iStent infinite remained strong, with surgeon feedback most commonly highlighting the benefits of its three-stent solution, favorable safety profile, and streamlined injector system. Alongside our commercial efforts, we also continue to advance key market access initiatives for iStent infinite, with all MACs covering on a case-by-case basis, including two with LCAs in place.

We will continue to monitor the various MAC processes and policies as we remain supportive of expanding broad access to interventional glaucoma tools for physicians and for patients. Moving on, our international glaucoma franchise delivered sales of $21.9 million on strong year-over-year growth of 25% on a reported basis and 23% on a constant currency basis. This strong growth was once again broad-based as we continue to scale our international infrastructure and execute our plans to drive MACs forward as the standard of care in each region and every major market in the world. And finally, our corneal health franchise delivered record sales of $21.8 million on 19% year-over-year growth, including Photrexa record sales of $19.2 million on a year-over-year growth of 26%, as our key initiatives continue to take hold in support of this important business. Shifting gears to the development front.

As you know, during the fourth quarter, we were delighted to announce FDA approval of iDose TR, a revolutionary microinvasive injectable therapy designed to lower intraocular pressure in patients with open-angle glaucoma or ocular hypertension. iDose TR is a first of its kind intracameral procedural pharmaceutical designed to deliver glaucoma drug therapy for up to three years. Following approval, our teams have been hard at work executing the initial phases of our detailed, coordinated launch plan. In conjunction with these efforts, we're pleased to announce that just last week, multiple surgeons successfully completed their first commercial cases of iDose TR. We're happy to report all of these cases went extremely well, and early feedback from the small group of surgeons has been very positive. Looking ahead, we plan to continue advancing a methodical controlled launch over the first half of 2024 with a primary focus on surgeon training and establishing market access.

As we refine and optimize our training and skill transfer to our salesforce and surgical community, we will continue to expand our training and broader launch efforts over the course of 2024. We are in a powerful position to leverage our established best-in-class glaucoma salesforce and commercial organization to drive the iDose launch. Speaking of which, earlier this month, we held our global sales meetings where most of the focus here in the U.S. was on iStent infinite and iDose TR. It was evident throughout the productive meeting that our glaucoma salesforce is excited and prepared to execute our plan. Alongside that, we are progressing several market access reimbursement initiatives designed to drive fulsome coverage and payment for the iDose TR procedural pharmaceutical over time.

On that front, first, we successfully submitted our permanent J-code application in late December, which should allow for it to become effective in the second half of 2024 based on the CMS cycle for J-codes. Until then, we are launching iDose TR with a temporary miscellaneous C-code and anticipate measured adoption over this initial period until the permanent J-code is in place and we've expanded our surgeon training initiatives. Next, we are working to establish payment for the new Category III code 0660T that will cover the procedural component of iDose TR. This includes the establishment of a facility fee through an APC classification from CMS, which we expect to become effective April 1st. We will also be working with MACs to secure professional fee coverage and payment over the course of 2024. Finally, our iDose TR commercial launch will be supported by a robust set of peer-reviewed literature.

During the fourth quarter, the first iDose TR publication was published in the journal Drugs and summarizes the Phase 2b three-year outcomes. More recently, another iDose TR manuscript published in Ophthalmology and Therapy highlighted favorable Phase 3 12-month results. Looking ahead, there are an additional 10 articles to be published, planned to be published in leading journals, including a manuscript that was just accepted by Ophthalmology, which highlights iDose TR's Phase 3 3-month results. So to summarize, the response we received from surgeons in the broader ophthalmic community since we announced FDA approval for iDose TR has been overwhelmingly positive and reaffirms our view that with the launch of iDose TR, we are pioneering a brand new category of procedural pharmaceuticals that has the potential to reshape glaucoma management as we know it today.

We are excited to now be in the initial phases of bringing this transformative technology to market and in doing so, expanding the treatment alternatives for patients suffering with glaucoma and ocular hypertension. Beyond iDose, we continue to prudently invest in and successfully advance our robust pipeline of novel, promising platform technologies that we believe have the abilities to significantly expand our addressable markets and fundamentally transform our company over time. This includes Epioxa, our next-generation corneal cross-linking therapy for which we continue to progress towards trial completion in the second Phase 3 pivotal study and remain on track for data readout in the second half of this year, supporting our targeted NDA submission by the end of 2024.

In terms of our earlier stage pipeline, we commenced three new clinical trials during the fourth quarter of 2023, including one, a PMA clinical trial for iStent infinite in mild to moderate glaucoma patients, two, a Phase 2a study for iLution travoprost, and three, a first-in-human clinical development program for GLK-401, our intravitreal multikinase inhibitor retinal program in wet AMD patients. In 2024, we will continue to drive our robust pipeline forward with additional plans, which include commencing a U.S. IDE trial for the PreserFlo MicroShunt, commencing a Phase 3 study for iDose TREX, our next-generation iDose therapy, and finally completing enrollment in our Phase 2 trials for our iLink third-generation therapy. So as you can see, we have a lot to be excited about when it comes to the significant potential value that we believe our pipeline programs may create.

At the same time, as we've discussed, we continue to prioritize the cadence of our investments as we strive to strike the right balance of risk-based spending and our capital position now and in the future. In conclusion, I think it's fitting to remind you of our company mantra, "We'll go first," which for us is more than just a company tagline. Rather, it's something that defines who we are as an organization and how we lead every day. We are ready to deliver in 2024 and beyond as we execute our commercial launch plans for iDose TR along with iStent infinite. Our foundation is strong, and we are ideally positioned to continue transforming vision for the benefit of patients worldwide. With that, I'll open the call to questions. Operator.

Operator (participant)

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We'll go first to Tom Stephan at Stifel.

Thomas Stephan (VP of Healthcare Equity Research)

Great. Hey, guys. Thanks for the questions. Maybe I'll start with guidance. Joe or Alex, any framework you can provide on how much of iDose is factored into 2024 guidance? And then also, what are some of the key inputs supporting that outlook?

Joseph E. Gilliam (President and COO)

Sure. Hey, Tom. It's Joe. I'll start off. Alex will add some color he can. Maybe first, I'll just start from a macro perspective on the guidance itself. I mean, obviously, we were pleased to see the business continue to deliver and the momentum as we exited 2023. We're entering 2024. I think that the guidance we established overall really implies another year of accelerating growth as we focus on putting in place really the foundational building blocks that we believe will enable the next really decade of growth for our company. I said this, I think, on one of the calls either around the investor conference earlier this year or in December when we first gave guidance. There are a variety of scenarios and drivers for our business in 2024, and even within the U.S. glaucoma franchise, of which iDose is really one of those.

So I certainly acknowledge and respect the importance of trying to dive a little bit deeper on the specificity around the numbers associated with iDose. I think it's a little early to get too granular there. Clearly, it's going to be an increasingly material driver as we make our way through the year and certainly as we enter 2025. At some point here in the coming quarters, we'll provide additional disclosure on the actual revenues of iDose as we really transition from, as Tom said, the early access phase into a full launch.

Thomas Stephan (VP of Healthcare Equity Research)

Got it. Makes sense. That's fair. And then just on the iDose label, now it's only been a couple of months since approval, but Tom, any updates on the label as it relates to single administration? Have you been able to gather, I guess, any additional color from FDA on their decision? And then maybe more importantly, what the path forward for Glaukos is from here in that regards. Thanks for taking the questions.

Thomas W. Burns (Chairman and CEO)

Yeah, Tom, I'd be happy to answer it. And so let me first say that we're poised for success today given the current label. Even with the current limitation and all our channel checks with our clinicians and surgeons, we see no impediment to the appetite for the use of the iDose product. And so that's very encouraging. But to answer your question directly, we're in the process of re-petitioning to the FDA for readministration of the iDose device. And as you're probably aware, within CDER right now, the drug division, there's a changing of the guard. And so we're waiting for that transition to happen and the dust to settle. And then we'll put our petition before that court. And we're hopeful for a successful conclusion.

In the event that we're not, remember that we already have iDose TREX, which again contains approximately twice the amount of medication of the iDose TR that's planned to enter a clinical trial by the end of the year. And so by our best thinking, we're targeting a commercial approval for that product in 2028. So if you think about it, that iDose TREX could become the next reimplantation product for our current iDose products and initiatives. So I feel like we're covered in all respects. I feel good about our path forward. We're hopeful to be successful on resubmitting to the FDA. We have a sophisticated argument to make to them. But having said that, we're covered in either event.

Thomas Stephan (VP of Healthcare Equity Research)

Very helpful. Thanks, Tom.

Thomas W. Burns (Chairman and CEO)

You're welcome. Thanks, Tom.

Operator (participant)

We'll go next to Ryan Zimmerman at BTIG.

Ryan Zimmerman (Managing Director and Medical Technology Analyst)

All right. I'm going to try and ask a similar question on iDose in a different way and press my luck here a little bit. But when you talk about the controlled launch, guys, what does that mean? How many surgeons are you trying to get comfortable with in iDose? At what point do you transition to a broader launch regardless of maybe the reimbursement milestones that are up ahead? Just to help us kind of frame how much experience you're looking for with iDose initially.

Joseph E. Gilliam (President and COO)

Hey, Ryan. It's Joe. We'll try not to have you hit a whammy here. But I will give you a little bit of color around kind of where we're at and where we're going. Hopefully, it's consistent with what we talked about during the original approval call. Right now, we're officially in the early access phase of the launch. And the great news is, Tom mentioned in the prepared remarks, we now have the first procedures having been completed last week as a part of that. That's a big step. Organizationally, we're through our national sales meeting. We've begun that early access phase with a handful of docs. And I think it's important to note that it is limited in scope.

The goal of that early access phase is really designed to help us refine our training algorithms and establish confidence within our sales force and iron out any early market access challenges that inevitably come with a product launch like this. We will transition in the coming months to a broader launch. Like we've said in the past, that really goes from crawling to walking to jogging to running. The objective there is that as we move into those early launch phases, that we've got all of our reps out starting with their starter cases, training one, maybe two doctors at the beginning. Then as they continue to refine their algorithms and their experience, we'll open that up more broadly as we get into the second half. It clearly, as we've said before, starts to hit a stride as you get into the fourth quarter.

That's by design because that also happens to match up with where you expect the market access side of the equation to start to provide a little bit more clean path forward too as you've got a fully established J-code, a published ASP, and all the things that come alongside that. So it really will be a somewhat, I'll call it, linear release, if you will, of our efforts between now and that fourth quarter time frame where we hope to start really running as we then sprint into 2025.

Ryan Zimmerman (Managing Director and Medical Technology Analyst)

Okay. Second question for me, turning to iStent infinite. You guys are going to pursue a label expansion in mild to moderate patients. How much of that how much is that a gating factor, do you think, to adoption in current usage of iStent infinite when you think about how it's being used today, where it can go? And maybe kind of talk about it in the context of both combo cataract and also standalone as you pursue that label.

Thomas W. Burns (Chairman and CEO)

Yeah, Ryan. I'm happy to address that. So first of all, let's talk about the study itself. So we're going to do a multi-center prospective study, which will be looking at mean diurnal IOP reduction of greater than 20% from baseline in 12 months with a prespecified endpoint that we've negotiated with the FDA. And so we feel like we're in a competent position of targeting approval at the tail end of this clinical trial given the demonstrable performance we've had with the product to date. I think when we look at the marketplace and the TAM serially, we know that the current marketplace for patients who failed on surgical medical therapy, we're estimating at about 200,000 patients, right?

When we expand and we look at going to mild to moderate patients, we believe by our estimations that we'll be looking at additional 400,000-500,000 patients that we would be covering by doing so. That in and of itself gives an expression of how we intend to expand the market. I think the product will be used equally. I think as we get the approvals, I think there'll be a strong initiative as we move forward with interventional glaucoma where people will start to feel strong confidence in using this in standalone cases. Certainly, our upgrade to 5493 on the APC side doesn't hurt us as a financial incentive for surgeons to be doing the right therapy for their patients.

I think as well, on the combo cataract side, it makes sense, particularly when we have a broad label, that surgeons will feel very comfortable down to the very early innings of glaucoma in using this product in combination with cataract surgery. Why wouldn't you? You have 3 stents versus 2 stents in this case, and we showed demonstrable additive effect with those different products. So I feel like that's the way this will come on. And one of the things that I feel very strongly about is that over time, surgeons will begin to use iStent infinite in conjunction with iDose. And so why do I say that? Because iStent infinite is showing a strong ability to reestablish physiologic outflow through the trabecular meshwork. iDose works on a different part of the eye, the uveoscleral system.

And so using these products in combination should provide a very robust combinatorial paired procedure therapy for surgeons as they move forward. And we think that within the Medicare fee-for-service system, there's going to be no impediments. There's two separate CPT codes, different mechanisms of action, and these are different product classes. And when you think about it, 50% of patients right now that use topical meds are on two or more medications. So combination therapy rules half of the current identified diagnosed glaucoma patients. And so we think that this will be an extraordinary opportunity in combination therapy. As we get into commercial payers and Medicare Advantage, there'll be some restrictions just like there is with standalone treatments with Infinite and with iDose. But we're highly encouraged.

I love the double whammy of having both these harbingers and catalysts giving us the fulcrum to create the interventional glaucoma market space.

Ryan Zimmerman (Managing Director and Medical Technology Analyst)

Thanks, Tom. Thank you for taking the question.

Thomas W. Burns (Chairman and CEO)

Okay. Thanks, Ryan.

Operator (participant)

We'll take our next question from Larry Biegelsen at Wells Fargo.

Lawrence Biegelsen (Senior Analyst)

Hey, guys. Thanks for taking the question. Tom, starting off on iDose, obviously, the ASP got a lot of attention when you announced it. I'd love to hear from you the reaction from any payers or physicians and your confidence that you've priced this right. And just secondly, your confidence that the surgeon fee is going to be is it going to be adequate? And I had one follow-up.

Thomas W. Burns (Chairman and CEO)

Yeah, I'd be happy to address that, Larry. So as you know, we did our homework over the last couple of years. We've done multiple pharmacoeconomic different approaches to the treatment of glaucoma using the iDose therapy. We've done Markov transition probability analysis. We met with payer groups. We licensed and looked at an external group to be able to go out to payers and pre-talk about the pricing of this product, although we didn't disclose what product it was, but we talked about the nature of the attributes. And so the short answer to your question is, once we look at and show surgeons where this procedural pharmaceutical lines up given the other procedural pharmaceuticals that have been available and codified within ophthalmology, this squares out very well, somewhere in the median of those products.

As you know, Retisert, which is a three-year steroid implant used for the treatment of uveitis, costs on the order of $18,000-$19,000. We know that Durysta is roughly $2,000 for a 3-4 month therapy. And when you extrapolate and you start to look at that over a 3-year period, you start to get quite comfortable that we were, I hope, pressured in how we priced the product. So having said all that, the response of surgeons, I think, has been fulsome, has been understanding. I don't see that as an impediment at all as we move forward. I think we're going to have open field running with Medicare fee-for-service. I think as we get into commercial and Medicare Advantage patients, certainly, they will do the same thing they did with Durysta, have some edits before you're using this product.

But I don't anticipate any impediments to utilization versus where we price the product. I think we hit it right where we should have.

Lawrence Biegelsen (Senior Analyst)

And the surgeon fee being adequate, and I'll just ask my follow-up. What happens next with the MIGS LCD, or what's the assumption in the guidance? What are you assuming for iStent infinite? Case by case is not probably what ideal for you. And is there any turbulence in the market still from the noise from this LCD? Thanks.

Thomas W. Burns (Chairman and CEO)

Well, let me address I didn't address your second question on Pro fee, so let me do so before I turn it over to Joe. If we look at what's happening with iStent infinite, which is a very light procedure, and we see at WPS and First Coast, at least the first numbers are coming in. It's certainly greater than $600. And we know that cataract surgery right now, average national payment is about $525. I think we're going to, and I'd like to believe, we're going to settle somewhere in that range. Some of the ranges have been as high as $1,000 in the early innings for iStent infinite. And so as different MACs start to look at this procedure, I think they're going to start to crosswalk this over pretty similarly to what we see with iStent infinite.

I wanted to answer your question before I turn it over to Joe.

Joseph E. Gilliam (President and COO)

Larry, on the LCD front, I think this is one of those scenarios, obviously, that we assess as we set the overall guidance. There's a range of outcomes there, perhaps certainly less material than iDose as you think about the drivers for 2024. But in general, I think it's at this point largely status quo, at least for now, with perhaps an overlay of being cautious at the account level until more definitive clarity is established. The next steps and the timing for MAC policy changes remains unclear at this point, but we do expect to hear from them again. In that regard, our priorities really remain unchanged. We're focused on protecting the rights of our customers that make clinical decisions on behalf of their sight-threatened patients. But at this stage, we're in the wait-and-see game too to determine where the MACs go next.

Lawrence Biegelsen (Senior Analyst)

Thanks a lot.

Operator (participant)

We'll go next to Matthew O'Brien at Piper Sandler.

Matthew O'Brien (Senior Research Analyst)

Good afternoon. Thanks for taking the questions. The Street's modeling for iDose is about $27-$28 million this year. Is that number a good number, too high, too low in your opinion? Then those first cases, were they bilateral or single-eye cases? Then I do have a follow-up.

Joseph E. Gilliam (President and COO)

Sorry. Matt, can you repeat that second part of the question? Oh, single-eye. Yeah, bilateral, single-eye. Yeah. So I'll start with that. They were all single-eye cases at the start here, which is what you'd expect as a part of the iDose launch. As it relates to the iDose number, I'll stop short of commenting specifically on where the Street's guidance is at. Maybe what I will do is provide a little bit more color and context around the franchises and their drivers of our overall guidance. I mean, clearly, the U.S. glaucoma franchise moves front and center to why you guys are focused on that and asking questions around iDose. Our focus there is going to continue to be driving forward first, the interventional glaucoma mindset, and within that, trying to establish iStent infinite and then driving the training and market access and early adoption with iDose.

Internationally, the business continues to scale as you saw in the fourth quarter. With that can come some market access headwinds as government payers really seek to limit expenditures as you scale. Most recently, we've seen that emerge in Switzerland, for example. We'll see it elsewhere. We've seen it in the past, and we'll continue to experience that. In parallel, we expect to see continued efforts by competition in those markets and probably even a little bit of currency headwind as we sit here today going into the year. And on the corneal side, while we were very pleased with the growing momentum we saw in the fourth quarter, we'll probably face some new headwinds in 2024. As some of you may be aware, the $0 floor for Medicaid rebates expired on December 31st. And with that, we're going to see some incremental government rebating on a year-over-year basis.

We'll probably also see some continued device-related selling headwinds as Epioxa gets increasingly in focus for both our customers and our salesforce. If you think about that, Matt, directionally, kind of where does that put us in the guidance range we gave? I think that we're comfortable that the interventional glaucoma franchise should deliver kind of low-ish double-digit year-over-year growth for the year, that corneal health should deliver mid-single-digit year-over-year growth for the year, taking into consideration what I just mentioned. And then ultimately, that implies for the U.S. glaucoma, some high-teens type growth, which is, of course, going to be weighted towards the back half of the year.

So I think as you put all that together, and maybe most importantly, it points out accelerating trends within our overall franchises and what we think is a pretty strong exit velocity, if you will, when you think about coming out of 2024 and into 2025, particularly within that U.S. glaucoma business.

Matthew O'Brien (Senior Research Analyst)

Okay. Appreciate that, Joe. I think that kind of dovetails into the next question. You started covering all this, but in what you were just saying, but I mean, that's a dramatic slowdown in the U.S. glaucoma business, excluding whatever revenues we come up with for iDose. And then kind of same thing, Oh, U.S. And I know you're talking about Sweden, but I don't think it's that big of a market. Maybe I'm wrong. So why would things slowdown that dramatically in many of these areas, especially corneal health, which has had a monster Q4?

Joseph E. Gilliam (President and COO)

Yeah. So I mean, I think I did start to cover that. Let me clarify a couple of things that you just said there. I think in the context, I won't repeat my comments around some of the drivers there, obviously, in each of those businesses. I'll focus on what you said around the international and the U.S. glaucoma side of things. On the international side, look, if you continue to scale, it was Switzerland. It is not the largest of even our European markets, but it does matter when you're thinking about that growth dynamic. When you bridge from the currency headwinds that we expect a couple of percent, probably 2%-ish at this point. And you think about some of the competitive dynamics that continue to evolve out there, combine that with what is a relatively difficult first-half comp.

If you go back and look at our international business, it was pretty clear that we were running at elevated levels in the first half of last year, that despite the continued growth, tailed off a little bit from an absolute basis in the second half, probably as procedures started to normalize a bit on a global basis in the second half. So you have to factor each of those things in. As it relates to the U.S. glaucoma, I don't think I follow that there. In fact, if you imply from what I just said in terms of high-teens growth for the year and that accelerating over the course of the year into the back half, that overall, in any way you cut it, is actually an accelerating performance, which is what you'd expect with both the impact from iStent infinite as well as, obviously, iDose coming into 2024.

Matthew O'Brien (Senior Research Analyst)

Okay. We can follow up offline. Thanks.

Thomas W. Burns (Chairman and CEO)

Thanks, Matt.

Operator (participant)

We'll go next to Margaret Kaczor at William Blair.

Margaret Kaczor (Research Analyst)

Hey, good afternoon, guys. Thanks for taking the questions. I wanted to maybe start on iDose again. Sorry, I'm going to be number 5 today on this. But I wanted to see if there's any additional background on the initial surgeon patient cohorts for these first few iDose cases. Are these patients that have been waiting for a long time in the queue? Are these clinicians doing multiple iDose procedures in a day? If they're already in the ASC, anything like that would be useful. Thank you.

Joseph E. Gilliam (President and COO)

Hey, Margaret. It's Joe. I mean, obviously, it's a little early with these cases having just started last week to draw any discernible trends. I think that for the majority of these patients, I would say they're clearly standalone patients that these early surgeons have deemed to be straightforward in the context of bringing them into the iDose procedure. Whether or not they were previously treated with different solutions and maybe even an iDose trial, etc., historically, there'll be a mix of that as we get going here. But I think the most important thing there is that the surgeons out of the gate are really focused on providing that standalone therapy and care for these patients.

Margaret Kaczor (Research Analyst)

All right. Fair enough. And then I wanted to maybe move over to Epioxa, NDA submission by the end of the year. What's the vision for the product, kind of your expectations on timing and level setting us maybe on the opportunity from a prevalence perspective, vs. procedure cost perspective, etc.? Thanks.

Thomas W. Burns (Chairman and CEO)

Yeah, Margaret, I'm happy to take that one. So as we said before, we'll have the results for the second Phase 3 clinical trial by mid-year or so. We'll be preparing an NDA. We'll hope to be able to publish those results just before we file our NDA with the FDA. We'll look for a 10-month PDUFA day or thereabouts. And we'll be approved in the late part of 2025. And when you think about it, Epioxa, as we've talked about before, is a highly different procedure. The fact that I don't have to remove the corneal epithelium to be able to perform the procedure is pretty extraordinary. The corneal epithelium, when it's removed, does impede somewhat visual rehabilitation. It certainly is painful for the patient.

And because of the extra time for visual rehabilitation, a lot of times, it's incongruent with the young patients that are having this procedure, which sometimes have to defer the procedures until spring break or summer until they have a little bit more time to spend at home and heal. So we have the opportunity with Epioxa of having a new formulation, which has a surfactant in it, which aids in penetration. It has oxygen perfusion goggles associated with it. So it bathes the eyes with oxygen, which is a really significant part of the procedure in order to get efficacy if you're not removing the corneal epithelium. And it's done at a higher irradiation rate. So our hope and our challenge and opportunity is to be able to have this product meet the endpoint with the second Phase 3 trial.

As you know, the first Phase 3 trial did meet the primary endpoint from the FDA. So we're very hopeful that we're able to do this with the second trial. And more importantly, we're hopeful for getting this out to patients because of those factors that I talked about, more patients are going to want to have this procedure. It's going to be far more timely with their schedules. It's going to be far better in visual rehabilitation as we move forward. So for all these reasons, what I expect and what I will want to ensure is that we see a spike in usage and adoption with Epioxa moving forward. And so for all those reasons, we're excited moving forward. And again, Epioxa is just the first stage. We already have a third-generation product that's undergoing Phase 2 clinical trials.

That's a laser that will actually use a laser of irradiated light, which will more prescriptively and precisely be able to define an algorithm on the surface of the eye to be able to treat keratoconus. And so if you think about it, much like in MIGS, where we continue to innovate and protect, share, and move forward and build the marketplace, we already have these chess pieces in place in keratoconus as well. And we expect those to pay off both now and in the future.

Margaret Kaczor (Research Analyst)

Okay. Appreciate it, guys.

Thomas W. Burns (Chairman and CEO)

Thanks, Margaret.

Operator (participant)

We'll move next to Allen Gong at J.P. Morgan.

Allen Gong (VP of Equity Research)

Hi, team. Thanks for the question. I just had one quick one to start off just on, I guess, seasonality heading into next year. You ended the year with a stronger-than-expected quarter. Some of the headwinds that you'd feared wound up being a little better than expected. I understand that you don't want to provide iDose, but just thinking about the underlying business ex iDose, should we think of it as basically being a fairly normal year from a seasonality perspective?

Joseph E. Gilliam (President and COO)

Thanks, Allen. Even it's hard to parse those between the two, but I'll do my best. I mean, I think, as you know, in normalized conditions, you typically see 22%, 23% of our revenues in the first quarter, 25% in the second, 24%-25% in the third, and then call it 26%-28% in the fourth. And not surprisingly, we do expect that those patterns to be pretty disruptive this year by the combination of both the growing infinite business as we continue to turn on the market access side of that equation, as well as most materially, the iDose launch over the course of 2024. I think the net effect of that should be a fairly material shifting of the seasonality, if you will, to the second half and in particular, the fourth quarter.

So that disruption is not entirely driven by iDose, but that is by far the biggest driver of a shift away from our traditional seasonality patterns.

Allen Gong (VP of Equity Research)

Got it. And then when I think about the margins for you this year, how should we think about what kind of leverage you can get from iDose? It's the first year of launch, so I imagine it might be a little limited. But my sense is that this could ultimately be quite a profitable device for you. So now that we think about the fact that you've ramped up iStent infinite and you're going to be ramping up iDose, where can gross margin, SG&A, R&D go this year?

Alex R. Thurman (SVP and CFO)

Yeah. So Allen, thanks for the question. So you're right. We do expect iDose to be accretive to our gross margin over time. And to your second point, for now, we've cautioned you with some conservatism as there could be some modest volatility in the margin as we ramp up iDose and go through a new product launch and the associated scaling that happens from a manufacturing standpoint. But that said, we expect the overall probably 2024 gross margin to land in that upper end of what we've always said was an 83%-84% range. So we're thinking probably ±84% for the year.

Operator (participant)

We'll move next to Joanne Wuensch at Citi.

Joanne Wuensch (Managing Director and Head of U.S. Healthcare Research)

Thank you very much for taking the question. Two, one has to do also with the expense side of the income statement. Since you're investing so much in not just research and development, but also in launching multiple new products, how do we think about operating expenses for 2024? And I'll toss my second question on at the same time. One of the things I'm trying to figure out is how physicians are going to be spending their time. Do you think of the iDose launch as maybe cannibalizing more traditional MIGS procedures complementary, or how do we think about how the physician spends his or her time having now multiple types of products to use? Thanks.

Alex R. Thurman (SVP and CFO)

You bet. Hey, Joanne, this is Alex. I'll start with your OpEx question. So I think the way to think about 2024 is to expect that both, to your point, both SG&A and R&D will grow in this year as we continue to invest in our iDose launch and the pipeline. The way I would counsel you to think about it is to start with our baseline 2023 adjusted operating expenses, which excludes the IPR&D. And that number was about $360 million. And then I would assume about a 10% growth off of that base. So that would imply 2024 OpEx just shy of about $400 million for the year.

Joseph E. Gilliam (President and COO)

And then as it relates to iDose and the sort of overall procedure dynamics within the practice framework, I think the right way to answer that is to look at it both over the short and the longer term. Certainly, over the short term, as we're driving training and that initial launch, I don't expect it to have a significant impact to, obviously, the dynamics within the practice and how they handle their time between traditional MIGS products and the new class of procedural pharmaceuticals.

Certainly, as we move forward, you can expect that with success, I think iDose likely will cannibalize, to a certain extent, some of those traditional MIGS procedures as surgeons get more and more confident in utilizing the product and the reimbursement associated with it, etc., and utilize it whether as a standalone product or in combination with cataract surgery or in combination with other procedures, as Tom mentioned earlier, depending upon the needs of the individual patient. But over the long term, our expectation is that iDose really becomes the cornerstone of the interventional glaucoma paradigm that we've talked about in the past. And we would expect more and more practices, both through the investment in new surgeons as well as shifting of their own allocation of time, for them to be spending more and more time treating glaucoma patients with minimally invasive solutions just like iDose and others.

We put forward, and we are putting forward, a significant amount of investment to drive that change in the standard of care over the course of many years as we move forward here.

Operator (participant)

Thank you. Our next question comes from David Saxon at Needham & Company.

David Saxon (Senior Analyst)

Great. Good afternoon. Thanks for taking my questions. Maybe I'll start on the U.S. glaucoma sales force. Are you doing anything to compensation or incentives to ensure there's a focus on the iDose launch, but to also make sure they're not forgetting iStent inject, iStent infinite, etc., so the rest of the U.S. business doesn't kind of stall out?

Joseph E. Gilliam (President and COO)

Yeah, David. Well, the short answer is yes. And clearly, we've got a pretty well-structured strategy as it comes to compensation, both as it relates to new product launches as well as existing business. We're deploying that here. It's absolutely an art, not a science, when it comes to doing that. But we think we've got the right balance of continuing to drive really three things. First, as you referenced, the iDose launch and activities around that. Second, the other areas of the business in terms of revenue generation, whether that be iStent inject or certainly iStent infinite as we continue to drive that forward.

And third, really incentivizing the kind of behaviors to support what I just answered in the last call, which is putting in place those foundational building blocks and driving the activities that we think will expand the market over the next several years and certainly the next decades as we think about what's going to really matter to driving this business, not just in 2024, but far beyond.

David Saxon (Senior Analyst)

Great. That's helpful. Then just on the pipeline, looking at iLution, so Phase 2a started in the fourth quarter. What are the milestones this year for that pipeline product? And what's a reasonable expectation for when that could be commercial? Thanks so much.

Thomas W. Burns (Chairman and CEO)

Yeah, David, I'll be able to answer the first part of your question. We're going to be looking at completing and assessing that clinical trial for iLution Travoprost this year. We expect to be able to have data in hand by the end of this year. When we see that data, we'll then make determinations on how we go forward into a potential Phase 3. So I can't answer the second part of your question, but I can tell you that we're excited about iLution, both with Travoprost. You've seen the data as well of iLution and the use of dry eye, where we saw substantial changes in visual acuity as well as substantial improvements in tear film stability. These are two leading candidates and APIs for this new platform that we hope will be a significant contributor for us in the future.

David Saxon (Senior Analyst)

Great. Thanks so much.

Operator (participant)

We'll move next to Anthony Petrone at Mizuho Group. Anthony, your line is open. You may have yourself muted. Hearing no response, we'll move next to Sam Brodovsky at Truist Securities.

Samuel Brodovsky (Research Analyst)

Hey, can you hear me okay?

Operator (participant)

Yes, we can.

Thomas W. Burns (Chairman and CEO)

We can, Sam.

Joseph E. Gilliam (President and COO)

Yeah.

Thomas W. Burns (Chairman and CEO)

Great. Thanks for taking the question. I'll just squeeze two quick ones in on iDose. I think you had mentioned second-half assumption for the J-code going permanent. Can I nail you down on whether the guidance assumes July 1 or October 1? And then on the ASP, any incremental color on what the realized ASP is going to be and how much we can expect in terms of a gross to net or a discount there?

Joseph E. Gilliam (President and COO)

Yeah, sure, Sam. It's Joe. I think maybe to put a little bit more color just in terms of technical dates that were behind what Tom suggested, by putting in that application prior to the end of the year, you would assume that the CMS cycle would deliver a J-code starting July 1. That also then translates into reported ASPs by the fourth quarter, both of which each of those are incremental drivers in terms of creating a seamless, I'll call it, market access or reimbursement environment around that J-code and overall iDose. As you think about really the broader dynamic around the iDose launch, those things are going to be real key drivers, as we've talked about, alongside the training initiatives and the things that are there to unlock, if you will, the iDose opportunities as we move forward.

I know you had a second question as well.

Samuel Brodovsky (Research Analyst)

Around the.

Joseph E. Gilliam (President and COO)

Gross to net. Yeah. So as we've talked about, we will not be doing rebating associated with the iDose product. But where you will see that is, obviously, in government-related programs where there's standard discounts. And so over time, a portion of our revenues will be realized that that 23% discount that's typical with government-related programs. And so I think it's probably fair to say, and we'll keep you apprised of this as we move forward, that a realized ASP somewhere in the $13,000 range is probably a safe place to start from a modeling perspective. And we'll dial that in over time as our mix becomes more clear.

Samuel Brodovsky (Research Analyst)

Great. Thanks for taking the questions.

Operator (participant)

At this time, that does conclude the question and answer session. I would like to turn the conference back over to management for closing remarks.

Thomas W. Burns (Chairman and CEO)

Okay. I want to thank you all for your time and attention today. We also thank you for your continued interest and support of Glaukos. Goodbye.

Operator (participant)

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