iStent is the only MIGS medical device with FDA approval

Annual net sales increase from $21 million in 2013 to $45 million in 2014

Initial Public Offering generates $112.3 million for clinical trials and acquisitions

Glaukos Corporation (NYSE: GKOS) develops and manufactures iStent for the treatment of glaucoma. Additionally, the company has developed iStent Inject for trabecular meshwork injection, iStent Supra for suprachoroidal injection and iDose for corneal injection. Glaukos is focused on developing treatments for glaucoma of all states and progression. The company was founded in 1989 and is headquartered in Laguna Hills, CA.

Glaukos raises $112.3 million from its IPO of 6.3 million shares

Glaukos held its initial public offering of 5.4 million common shares on June 15, 2015. Shares were priced at $18, well above the initial expected range of $13-$15. Underwriters purchased an additional 900,000 shares under a 30-day option which closed on June 30, 2015. Net proceeds from the offering are expected to be approximately $112.3 million. Management plans to use $20 million to hire additional sales and marketing employees, $15 million for clinical trials and regulatory approvals on products being developed and $15 million to acquire intellectual property and other assets related to glaucoma treatment from DOSE Medical Corporation. Glaukos and DOSE entered into an asset purchase agreement on July 10, 2014. All remaining proceeds from the offering will be used for working capital and other general corporate purposes.

Glaukos Shares Up 56% Over IPO Price of $18

Glaukos began trading on the NYSE under the ticker symbol GKOS on June 25, 2015. Shares opened at $29.11 and closed at $31.22, 62% and 73% higher than the company’s IPO price of $18, respectively. As of market close on 7/10/2015, Glaukos shares closed at $30.75, giving the company a market capitalization of $961.4 million.

Glaukos’ iStent treatment Gives First-Mover Advantage in Glaucoma Industry

In 2004, Glaukos received the CE Mark designation from European Conformity – for its iStent as a standalone treatment and in conjunction with cataract surgery. The iStent micro-bypass medical device improves the outflow of fluids from the eye and reduces intraocular pressure. Over the next 9 years, Glaukos’ iStent is expected to receive approval in Australia, Canada, Germany, Singapore, South Korea, Taiwan and the United States.

The company began developing iStent inject and iStent supra in 2010; both carry the CE Mark designation until 2019. As of December 31, 2014, Glaukos has sold over 70,000 iStent devices globally.

The iStent is the first and only Micro-Invasive Glaucoma Surgery (MIGS) device with approval from the Food and Drug Administration which gives Glaukos a first-mover advantage for glaucoma treatment.

Well Positioned in Growing Glaucoma Market

Approximately 78 million individuals suffer from glaucoma worldwide (4.2 million in the U.S.) This number is expected to grow by 13% to 88 million individuals globally by 2019. Market analysts estimate that glaucoma patients spent $4.9 billion on treatments in 2014 and spending will reach $6.6 billion by 2050, representing growth of about 35% in global sales for glaucoma treatments.

Faces Stiff Competition

Glaukos faces strong competition from others seeking to crack this lucrative market. Alcon is the leading global pharmaceutical and vision care company that has customers in over 180 countries. The company has 26 manufacturing facilities and spends over $1 billion annually on eye care research and development. Alcon develops products to treat cataracts, glaucoma, refractive errors, vitreoretinal disorders and macular degeneration. Alcon had $10.83 billion in net sales for 2014.

Abbot Medical Optics (ABT) is a growing vision care company that manufactures 23 products to treat cataracts, glaucoma, refractive errors and corneal issues. The company has a presence in over 60 countries and is ranked number one in LASIK treatments, number two in cataract treatments and number three in eye care solutions. Abbot Medical Optics is actively expanding into emerging markets, has a large pipeline and is expected to launch new products through 2020. Abbot Medical Optics reported annual sales of $1.22 billion for 2014.

Ellex Medical Lasers develops medical technologies to more efficiently diagnose and treat patients with vision issues. With sales in almost every region worldwide, Ellex has become the global leader in laser and ultrasound systems for vision care. Ellex’ latest product is the iTRACK 250 for use in a restorative surgical procedure called Canaloplasty that controls the outflow of fluids for the treatment of glaucoma. The company’s current portfolio includes 11 systems with advanced ophthalmic technology, with revenues of $54.3 million for FY2014.

STAAR Surgical (STAA) markets implantable lenses for refractive and cataract surgeries, in over 60 countries. The company provides a key alternative to LASIK surgery with its implantable collamer lens and intraocular lens. The company has distribution centers in Japan, Spain, Switzerland and the United States. For the fiscal year ended January 2, 2015, STAAR Surgical had net sales of about $75 million.

Potential Risks for Glaukos

Glaukos’ revenue depends on and will be impacted by existing and future healthcare legislation, regulation and treatment approvals which may not always favor the company’s products. Additionally, regulation and additional testing requirements could increase costs and expenses and reduce funds for R&D investment for the development of new products to remain competitive. The United States Supreme Court recently upheld the Affordable Care Act which is key to Glaukos’ revenue stream since iStent is covered under plans offered by Medicare, Aetna (AET), Blue Cross Blue Shield and United Healthcare.

Leadership Team Has Solid Ophthalmic Medical Technology Experience

Thomas Burns was elected President and Chief Executive Officer in March 2002. Burns also serves as CEO of DOSE Medical and is a director on the company’s Board. He has over 25 years of direct ophthalmic management experience and previously worked at Eyetech Pharmaceuticals, Chiron Vision Corporation and Bausch & Lomb.

Richard Harrison was elected Chief Financial Officer in 2008 and Treasurer in 2014. Harrison previously served as CFO at Biolase Technology for 3 years and at Interpore Cross International for 10 years. He also serves as CFO of DOSE Medical, a position he has held since March 2010.

Chris Calcaterra joined the company as Chief Commercial Officer in 2008. Calcaterra brings over 25 years of ophthalmic medical technology experience and previously worked at Advanced Medical Optics.

FY2014 Net Sales Up 118%

For the twelve months ended December 31, 2014, Glaukos had net sales of $45.6 million (up 118%), gross income of $34.2 million (up 86%) and a net loss of $12.1 million (down 4%), with $2.4 million in cash and cash equivalents, $9.4 million in long-term debt and $151.3 million in total stockholders’ equity.

Summary

Glaukos is well positioned in the rapidly growing eyecare industry, with young and old alike glued to computer and mobile screens with growing eye care problems. The company has innovative products and a competitive team, has a first-mover advantage with its approved iStent technology and its shares are up significantly since its highly-successful IPO. While the company has sizable and deep-pocketed competition, cash from its IPO, knowledgeable management and strategic alliances that should help deliver strong revenue growth and potentially make it an acquisition target.

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