GLAUKOS CORPORATION You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our unaudited condensed
consolidated financial statements and notes thereto included in Part I, Item 1
of this Quarterly Report on Form 10-Q and with our audited consolidated
financial statements and notes thereto for the year ended
This report contains forward-looking statements that are based on management's beliefs and assumptions and on information currently available to management. All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: "may," "will," "could," "would," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," "continue," "ongoing" or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements are based on management's current expectations, assumptions, estimates and beliefs and involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. You should refer to the "Risk Factors" section of this report for a discussion of important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this report will prove to be accurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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Overview
We are an ophthalmic medical technology and pharmaceutical company focused on
developing novel therapies for the treatment of glaucoma, corneal disorders, and
retinal disease. We first developed Micro-Invasive Glaucoma Surgery (MIGS) as an
alternative to the traditional glaucoma treatment paradigm, launching our first
MIGS device commercially in 2012, and have since developed a portfolio of
technologically distinct and leverageable platforms to support ongoing
pharmaceutical and medical device innovations. Products or product candidates
for each of these platforms are designed to advance the standard of care through
better treatment options across the areas of glaucoma, corneal disorders such as
keratoconus, dry eye and refractive vision correction, and retinal diseases such
as neovascular age-related macular degeneration (
Impact of COVID-19 Pandemic and Current Economic Environment
While the COVID-19 pandemic and subsequent economic slowdown materially impacted
the global demand for our products starting in
We continue to actively assess the impact of COVID-19 on our clinical trials and other pipeline products. The closure of ophthalmic practices and deferral of elective procedures beginning in the first quarter of 2020 in response to COVID-19 disrupted new patient enrollment in our ongoing clinical trials. While we cannot predict the full impact of COVID-19 on the timing of completion of our clinical trials and the expected regulatory approvals for our pipeline products, our disclosed targeted approval dates anticipate, to our best estimate, such impact.
Additionally, some of our vendors are continuing to experience supply challenges, both in the acquisition of raw materials as well as due to limited headcount resources, and we have experienced higher costs for certain raw materials. We expect these supply challenges may continue for the remainder of 2022. These challenges have led to delays and partial or unfulfilled deliveries of certain components needed for the manufacture of our products, in some cases requiring us to find second sources for materials. If these delays and partial or unfulfilled deliveries persist, they could impact our ability to ship some of our products to our customers, or bring some of our pipeline products to market, in a timely manner. We believe that much of these supply challenges stem from the ongoing obstacles presented by COVID-19.
The ultimate impact of the COVID-19 pandemic on our operations going forward is unknown and will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 outbreak, the status of health and safety actions taken to contain its spread, the severity and transmission rates of new variants of COVID-19 such as the Omicron variants, the availability, distribution, and efficacy of vaccines for COVID-19, any additional preventative and protective actions that governments, or we, may take, any future surges of COVID-19 that may occur, the dynamics associated with the rollout of the COVID-19 vaccines, and how quickly and to what extent economic and operating conditions normalize within the markets in which we operate. For additional information, see the section titled Risks Related to Our Business within Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.
Financial Overview
The most important financial indicators that we use to assess our business are net sales, gross margin, operating expenses, and cash on hand.
March 31, March 31,
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2022 2021
Net sales $ 67,681 $ 67,968
Gross margin 75 % 76 %
Operating expenses $ 40,826 $ 63,140 Cash, cash equivalents, short-term investments and restricted cash
$ 424,829 $ 416,796
Please see Results of Operations and Liquidity and Capital Resources below for a detailed discussion of each of the above items, including an analysis of the fluctuations in such items year-over-year.
We achieved net income of
Recent Developments
On
2022 U.S. reimbursement rates
On
The reduction of the physician fee had an impact on procedural iStent family
product volumes in the first quarter of 2022, in conjunction with cataract
surgery, which may continue for the remainder of 2022, potentially affecting our
Settlement of Patent Litigation
On
Additionally,
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Factors Affecting Our Performance
In addition to the disruption resulting from COVID-19 as discussed above, the full effects of which are difficult to predict at this time, our operations to date have been, and we believe our future growth will be, impacted by the following:
the rate at which we expand our global sales and marketing infrastructure, and
? the speed at which we can continue increasing awareness of our products to
patients and physicians;
? timely approval of new products by regulatory authorities and approved
indications for use;
? the coverage and reimbursement rates set by CMS and third-party payors for the
procedures using our products;
our industry is highly competitive and subject to rapid and profound
? technological, market and product-related changes. Our success depends, in
part, upon our ability to maintain a competitive position in the development of
new products for the treatment of chronic eye diseases;
publications of clinical results by us, our competitors and other third parties
? can have a significant influence on whether, and the degree to which, our
products are used by physicians and the procedures and treatments those
physicians choose to administer to their patients;
the physicians who use our products may not perform procedures during certain
? times of the year, due to seasonality patterns typical for certain of our
procedures, or when they are away from their practices for various reasons;
our ability to realize commercialized products from the licensing and
? distribution arrangements and other partnerships into which we have entered and
will in the future enter; and
the impact of fluctuations in foreign currency exchange rates, as most of our
? sales internationally are denominated in the local currency of the country in
which we sell our products.
Further, we have made and expect to continue to make significant investments in
our global sales force, marketing programs, research and development (R&D)
activities, clinical studies, and general and administrative infrastructure.
We expect our revenues for the remainder of 2022 and near-term performance to reflect increasing competitive dynamics, the impact of the reduced physician fee reimbursement rates contained in the CMS Final Rules and the continuing disruption resulting from COVID-19, the full effects of which are difficult to predict at this time.
Although we have been profitable for certain periods in our operating history, there can be no assurance that we will be profitable or generate cash from operations in the future.
Components of Results of Operations
We currently operate in one reportable segment and net sales are generated primarily from sales of iStent products and sales of Photrexa and other associated drug formulations, as well as our proprietary bioactivation systems, to customers and royalty income. Revenue is recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services.
We sell the majority of our products through a direct sales organization in
While net sales may increase as we expand our global sales and marketing
infrastructure and continue to increase awareness of our products by expanding
our sales base and increasing our marketing efforts, historically our net sales
within a fiscal year have been impacted seasonally, as demand for
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pattern in 2021 due in part to the COVID-19 pandemic and its effect on our
commercial performance may continue into future reporting periods. We also
believe the 2022 CMS physician fee and facility fee rate decreases, which were
finalized in the fourth quarter 2021, have disrupted traditional customer
ordering patterns and have resulted in our customers' trialing of competitive
products, causing reduced
Cost of Sales
Cost of sales reflects the aggregate costs to manufacture our products and includes raw material costs, labor costs, manufacturing overhead expenses and the effect of changes in the balance of reserves for excess and obsolete inventory.
We manufacture our iStent products at our current headquarters in
Due to the relatively low production volumes of our iStent products and our KXL systems compared to our potential capacity for those products, a significant portion of our per unit costs is comprised of manufacturing overhead expenses. These expenses include quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management.
Cost of sales includes a charge equal to a low single-digit percentage of
worldwide net sales of certain current and future products, including our iStent
products, with a required minimum annual payment of
Cost of sales has included amortization of the
Our future gross profit as a percentage of net sales, or gross margin, will be impacted by numerous factors including commencement of sales of products in our pipeline, or any other future products, which may have higher product costs. Our gross margin will also be affected by manufacturing or supply chain inefficiencies that we may experience as we attempt to manufacture our products on a larger scale, manufacture new products and change our manufacturing capacity or output. Additionally, our gross margin will continue to be affected by royalty expenses on current or future products associated with various licensing agreements. Our gross margin in future periods may also be impacted by other factors adversely affecting our net sales in future periods, including the impact of the COVID-19 pandemic and any related supply chain issues, and the impact of the reductions by CMS in 2022 Medicare payment rates for certain of our products and related services.
Selling, General and Administrative
Our selling, general and administrative (SG&A) expenses primarily consist of personnel-related expenses, including salaries, sales commissions, bonuses, fringe benefits and stock-based compensation for our executive, financial, marketing, sales, and administrative functions. Other significant SG&A expenses include marketing programs; advertising; post-approval clinical studies; conferences and congresses; travel expenses; costs associated with obtaining and maintaining our patent portfolio; professional fees for accounting, auditing, consulting and legal services; costs to implement our global enterprise systems; and allocated overhead expenses.
We expect SG&A expenses to continue to grow as we increase our global sales and marketing infrastructure and general administration infrastructure. We also expect other nonemployee-related costs, including sales and marketing program activities for new products, outside services and accounting and general legal costs to increase as our overall operations grow. The timing of these increased expenditures and their magnitude are primarily dependent on the
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commercial success and sales growth of our products, as well as on the timing of any new product launches and other potential business and operational activities.
Research and Development
Our R&D activities primarily consist of new product development projects, pre-clinical studies, IDE and IND studies, and other clinical trials. Our R&D expenses primarily consist of personnel-related expenses, including salaries, fringe benefits and stock-based compensation for our R&D employees; research materials; supplies and services; and the costs of conducting clinical studies, which include payments to investigational sites and investigators, clinical research organizations, consultants, and other outside technical services and the costs of materials, supplies and travel. We expense R&D costs as incurred. We expect our R&D expenses to continue to increase as we initiate and advance our development programs, including our expanding surgical, pharmaceutical and intraocular sensor development efforts and clinical trials across glaucoma, retinal disease and corneal health.
Completion dates and costs for our clinical development programs include seeking regulatory approvals and our research programs vary significantly for each current and future product candidate and are difficult to predict. As a result, while we expect our R&D costs to continue to increase for the foreseeable future, we cannot estimate with any degree of certainty the costs we will incur in connection with the development of our product candidates. We anticipate we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs, results of ongoing and future clinical trials, as well as ongoing assessments as to each current or future product candidate's commercial potential and our likelihood of obtaining necessary regulatory approvals. We are not currently able to fully track expenses by product candidate.
Litigation-related Settlement
Pursuant to the terms of the Settlement Agreement,
Non-Operating Expense, Net
Non-operating expense, net primarily consists of interest expense associated
with our finance lease for our Aliso Facility and for our 2.75% convertible
notes due 2027 (Convertible Notes), interest income derived from our short-term
investments, and unrealized gains and losses arising from exchange rate
fluctuations on transactions denominated in a currency other than the
Income Taxes
Our tax provision is comprised of state and foreign income taxes. Our net
deferred tax liability of
We record reserves for uncertain tax positions where we believe the ability to sustain the tax position does not reach the more likely than not threshold.
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Results of Operations
Comparison of Three Months Ended March 31, 2022 and March 31, 2021 (in
thousands):
Three Months Ended
March 31, % Increase
(dollars in thousands) 2022 2021 (decrease)
Statements of operations data:
Net sales $ 67,681 $ 67,968 - %
Cost of sales 17,063 16,633 3 %
Gross profit 50,618 51,335 (1) %
Operating expenses:
Selling, general and administrative 43,949 41,921 5 %
Research and development 26,877 21,219 27 %
Litigation-related settlement (30,000) - NM
Total operating expenses 40,826 63,140 (35) %
Income (loss) from operations 9,792 (11,805) NM
Total non-operating expense, net (4,089) (4,385) (7) %
Income tax provision 326 279 17 %
Net income (loss) $ 5,377 $ (16,469) NM
NM = Not Meaningful
Net Sales
Net sales for the three months ended
Net sales of glaucoma products in
International sales of glaucoma products for the three months ended
Net sales of corneal health products were
Cost of Sales
Cost of sales for the three months ended
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Selling, General and Administrative Expenses
SG&A expenses for the three months ended
Our overall SG&A spend was consistent during each of the three month periods
ending
Research and Development Expenses
R&D expenses for the three months ended
During the three months ended
Litigation-related Settlement
The
Non-Operating Expense, Net
We had non-operating expense, net of
Income Tax Provision
Our effective tax rate for the first quarter of 2022 was 5.72%. For each of the
three months ended
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash, cash equivalents and short-term investments, cash generated from operating, financing and investing activities and proceeds from our senior convertible notes issuance. Our primary uses of cash have been for selling and marketing activities, research and development programs, and capital expenditures.
The following table summarizes our cash and cash equivalents, short-term
investments and selected working capital data as of
March 31, December 31,
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2022 2021
Cash and cash equivalents $ 106,202 $ 100,708
Short-term investments 309,211 313,343
Accounts receivable, net 34,804 33,438
Inventory 24,708 23,011
Accounts payable 7,998 7,333
Accrued liabilities 47,598 56,027
Working capital (1) 435,607 422,766
(1) Working capital consists of total current assets less total current
liabilities.
Main Sources of Liquidity
We plan to fund our operations, commitments for capital expenditures and other
short and long-term known contractual and other obligations using existing cash
and investments and, to the extent available, cash generated from commercial
operations. Our existing cash and investments include the remaining net proceeds
from the Convertible Notes issued in
Cash, Cash Equivalents, Short-term Investments and Restricted Cash
Our cash, cash equivalents and short-term investments totaled approximately
Cash Flow from Operations
For the three months ended
Senior Convertible Notes
Our Convertible Notes may be converted at the option of the holders at the times
and under the circumstances and at the conversion rate described in Note 9.
Convertible Senior Notes of the notes to our condensed consolidated financial
statements. As of
We may seek to obtain additional financing in the future through other debt or equity financings. There can be no assurance that we will be able to obtain additional financing on terms acceptable to us, or at all and although we have been profitable for certain periods in our operating history, there can be no assurance that we will be profitable or generate cash from operations.
Short-term Liquidity Requirements
Our short-term liquidity requirements primarily consist of regular operating costs, interest payments related to our senior convertible notes, funding R&D projects, capital expenditures as we continue the development of our facilities and office spaces, operating and financing lease obligations and other firm purchase commitments. As of
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Long-term Liquidity Requirements
Our long-term liquidity requirements primarily consist of interest and principal payments related to our Convertible Notes, capital expenditures for the development of our manufacturing facilities and office spaces, and long-term material cash requirements as described below. As demand grows for our products, we will continue to expand global operations to meet demand through investments in manufacturing and operations.
Cash Flows
Our historical cash outflows have primarily been associated with cash used for operating activities such as the expansion of our sales, marketing and R&D activities; purchase of and growth in inventory and other working capital needs; the acquisition of intellectual property; and expenditures related to equipment and improvements used to increase our manufacturing capacity, to improve our manufacturing efficiency and for overall facility expansion.
The following table is a condensed summary of our cash flows for the periods
indicated:
Three Months Ended
March 31,
(in thousands) 2022 2021
Net cash provided by (used in):
Operating activities $ 9,774 $ 4,178
Investing activities (5,897) (21,263)
Financing activities 1,410 17,414
Exchange rate changes 207 (450)
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 5,494 $ (121)
At
Operating Activities
In the three months ended
For the three months ended
For the three months ended
Investing Activities
In the three months ended
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For the three months ended
For the three months ended
We expect to continue our increased levels of capital expenditures over the course of the year as we expand our manufacturing capacity for current and new products, improve our manufacturing efficiency and for overall facility expansion, as discussed above.
Financing Activities
In the three months ended
For the three months ended
For the three months ended
Material Cash Requirements
There have been no material changes to our material cash requirements as of
Critical accounting policies and significant estimates
Management's discussion and analysis of our financial condition and results of
operations are based on our condensed consolidated financial statements, which
have been prepared in accordance with
Our critical accounting policies and significant estimates that involve a higher
degree of judgment and complexity are described under "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Critical
Accounting Policies and Significant Estimates" included in Part II, Item 7 of
our Annual Report on Form 10-K for the year ended
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