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Edited Transcript of GKOS earnings conference call or presentation 7-Aug-19 8:30pm GMT

Q2 2019 Glaukos Corp Earnings Call

SAN CLEMENTE Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Glaukos Corp earnings conference call or presentation Wednesday, August 7, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Chris M. Calcaterra

Glaukos Corporation - COO

* Christopher William Lewis

Glaukos Corporation - Director of IR, Corporate Strategy & Development

* Joseph E. Gilliam

Glaukos Corporation - CFO & Senior VP of Corporate Development

* Reza Zadno

Avedro, Inc. - President, CEO & Director

* Thomas E. Griffin

Avedro, Inc. - CFO

* Thomas William Burns

Glaukos Corporation - CEO, President & Director

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Conference Call Participants

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* Brian David Weinstein

William Blair & Company L.L.C., Research Division - Partner & Healthcare Analyst

* Christopher Cook Cooley

Stephens Inc., Research Division - MD

* K. Gong

JP Morgan Chase & Co, Research Division - Analyst

* Lawrence H. Biegelsen

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Matthew Oliver O'Brien

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Ravi Misra

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Ryan Benjamin Zimmerman

BTIG, LLC, Research Division - Director & Medical Technology Analyst

* Steven Plachtyna

BMO Capital Markets Equity Research - Senior Associate

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Presentation

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Operator [1]

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Welcome to the conference call to discuss Glaukos Corporation's acquisition of Avedro, Inc. and the Second Quarter 2019 Financial Results that each company released this afternoon. A copy of the companies' press releases can be found on the company's respective websites. (Operator Instructions) This call is being recorded, and an archived replay will be available online in the Investor Relations section at www.glaukos.com and www.avedro.com.

I would now like to turn the call over to Chris Lewis, Glaukos' Director of Investor Relations and Corporate Strategy and Development. Please go ahead.

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Christopher William Lewis, Glaukos Corporation - Director of IR, Corporate Strategy & Development [2]

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Thank you and good afternoon. Joining me today from Glaukos are President and CEO, Tom Burns, CFO Joe Gilliam, and COO Chris Calcaterra, and from Avedro, our President and CEO Reza Zadno, and CFO Tom Griffin.

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 efforts, the efficacy of our current and future products, our competitive market position, financial condition, and results of operations in the proposed acquisition and transaction with Avedro. 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 and the proposed transaction, all of which are different to predict and many of which are beyond our control. Therefore, they may cause our actual results to differ materially from those expressed or implied by forward-looking statements. Review today's press releases and our recent SEC filings for more information about these risk factors. You'll find these documents in the Investor's section of the companies' respective websites.

Comments we make today about the proposed acquisition transaction with Avedro do not constitute an offer to sell, or the solicitation of an offer to buy any securities, nor a solicitation of any vote with respect to the proposed transaction. Glaukos will be filing a registration statement on Form S-4 with the SEC that will include a prospectus of Glaukos and a proxy statement of Avedro. Security holders are urged to read the proxy statement, prospectus, and other relevant document -- documents filed with the SEC when they become available, because they contain important information.

In addition, please note that Avedro, Glaukos, and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Avedro stockholders in connection with the proposed transaction. Information about Avedro's directors and executive officers in its Form 10-K filed with the SEC on March 21, 2019, and in its Form S-1 registration statement filed with the SEC. Information about Glaukos' directors and executive officers is included in its definitive proxy statement filed with the SEC on April 17, 2019.

Additional information about the participants and the solicitation of proxies will be contained in the proxy statement, prospectus and other relevant materials to be filed with the SEC regarding the proposed transaction. Copies of these documents can be obtained for free on the SEC's website at www.sec.gov, and in the manner provided in today's press releases regarding the transaction.

With that, I will turn the call over to Glaukos President and CEO, Tom Burns.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [3]

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Good afternoon, and thank you for joining us. Today is truly an exciting day for Glaukos, as we report record second quarter financial results and announce a definitive agreement, whereby Glaukos will acquire Avedro in an all-stock transaction. Based on our closing stock price today, the deal values Avedro at approximately $26.68 per share, for a total transaction value of $500 million. This transaction pairs two highly complementary hybrid pharma and device organizations, combining Avedro's disruptive bio-activated pharmaceutical solutions and R&D capabilities with Glaukos’ global commercial scale, proven market building and shared reimbursement expertise, robust pharmaceutical and medical device R&D capabilities, and extensive clinical and regulatory infrastructure. By leveraging our core strengths, we see tremendous opportunity to accelerate Avedro's growth potential and pipeline programs, while also strengthening our own R&D expertise to propel organic development programs forward.

Avedro is an ideal strategic fit for Glaukos, as evidenced by the striking similarities between our two companies. We are both transforming ophthalmics’ treatment paradigm and pioneering an entirely new market. Like Glaukos, Avedro is first to market with novel solutions, backed by a considerable body of compelling clinical data; and like Glaukos, Avedro has secured favorable reimbursement and development a market expanding pipeline to extend its leadership well into the future. Importantly, a majority of Avedro's target accounts are already Glaukos customers, which will enable us to use our reach and scale to accelerate utilization of Avedro's pharmaceutical solutions. By virtually every measure, we believe Glaukos is uniquely qualified to fuel Avedro's momentum, creating a durable, synergistic global health franchise that should serve as a powerful growth engine, capable of delving near- and long-term shareholder value, and helping to transform Glaukos into a global pharma and device ophthalmic leader.

We will discuss the key factors that attracted us to Avedro, as well as our future plans, in more detail shortly. But first, I'll ask Reza to make a few remarks. Reza?

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Reza Zadno, Avedro, Inc. - President, CEO & Director [4]

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Thanks, Tom. I, too, would like to express my excitement about Avedro becoming part of the Glaukos organization and the significant value we believe the transaction creates for all of our stakeholders. We are proud to be pioneering new treatment options for patients with corneal disease and those seeking to improve their eyesight using a single application of bio-activated topical ophthalmic pharmaceuticals.

Our initial commercial product offering, the Photrexa bio-activated topical solution, is the first and only FDA approved treatment for patients suffering from progressive keratoconus, a (inaudible) corneal disease characterized by progressive thinning and weakening of the cornea, ultimately resulting in vision loss, if untreated. I have long admired Glaukos and the manner in which the organization forged a new path to establish [links]. I believe their existing infrastructure, relevant customer relationships, and their proven strength in pioneering valuable new ophthalmic markets with disruptive technologies that address important unmet clinical needs of practitioners and patients make Glaukos the perfect partner to help execute on our current and future business opportunities.

Our board carefully and thoroughly reviewed the strategy and financial benefits of this opportunity, and has agreed in its view that this transaction represents a compelling opportunity for shareholders, patients, providers, and employees. I am more certain than ever that Avedro's best days are ahead.

With that, I'll turn the call back over to Tom.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [5]

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Well thanks so much, Reza, and we certainly look forward to welcoming you and your team to Glaukos.

We've been carefully evaluating our core capabilities and long-term growth strategies for some time. With the fundamental strength of our base business, continued execution, and the culmination of the complete glaucoma pipeline we have created to address all stages of disease severity, I am confident that the time is right to implement this next major phase of our long-term growth strategy. Consider our key accomplishments this quarter.

One, we delivered record second quarter net sales of $58.6 million, up 36% versus the year-ago quarter, allowing us to increase our full-year 2019 revenue guidance to $226 million to $231 million.

Two, we progressed on the U.S. commercial rollout of our next-generation iStent inject Trabecular Micro-Bypass device. Thanks to our team's solid execution, we have made considerable progress on the initial conversion process, and our U.S. reps are beginning to shift focus back to driving utilization and training new surgeons who have yet to adopt MIGS. Surgeon feedback and real-world results remain very positive and give us high confidence in iStent inject's potential to fuel meaningful U.S. sales going forward.

Three, we drove robust international growth of 53% year over year, as we continue to see the benefits of the international investments we've made over the past several years.

Four, we advanced our industry-leading, proprietary glaucoma pipeline that now addresses the full range of disease states and progression.

Five, we continue to expand and strengthen our pharmaceutical R&D capabilities to advance more than 10 internal preclinical initiatives across glaucoma, corneal health, and retina.

And six, we executed financially, not only with continued revenue growth and outperformance, but also with strong gross margins, disciplined operating investments, and positive net cash flow.

With respect to our existing glaucoma pharmaceutical and surgical pipeline, we continue to execute according to our plan. Our iDose Travoprost Phase 3 trial is progressing on schedule, bringing this breakthrough technology closer to becoming a reality for the benefit of patients by addressing the ubiquitous problem of noncompliance with topical glaucoma meds. We continue to target a filing and FDA approval in late 2021 to 2022. We're encouraged about the early progress in our collaboration with D. Western on a potential ROCK inhibitor to further leverage our iDose platform.

On the surgical side, enrollment is on track in the stand-alone iStent infinite 510k clinical trial to support a filing and FDA approval in late 2020 to 2021. For iStent Supra, we recently locked the full pivotal dataset and will be evaluating the final data as it is received in the coming months. We'll then determine the most appropriate path forward for this product. And, in addition, we are in early preparations for the potential U.S. commercial launch of Santen Pharmaceutical's MicroShunt ab externo surgical implant device, assuming FDA approval in 2020. The MicroShunt is not only a compelling treatment alternative for late-stage glaucoma management, but also marks the capstone to our glaucoma treatment algorithm.

We are poised to deliver a truly comprehensive portfolio of micro-invasive surgical devices and sustained pharmaceutical therapies, capable of providing an optimized treatment solution at each stage of glaucoma disease state severity, from the earliest manifestation to the most severe, and of all [combo] cataract and stand-alone procedures. We believe our glaucoma pipeline platforms, if approved, will create a sevenfold increase in our U.S. opportunity, expanding our reach to over 4 million eyes during the next several years.

We're delighted with the current performance of our glaucoma business and its potential to deliver long-term growth, while it probably comes as no surprise to many of you that we've had long aspirations beyond glaucoma, and for the past few years, we've been shaping a broader growth strategy that would allow us to apply our core competencies to tackle some of ophthalmology's most challenging unmet clinical needs. As a result of this work, we've identified multiple opportunities in retinal disease and corneal health, where chronic conditions affect large patient populations and conventional treatment options have significant shortcomings.

Our strategy is to build two new, disruptive and durable franchises, retinal disease and corneal health, following a similar blueprint that brought success with our glaucoma business. Our focus is on superlative long-term growth. Our expansion plans have been carefully conceived and are based on our seasoned ophthalmic experience across multiple disciplines. We believe this growth strategy can generate further potential risk-adjustment value creation, as our addressable opportunities dramatically expand from $13 billion in glaucoma to roughly $54 billion cumulatively.

Over the past several months, our strategy has started to take shape, as we advance promising organic programs and broaden our pipeline opportunities. First, let's talk more about iDose, one of our most important organic programs.

In addition to the Phase 3 clinical trial progress I referenced earlier, we are continuing to follow iDose Phase 2B study subjects through 3 years. Based on late-breaking readout, follow-up data at two years -- this is for the full cohort -- continue to demonstrate favorable iDose performance and durability. For competitive reasons, we have no current plan to publicly share this data, and of course, the Phase 3 clinical results will be the principal determinant of iDose's success. However, we are extremely encouraged by the Phase 2B follow-up and what it tells us about the commercial viability of iDose. In addition, I am excited to announce today that we are in late-stage development with finalized designs for next-generation iDose extended-release implants that, in a similar size and form factor to the original iDose, are designed to provide nearly twice the drug capacity to extend efficacy durations even longer.

Next, let's talk about retina. With the recent acquisition of DOSE Medical, we've established a foundation for our future retinal disease franchise. Our new retinal R&D program includes multiple micro-invasive, biorotable, sustained-release drug delivery platforms that are designed to be used in the treatment of various retinal diseases, including age-related macular degeneration and diabetic macular edema. This program's primary goal is to develop treatment options capable of a meaningfully longer duration of effect than is available with current standard of care. We believe a longer-lasting approach with the potential to not only significantly reduce the treatment burden, but also potentially improve treatment efficacy, could prove disruptive within these large categories.

On the corneal health front, we recently entered into a global licensing agreement with Intratus, giving us a global exclusive license to develop and commercialize their patented, transdermal drug delivery platform designed for treatment of dry eye disease, glaucoma, and other corneal disorders, such as allergy, blepharitis, conjunctivitis, and related conditions. Intratus’ patented, cream-based drug formulations are applied to the outer surface of the eyelid for transdermal delivery of pharmaceutically active compounds to treat eye disorders. Early human studies of this novel delivery system have demonstrated efficacy, while limiting the side effects often associated with drugs delivered as topical eye drops. Intratus’ lead candidate will be for the treatment of dry eye disease, with potential future applications for other corneal disorders and glaucoma. This agreement adds a novel platform to several organic corneal health R&D initiatives we already have in place.

But of course, the centerpiece of our new corneal health franchise is intended to be Avedro, where their team has made tremendous early progress, as evidenced by revenue growth of 66% through the first half of 2019, compared to the same period in 2018. Since receiving FDA approval for the Photrexa ophthalmic solution in April of 2016, and commercially launching in September 2016, Avedro has secured more than 300 active U.S. customer sites, and its drug formulations have been used in over 25,000 treatments. There are now more than 130 peer-review publications supporting the performance of Avedro's solutions.

On the reimbursement front, Avedro obtained a product-specific J-code for Photrexa that became effective in January 2019, and has secured broad coverage for nearly all national commercial payers, facilitating access to approximately 95% of commercially covered lives. Moreover, like Glaukos, Avedro has shown a commitment to innovation, with a robust portfolio of next-generation and new-pipeline products that have the potential to significantly expand its addressable opportunity. Even though keratoconus is a serious, sight-threatening disease and a leading cause of full-thickness corneal transplants in the United States, it remains vastly undertreated. This is due primarily to under diagnosis and underwhelming conventional treatment options, such as eyeglasses or contact lenses, that attempt to provide some symptom relief, but do not slow the progression of the disease. Literature estimates that as many as 20% of keratoconus patients ultimately require a corneal transplant, a costly and invasive procedure with high failure rates. In fact, literature suggests that 72% of corneal grafts fail within 20 years, and 98% fail within 30 years. Sadly, as the disease onset is often diagnosed in teenage years, keratoconus patients may require multiple transplants over one's lifetime.

Avedro's Photrexa is the first-ever bio-activated ophthalmic pharmaceutical therapy, and unlike antiquated approaches, is the first and only treatment option approved by the FDA to actually slow or halt the progression of the disease. While adoption remains in the early stages, we believe there are tremendous opportunities to drive meaningful penetration and realize exceptional growth in this under-penetrated opportunity. Glaukos and Avedro are similar hybrid organizations, and as I said at the top of the call, there are pronounced similarities that underpin the transaction's strategic benefits. By virtually every measure, Glaukos is uniquely qualified to leverage its expertise, establishing MIGS in order to build Avedro into a durable, global health franchise, capable of delivering near- and long-term sustainable growth.

Now let's talk more about the strategic benefits this transaction will provide. First, Avedro fits perfectly with our commercial organization. We plan to leverage our global commercial infrastructure and establish sales, marketing, and market-access teams to accelerate the market awareness, development, and adoption for Avedro's novel solutions. More than 700 of Avedro's 1,100 U.S. targeted accounts are comprehensive ophthalmology practices where Glaukos maintains strong existing relationships. This represents an immediate opportunity to leverage our relationships in these accounts to grow the awareness about keratoconus, capture physician mind share, drive new adoption, and increase Photrexa utilization.

The addition of more than 75 Glaukos sales professionals will dramatically expand the field presence, sales reach, and coverage of Avedro's current 17-person U.S. sales field organization. Our sales professionals have established partner-like relationships through years of working with physicians and their office staff in areas such a training, patient screening, new technology practice integration, and consumer engagement. Following closing of this transaction, we plan to utilize our entire salesforce on day one, and over time, expand a newly-created corneal health specialty salesforce to accelerate commercialization. This will also establish a commercial foundation in corneal health for future product launches.

We will also utilize our powerful customer- and payer-facing market access teams, including field-based reimbursement specialists experienced in coverage coding, contracting, claims processing, and payment processes. We plan to deploy our extensive market access capabilities to bolster Avedro's payer and provider education and patient support initiatives, to help drive more consistent and reliable commercial reimbursement for Avedro's customers and patients. Internationally, Glaukos’ established direct sales infrastructure in 16 international markets will be deployed, for local leadership, distributor management, and reimbursement. Finally, we plan to accelerate our combined investment in the optometrist referral channel. The combined entity will have additional resources to further awareness in this important community, optimizing relationships and improving patient care.

Second, the acquisition of Avedro can significantly accelerate our revenue growth trajectory as a synergistic cornerstone of our new corneal health franchise. In the U.S., keratoconus disease affects roughly 1.1 million eyes, representing a large and relatively untapped opportunity of $3 billion. In addition, Avedro's pipeline programs for refracted indications could expand this addressable market opportunity by over $23 billion. Avedro delivered 66% revenue growth through the first half of 2019, compared to the same period in 2018, and anticipates 2019 revenues of $38 million to $41 million. We believe that the addition of Avedro's fast-growing product portfolio will increase Glaukos’ revenue growth rate in 2020. We also believe the combined organization's global salesforce and reimbursement scale can potentially drive revenue synergies, further accelerating the revenue growth trajectory for the combined organization, beginning in 2021.

Third, the addition of Avedro further solidifies our unique hybrid pharmaceutical and device strategy. Both companies have a uniquely similar hybrid pharma and device profile that should allow for a seamless integration and future organizational success. One example of this is Avedro's successful achievement of a combination [pro-fee] and J-code therapy reimbursement. This will be an important area of expertise to leverage as we embark on similar reimbursement pathways for our future products, including iDose.

Fourth, the respective organizations will combine to strengthen our companies' organic programs, initiatives, and R&D capabilities. This includes what will be a highly complementary hybrid technology and pharmaceutical organization with expanded core competencies in device, optical and software engineering, analytical chemistry, applied research, and drug delivery innovation. These expanded pharmaceutical and R&D capabilities will help fortify and advance our promising internal, preclinical corneal R&D programs. In addition, the combination will allow Glaukos to deploy its extensive clinical research infrastructure and global regulatory expertise that, in total, includes more than 75 professionals and over 100 active clinical investigator sites to advance Avedro's pipeline programs. We believe our track record and expertise in bringing new innovations to the market can help strengthen and advance Avedro's rich pipeline of new and next-generation products that could accelerate adoption and significantly expand its addressable opportunity over time.

Fifth, we believe the transaction is attractive financially and will create meaningful shareholder value for all stakeholders. In addition to our expectation for this transaction to accelerate Glaukos’ revenue growth rate in 2020, we expect this combination will generate annualized cost savings synergies of at least $15 million and be accretive to operating results and cash flow by 2021.

As we look forward from here, Avedro's commitment to innovation is evident in its healthy, market-expanding portfolio of next-generation and new pipeline products. The first of these is a next-generation bio-activated pharmaceutical solution for progressive keratoconus, known as epi-on therapy, which is designed to shorten treatment times and improve patient comfort versus the first-generation epi-off therapy. Avedro completed the patient enrollment for its Phase 3 pivotal clinical trial in May of 2019 and is targeted -- and is targeting data in the second half of 2020, with FDA approval expected in late 2021 to 2022 time period.

Beyond the $3 billion U.S. keratoconus market opportunity, Avedro is leveraging its platform solutions to develop and pioneer novel, single-applications of bio-activated topical ophthalmic pharmaceuticals for refractive conditions, such as presbyopia, low myopia, and post-cataract refractive error, which combined are estimated to have an addressable opportunity of approximately $23 billion in the United States. Avedro has commenced a Phase 2A multicenter clinical trial outside the United States to investigate the use of its novel bio-activated topical pharmaceutical solution to treat patients with presbyopia, a refractive disorder due to aging that affects over 50 million people in the United States alone. The results of the Phase 2A study are expected by the end of this year, and will be used to optimize the therapeutic parameters for presbyopia and determine the appropriate U.S. clinical and regulatory pathway.

Putting this all together, we could not be more enthusiastic about this announcement, and believe the acquisition of Avedro will provide a significant growth engine for our company and create meaningful shareholder value in the years to come.

So with that, I'll turn the call over to Joe to discuss the financial aspects of this transaction, as well as our second quarter financial results. Joe?

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [6]

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Thanks, Tom. I'll first walk through the transaction terms and financial benefits, followed by a summary of our second quarter financial results.

Under the terms of this agreement, Avedro will merge with a subsidiary of Glaukos in an all-stock transaction. For every one shareholder -- or share Avedro stakeholders hold, they will receive an exchange ratio equivalent of 0.365 Glaukos shares, which implies a per-share value of $26.68 and a total transaction value of approximately $500 million, based on Glaukos’ closing share price on August 7, 2019. The transaction represents a premium of approximately 42%, based on both companies' 60-day volume-weighted average price. Upon closing, Glaukos shareholders are expected to own approximately 85% of the combined company, with Avedro shareholders owning the remaining 15%.

As Tom highlighted earlier, we believe this transaction is financially compelling for us. Through the first half of 2019, the companies generated combined sales of $131.7 million, an increase of 39% compared to the same period in 2018. As we look forward, and as Tom discussed, we expect Avedro to increase our revenue growth rate in 2020, and we expect to realize revenue synergies that could further accelerate pro forma revenue growth beginning in 2021. The transaction is expected to generate annualized cost savings of at least $15 million through reducing public company and administrative costs, and is expected to be accretive to operating results and cash flow by 2021. The transaction is expected to close in the fourth quarter of 2019, subject to the satisfaction of customary closing conditions, including Hart-Scott-Rodino clearance, and the approval of Avedro shareholders.

Now let's discuss our second quarter financial results. As noted earlier, net sales for the second quarter of 2019 were $58.6 million, a year-over-year increase of 36%. The U.S. represented 82% of our sales in the quarter, and international 18%. In the U.S., second quarter 2019 sales were $48.1 million, up 32% from the same period a year ago. U.S. sales in the quarter primarily benefitted from continued market growth, the launch of iStent inject, and the competitive market developments that occurred late in the third quarter of 2018.

Outside the U.S., second quarter sales were $10.5 million, an increase of 53% from the same period a year ago, or 64% on a constant-currency basis. Our international business continued to outperform expectations, driven by broad-based growth, including in the U.K., where second quarter performance was stronger than expected, even though we continue to expect recent reimbursement cuts there may create future headwinds.

Our gross margin in the second quarter was 86.6% versus 85.7% in the same quarter in 2018. Gross margins benefitted from elevated iStent inject production levels associated with the U.S. launch and initial inventory build. We continue to expect our core gross margins to remain in the mid-80% range going forward.

SG&A expenses in the second quarter rose 31%, to $37.7 million, versus $28.6 million in the year-ago quarter. This rise reflects higher personnel and other costs related to the ongoing expansion of our domestic and global infrastructure, investments associated with the iStent inject launch, professional fees associated with legal services, and approximately $3 million of global enterprise systems implementation expenses.

R&D expenses rose 35% in the second quarter to $17.1 million, versus $12.6 million in the same year-ago period. And we also incurred a $2.2 million in-process R&D charge associated with the acquisition of DOSE Medical. The rise in R&D expenses reflects primarily the cost of additional personnel as we expand our pharmaceutical R&D capabilities, and within clinical research, where in particular, the direct cost associated with the iDose trial enrollment continues to increase. We expect the transactions involving DOSE and Intratus to add as much as $5 million of R&D expense in the second half of 2019.

We finished the second quarter with a net loss of $6.3 million, or $0.17 per diluted share, compared to a net loss of $5.4 million, or $0.15 per diluted share in the second quarter of 2018.

As of June 30, 2019, we had cash, cash equivalents, short-term investments, and restricted cash of $159.2 million, compared to $120.1 million at the end of the second quarter of 2018, and $149.3 million at the end of 2018. We now expect capital expenditures for 2019 of $5 million to $10 million, given our decision to expense a cost associated with our global enterprise systems implementation and updated timing estimates for our new headquarters development.

We are updating our 2019 net sales guidance to $226 million to $231 million, compared to $225 million to $230 million previously. This guidance outlook takes into account the 2019 considerations we outlined in prior calls, including our expectations for organic growth, the MIGS market landscape, and competitive dynamics, the new doctor training dynamics associated with our inject launch, and the expansion of our international sales, which we now expect to be in the range of $38 million to $40 million for the full year, based on current foreign exchange rates, compared to our previous range or $37 million to $39 million. Please note, this revised guidance does not include (inaudible) contribution from Avedro.

And with that, I'll turn the call over to Tom Griffin for a review of Avedro's second quarter financial results.

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Thomas E. Griffin, Avedro, Inc. - CFO [7]

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Thanks, Joe. For the second quarter of 2019, Avedro revenue grew 63% to $10.3 million, compared to $6.3 million in the second quarter of 2018. Worldwide drug revenue accounted for approximately 88% of our total revenue for the second quarter of 2019, and revenue from the United States accounted for approximately 80% of the total revenue in the second quarter of 2019. A $4.2 million increase in U.S. revenue drove the growth, primarily from a $4.3 million increase in drug revenue, driven by expanding average revenue per unit and volume of drug formulation sold.

The utilization rate strengthened in the second quarter of 2019 to 2.81 Photrexa treatments per account site per month, compared to 2.1 in the second quarter of 2018. As of June 30, 2019, we have 332 active centers in the United States, which we estimate is a 30% penetration into our 1,100 target centers. We now expect 2019 revenues to be in the range of $38 million to $41 million, compared to our previous range of $37 million to $40 million. Our upwardly revised outlook implies anticipated annual growth of 43% at the midpoint of the range.

I'll now turn things back to Tom for a few closing remarks.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [8]

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Okay, thanks, Tom. So I'll wrap up by reminding you that our goal at Glaukos is to build durable, disruptive franchises in large and growing markets where we can leverage our core competencies in micro-scale surgical, sustained pharmaceutical, and hybrid platforms across glaucoma, corneal health, and retinal disease. The acquisition of Avedro, combined with our promising organic initiatives and other strategic expansion plans, create a hybrid pharm and device ophthalmic leader, which we believe is ideally positioned to deliver sustainable long-term growth and create meaningful shareholder value for years to come. I could not be more enthusiastic about the future of Glaukos, as we embark on our aspirational mission to transform ophthalmology.

By turning the call over for questions, I want to express my deep appreciation to Avedro's talented and dedicated employees. We look forward to working closely with them to plan the integration and ensure a seamless combination.

So, with that, I'll open the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Robbie Marcus with JPMorgan.

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K. Gong, JP Morgan Chase & Co, Research Division - Analyst [2]

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Hi, this is actually Allen on for Robbie. I guess one question is kind of on that $15 million. You know, part of the rationale for the deal really is the cross-selling opportunity, right? So I guess, when it comes to generating that $15 (inaudible), where is that going to come from.

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [3]

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Hi Allen, it's Joe. With respect to the $15 million, you're absolutely right in the way you asked the question. I mean, this is ultimately about our ability to achieve the channel synergies and drive revenue growth, especially as we get towards 2021.

On the cost savings in particular, it really comes primarily from public company costs, as well as what you'd expect on the sort of administrative side. And, you know, given the current size of Avedro, there's a lot of things that they continue to do that rely on third-party consultants and expenses associated with that that we believe, you know ultimately, we can do in house here with our existing infrastructure at Glaukos.

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K. Gong, JP Morgan Chase & Co, Research Division - Analyst [4]

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Got it. And then, I guess when -- just moving on to guidance. So, you know, it looks like you guys raised it a little bit, but given you already raised guidance a little bit conservatively on the first quarter call, I know you said that U.K. was a little bit stronger this quarter, but looking into the back half, right, like what's kind of keeping you guys a little bit, I guess, you know, a little less -- a little more conservative on the guidance (inaudible) concerns you there?

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [5]

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Sure, Allen, it's Joe again. I'll break that down between the United States and the international markets. You know, internationally, it quite frankly is sort of what we said on the first quarter call. While in the second quarter, the U.K. actually performed quite well, the cuts did happen in April, and we do know that over time, that's going to be a headwind to that market in particular, even though it wasn't as much of a headwind in the second quarter as we anticipated. So I think as we continue to play our way through the U.K. situation, we want to make sure that we're appropriately capturing that and are thinking about international guidance.

In the U.S., you know, we usually talk about a series of topics and the dynamics around the -- the trends associated with our U.S. business. And what I'll say sort of simply is, you know, all the trends that we saw in the first quarter really continued in the second quarter, with very little change, if you will. But having said that, in the context of competitive trying and trialing, you know, we continue to expect to see it, and we continue to expect to see some growth in it. And so, I think as we think about the setup for the second half, we want to continue to be cautious about what that could mean for our U.S. business, even though, to your point, thus far in the first half, we've been delighted with the results we've seen.

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K. Gong, JP Morgan Chase & Co, Research Division - Analyst [6]

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Got it. And then, sorry, just one more. When it comes to Avedro, do you think it can help with kind of a halo effect of [injected] iDose? Does that give you a better presence in the office, since you have such a differentiated asset starting in fourth quarter? Thanks.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [7]

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Well, I'll answer that. This is Tom, and I think it does have an appreciable effect. I mean, we'll be entering in with a paradigm-changing new pharmaceutical ingredient into the offices where, really, as we think about it, of the current 1,100 targeted accounts that Avedro is approaching, we are already actively addressing 700 of them. So we have intimate relationships with, really, the vast majority of the targeted accounts, and with something that is such a paradigm-changing solution that can help such an underserved marketplace, of course I think it's going to add value with our representatives entering into these practices.

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Operator [8]

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Your next question comes from Larry Biegelsen with Wells Fargo.

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Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Analyst [9]

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Congrats on the deal. Tom, one on Avedro; Joe, one on the guidance. So, Tom, why is this the right time for this deal, you know, given your strong pipeline? You know, I'm sure you've known Avedro for a long time, so why is this the right time?

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [10]

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Yes, thanks Larry, great question. So we believe that the opportunity and the timing of this transaction are a deal at this time to fortify our long-term growth potential. So both companies have just come off record second quarter revenues, and we're both really strongly positioned in our respective marketplaces. And Glaukos really has just completed its treatment algorithm in glaucoma, which is designed to really give us sustained commercial growth and sustained competitive advantage, well into the mid-2020s and beyond.

So with the capstone agreement with Santen, we've now capped off a full portfolio of products that treat glaucoma, from its most incipient stages to late-stage treatment, so it's incumbent upon me to look for long-term growth potential, and we believe we have the opportunity to build powerful commercial franchises within this corneal commercial class, just like we've done in glaucoma. The characteristics of the class, a vastly underserved market, are very, very similar to what we did with MIGS, and Avedro is an ideal partner. You know, if you think about it, Avedro has a paradigm-changing technology. It already has very, very strong foundational clinical data. It's established its J-code and a solid reimbursement foundation. It's the first to market in this vastly underserved, embryonic marketplace. And it's be able to address, with really a palpable new product to address these unmet clinical needs.

And I would say that the transaction really plays to our strengths in two major ways. One, we believe we're very good at disrupting and creating new marketplaces, so I would argue that just what we've done in glaucoma, by setting up this template and this portfolio, that gives us such a sustained quality competitive advantage. It's a challenge and an opportunity for us to do this within cornea as well, and we are -- we have every intention to do so.

And then, secondly Larry, if you think about the commercial fit within the organization, it is enviable. We'll have 700 of the 1,100 accounts that are currently targeted we already call on, so we'll have kind of a very, very modest change in bandwidth for our commercial organization. And if you think about it, you know, what Avedro's been able to accomplish with 17 representatives now, with the new math, we'll have nearly five times the mass and muscle in commercial sales representatives hitting the marketplace.

And so, for all these reasons, it is the right opportunity, it is the right time, and it's why we're striking now.

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Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Analyst [11]

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Perfect. And then, just one follow-up for Joe. Just the cadence of growth in Q3 and Q4 for standalone Glaukos, given that the comps get tougher in Q4. And, Joe, the midpoint of the second half guidance implies growth of about 18%. You know, is there any read-through there? How should we think about maybe puts and takes for, you know, 2020, as we kind of update our models here?

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [12]

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Sure, thanks, Larry. Well, let's think about this for 2019. You know, obviously, as we think about the remainder of the year, you have to remember first the seasonality that we tend to experience, right? And as we've said in the past, you know, the first quarter can be 22%, 23% of our overall business. The Q2, Q3 tends to be about 25% of the year, each, and Q4 tends to be somewhere in the 27% to 28% ZIP code. I think that's the most important determinant when you think about the setup for the overall year. Obviously, we've had, you know, a variety of puts and takes, but as we look at it, I think it actually should land us back in a place that looks somewhat like that typical seasonality.

You know, when you think about the implied growth in the second half, obviously you've got comparability to the second half of 2018. And as I think everyone on this call knows, you know, the recall associated with CyPass happened, really, as we went into September, so the tail end of the third quarter of last year, and the fourth quarter really had a full run rate of that CyPass recapture in it, and that will temper the year-over-year growth percentage as we think about the fourth quarter.

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Lawrence H. Biegelsen, Wells Fargo Securities, LLC, Research Division - Senior Analyst [13]

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That's helpful, Joe. Any just color on, you know, puts and takes for 2020, given that 18% implied second-half growth? And I'll drop, thank you.

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [14]

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Yes, no, I mean, I think when we think about 2020, and we'll obviously get to that when we get to our fourth quarter call and the guidance there, but I think it continues to be all about execution, about the addition of new surgeons, as our salesforce gets back to bringing in new doctors more so than converting the existing physician base and utilizing the benefit of that. I think it's about the expansion of same-store sales, as we've talked about, that we believe comes with the conversion to iStent inject and getting a full-year benefit of that. And then of course, as Tom mentioned, depending upon the timing of the Santen product hitting, you know, we could potentially have some benefit from Santen in 2020 as well, but we'll obviously dial that in as we know the timing -- or more on the timing associated with that product.

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Operator [15]

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Your next question comes from Brian Weinstein with William Blair.

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Brian David Weinstein, William Blair & Company L.L.C., Research Division - Partner & Healthcare Analyst [16]

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Going back to the revenue synergy discussion, it seems pretty obvious that there's a good strategic fit here. You talk about revenue synergy in 2020, when -- and beyond. Why would you not be able to see anything sooner than that? It would seem that, you know, maybe plug-and-play isn't quite the word to use here, but pretty close to that.

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [17]

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Brian, it's Joe, and Tom or Chris can add on here. I think the way to think about it is, it takes a little bit of time to actually organizationally make all this stuff happen. So while we will be putting our full salesforce behind us day one, we know from deals like this, sometimes there can be disruption, right, that happens during that time as well. And so, I think we want to make sure that we've got, as we're setting expectations, that we think about 2020 as potentially having some puts and takes, right, as we navigate that, and that we're confident by the time you turn the corner to 2021, you should start to see the benefit of this combination in the context of the ability to grow above what the expectations would be on a standalone basis.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [18]

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And I would just add and say Avedro's done a wonderful getting the J-code and putting into place commercial payer coverage. You see how well defined they are and how much commercial payer coverage they have. But there's always a hangover, right, with the doctors, who express some skepticism that that coverage and payment is available, so it takes some -- you know, there's a little bit of a Missouri show-me state that's going on, and Reza can add to this as he deems fit, within the commercial organization. It takes a little while to overcome, and I can't imagine a better combined company than us and Avedro to be able to attack that and to make payment a routine part of the use of Photrexa in the marketplace. But it will take some time.

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Reza Zadno, Avedro, Inc. - President, CEO & Director [19]

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Yes, I'm going to have to -- I agree with what Tom is saying. We definitely have now more than 95% coverage, and Photrexa, there's a J-code for that. All the nationals are covering it. Most regional insurance are covering. There are a few regionals left, so those are still, we need to work with them. Again, that's why we're still, as Tom mentioned, still need some support for accounts to -- for those regional insurance to pay this consistently.

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Brian David Weinstein, William Blair & Company L.L.C., Research Division - Partner & Healthcare Analyst [20]

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Okay, and then not sure if Reza or Tom, you guys want to -- which one of you want to address this. But just to kind of educate those of us that are going to be coming up to speed quickly on Avedro here, can you just talk about the pharma pipeline that Avedro has, kind of where the company is in their various processes, and how you guys think that the two organizations together can actually help accelerate R&D and commercial -- well, we talked about commercialization, but just, I guess, how you guys can jointly accelerate the R&D on both sides of the house. Thank you.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [21]

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Thanks, Brian. I guess I'll ask Reza, who has been so prominent in bringing this fulsome pipeline into reality, to address the first part of the question, and then I'll try to address how, as a combined business, we can accelerate and move that forward. So, Reza?

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Reza Zadno, Avedro, Inc. - President, CEO & Director [22]

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Yes, so the first product that received FDA approval was the Photrexa. That's the only FDA approved for the treatment of progressive keratoconus. We just, as Tom mentioned, completed the enrollment of a clinical study for the next-generation treatment with a new drug, epi-on. The enrollment of that is complete, and we are in the one-year follow-up on that. And then, separately, the Phase 2A is a different -- for every application, we have a system, activation system, and its own corresponding drug. So these are the two studies currently in the clinical.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [23]

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And as far as the combined business, if you think about it, already the -- Avedro has shown really strong prowess in creating, using both optical and scanning boxes in order to bio-activate these pharmaceutical compounds and transform them on the surface of the eye. It's really quite an amazing accomplishment, what they've done. But I think when we put them and combine them with now the greater than 30 scientists, engineers, biochemists that we've been able to recruit from Allergan and other major companies, I can't help but think we're going to add substantial intellectual capability to what we'll be able to create as a combined company.

And in the clinical side, you can imagine as a small company, typically you have a spartan clinical group as you look to husband resources and get the highest returns. And I think when we combine Avedro's clinical group with our substantial clinical and regulatory infrastructure, I'm very, very encouraged to see how quickly we can attack both clinical recruitment, and maybe bring these products to fruition and to approval in a more expedited fashion.

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Operator [24]

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Your next question comes from Matthew O'Brien with Piper Jaffray.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [25]

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Just one quick housekeeping one. Joe, what kind of collar do you have on this transaction?

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [26]

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This transaction actually does not have a collar attached to it.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [27]

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Okay, and then, you know, Tom, forgive me for being blunt here with this question, but I think, I think people are going to look at what's going on today with the in-process R&D charge. You're talking more about iDose extended release now, which is a newer thing for you. You're doing Avedro as well, on top of that, which has a lot of products in the pipeline. So I think what people are going to assume here is that something's wrong in the pipeline with traditional iDose as you had presented it, or with infinite or something else along those lines. So what can you offer up to make us all confident that there's not some other issue with the pipeline that's causing you to do this Avedro deal, or something with the core business that's causing you to do this Avedro deal as you're lapping tough comps into next year, et cetera?

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [28]

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Well, I guess what I would say, if we're accused of anything, we'd be accused of great ambition, okay? And if you look at my career, this is not anything new. In all the roles that I've had within several companies, I will certainly test and challenge organizations to move forward in an expedited fashion to create growth in as many areas as I can conceive, and I think that will benefit shareholders.

And so, I won't address something that I can't approve or disprove that kind of a perception, but what I can tell you is that if you think about the logic behind a company now that has really rung the bell within glaucoma, has a fulsome, dedicated pipeline that treats all stages, from incipient glaucoma to late-stage glaucoma, carries us through with commercial value into the 2020s and beyond, I think it's time for us to be able to look beyond into another growth area where we may be able to recreate this opportunity and recreate really prominent shareholder value. And so, that's how I'd answer the question.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [29]

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Okay, fair enough. And then, maybe something that's a little bit softer. Just the Santen deal, you guys haven't put a lot of air bars around what that's going to look like from a contribution perspective in '20 or beyond. Can you talk a little bit about that? And then also, the international side was really strong again this quarter. Just any color there would be helpful. Thanks.

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [30]

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Thanks, Matt. Thanks for saving the softer question for me. So on the Santen side, we really have to work with our partner before we can share much more. So what we've said there, quite frankly, is let us get through them having submitted and where we can talk more about potential timelines and coordinate with them around what we will and won't say publicly around the economics of that transaction. And all I can say sitting here now is what they've said, which is they expect a filing in 2019 and approval and commercialization in 2020, and we're preparing accordingly alongside them.

Regarding international performance there, we really, we couldn't be more pleased. We continue to see another quarter of broad-based growth, reported at 53%, constant currency of 64%. It was across the globe. Our usual stalwart markets contributed meaningfully. Newer markets like Japan and France contributed meaningfully. And perhaps the surprise for us, relative to the setup going in as I mentioned in the prepared remarks, was that the U.K. held in there much more robustly than we anticipated coming into the quarter. So that's really kind of where we sit today from an international perspective.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [31]

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And one more thing I'll add, Matt, is if you think about -- you talked about the strength of our portfolio. I think you heard in the prepared remarks that we now have, with late-breaking readout, we have this view of the Phase 2B data now out to two years. This is new. This is the first time I'm reporting it publicly, and the data shows durable, durable reductions in intraocular pressure and reductions in medication burden. This is exciting, and this is something that should give investors even more confidence in the path and the route that we're choosing.

And then, supplemental to that is the fact that we figured out how to have a form factor that can look and feel very close to the initial eye dose, that holds nearly two times the level of medication within its tiny vessel. And so, if anything, I think people's confidence and strength and conviction should be buttressed by this call and by the pipeline that I'm asserting.

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Operator [32]

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Your next question comes from Chris Cooley with Stephens.

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Christopher Cook Cooley, Stephens Inc., Research Division - MD [33]

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Let me just start by congratulating Tom and Reza both. It's a potentially powerful combination you guys are putting together, and I look forward to seeing what you do here. Maybe first for me, Tom, if you wouldn't mind, just give us some additional color as you evaluated the Avedro transaction, things that you were considering, whether it's either the extension of exclusivity now, potentially out to the 2027 period, competition outside of the United States that has an epi-on offering as it stands today, and of course, the pipeline. I'm assuming most focus there on both low myopia and presbyopia. But just maybe walk us through how you kind of weighed those kind of they're key tenets in evaluating the transaction, and I've got one quick follow-up.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [34]

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Okay, I'd be happy to weigh in on what I found attractive about the organization as I grew to know it, and please corral me if you want me to readdress the three tenets you talked about. But first, I looked at really the paradigm-changing technology that is resonant, and the fact that this is such a vastly (inaudible) and embryonic marketplace. I mean, if you think about it, keratoconus is dramatically underdiagnosed, and there had been no treatment options, so this is the first of its kind. And it happens to replicate what we faced with MIGS, entering with the first iStent. The pipeline is fulsome and extraordinary. It offers the ability to really make this a value proposition, if you think about it, of using a single application of a pharmaceutical to arrest a sight-threatening disease. And when you think about that in context, I get terrible excited as an N of one and as a potential patient, if I had keratoconus, to know that I could come in, and with a topical application of a pharmaceutical that's activated by UV light and transformed on the surface of the eye, that I could arrest the progression of a sight-threatening disease, and perhaps be able to ameliorate a condition of having to have a corneal transplant later in life.

These are things that are powerful, palpable, and high-valuation propositions for patients. When I look at the strong clinical data they have, I think the numbers are something like 130 peer-review studies. There are studies that Avedro's been part of, and it's studies that have been done. The appetite for this area is extremely strong, because a lot of these had been done with non-granted, physician-sponsored studies. And so, I know that the appetite is there, and that with the right channeling, that we can be able to access this.

When I saw that Avedro had created the J-code, to me, that offers up a -- it retires a risk and offers up a principal advantage. It's what we'll do with iDose. It's what I've done in my career with other products. They were successful in creating it. It's going to be able to facilitate the adoption of this technology and of the formulations going forward.

The fact that they're first to market is, to me, a very, very high-value proposition for us. We're going to have open field running, in combination with Avedro, to be able to create an installed base that will be, I think, invariably difficult for any future competitor to try to unwind, and I like being in that position. It's what we're good at, and it's what we intend to be able to address and to achieve.

I like the team. The team is focused. The cultures are similar. I believe that the transition will be relatively seamless. I've done a number of these. No integration is without bumps, but I can't imagine a more trusting team and a team that I'd rather work with moving forward.

So as I look at all those, plus the principal opportunity of time, again, we have really advanced ourselves and created this fulsome opportunity with glaucoma. And, to me, it gave me time to take a deep breath and look beyond and see if I can't create some significant shareholder value in other areas, as we move the business forward.

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Christopher Cook Cooley, Stephens Inc., Research Division - MD [35]

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I appreciate all the detail there, and then maybe I'll keep in line with everyone else, and I'll give Joe the softball then. So much going on right now, and you just talked about $15 million in incremental cost savings as we go into 2020, from a reduction more so in the corporate costs. It seems with the added infrastructure, with the various R&D projects here, you have a pipeline that's pretty formidable. So how should we think about additional spend that may be required to run the business going forward? You're blessed with an incredibly talented team for a business of any scale, but what type of incremental investment should we be thinking about for Glaukos now moving out, since you're obviously going to be folding in the Avedro organization as well? Thank you.

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [36]

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So, first, I just want to make sure with one quick correction on that. Our expectation of the $15 million plus run rate is as we make our way toward 2021.

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Christopher Cook Cooley, Stephens Inc., Research Division - MD [37]

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I'm sorry.

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [38]

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There will be a period of time (inaudible) those. But yes, as we think about the overall operating expenses and investment we're making in the business, the way I would answer it is this. I think the history is in some ways the best predictor of the future. You have a pretty good sense of the way we've run the organization here to date, in that we've largely lived within our means, right, since the time of the IPO. We've made substantial investments in the pipeline as it exists today organically over the last several years, while still generating cash, quite frankly, at the end of the day, and again, largely living within our means. So while there may be periods here as we see opportunity to push forward investment, and to reiterate what Tom said, long-term growth is our objective, I think that our historical track record speaks for itself in the context of being able to deploy and invest in a prudent way.

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Operator [39]

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Your next question comes from Joanne Wuensch with BMO Capital Markets.

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Steven Plachtyna, BMO Capital Markets Equity Research - Senior Associate [40]

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Hi, this is Steve on for Joanne. Can you guys just discuss some of the market dynamics in the U.S. in the quarter? Are you still expecting mid-teens volume growth for the year? And then, just as a follow-up to that, can you add any more color on the same-store, new-store sales in the quarter with the inject launch? You know, what was the salesforce's ability to go on the offense and convert new physicians in the quarter? Thanks.

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [41]

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So I guess a couple things on that, first in the broader market dynamics. As I started off earlier in the call, largely unchanged from what we saw in the first quarter. I think the market growth continues to kind of be in line with our expectations, and we continue to track towards what we believe, based on the information we have, is mid-teens growth for the year. I think, you know, the CyPass dynamics are unchanged in terms of the share recapture there. The competitive landscape is largely unchanged, in the context that we continue to see trying and trialing, and it continues to be an important component of what we're seeing in the marketplace, but that so far continues to track a little bit below what our internal expectations had been. So I think from a market perspective, we're not really seeing much different in Q2 than what we saw in Q1.

I don't know, Chris, if you want to comment on what you're seeing within the salesforce.

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Chris M. Calcaterra, Glaukos Corporation - COO [42]

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Sure. Steve, this is Chris. I would say that the only difference from the first quarter -- or, excuse me, from the first quarter in the second quarter is, toward the end of the second quarter, we're now beginning to gradually move towards adding new docs, more than we did since the launch of iStent inject. We had primarily been focused on converting our iStent users to iStent inject. Now we begin to focus on increasing utilization, or same-store sales growth, as you asked, within our existing accounts, and adding more new docs as we head into the second half of the year.

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Operator [43]

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Our next question comes from the line of Ravi Misra.

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Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [44]

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Just a couple (inaudible) and then just a couple on the pipeline, the kind of existing pipeline. So you mentioned the 700 of 1,100 Avedro accounts. I'm just wondering, are you willing to provide any color around the 700 and kind of what percentage of your accounts that represents, so we can get a handle of how Avedro can go after your market? And is there any break-up fee on that, and I guess I'll wait post the response to ask the pipeline question.

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Chris M. Calcaterra, Glaukos Corporation - COO [45]

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Ravi, it's Chris. I'm going to address the first part, and then I'll turn it over to Joe about the break-up fee. In terms of those 700 accounts, these are all accounts that we're calling on. In terms of what the percentage is where we have business, we're not in a position to discuss that. But as you look at that, the vast majority of these accounts, which are comprehensive ophthalmologists, are accounts where we're already in, and that is very exciting to me. And it's quite synergistic for our people to be able to not only talk to them about glaucoma therapy, but corneal health as well. So I'd look at this as a great opportunity to leverage the two businesses. I think there's a lot of synergies here, and I think this will be proven out moving forward.

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Joseph E. Gilliam, Glaukos Corporation - CFO & Senior VP of Corporate Development [46]

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And, Ravi, on the break-up fee front, you know, there is a customary break-up fee for a transaction of this nature.

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Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [47]

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Okay, and then, if I could ask around iDose, you spoke somewhat about the follow-up data, two years. Can you maybe help quantify that, compared to what you'd presented back in early January around the Phase 2 data and the 12-month data that you were seeing? And then, just one last one on my end. Just where are we on the kind of conversion from iStent to iStent inject? Is that kind of complete, or are we still kind of in the late innings there?

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [48]

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Thanks, Ravi. I'll take the first question, and while I have said that we have the full court in with the Phase 2B, I've purposely kept it at a very top line draw of talking about durable, appreciable decreases in intraocular pressure and medication burden. But if you think about that, what I've said from the very beginning is that we needed to have six months of delivery to have a commercial product. The ideal would be a year, and I've said that now constantly, I think since our IPO. And what I'm telling you today is that we have data that suggests that the product is delving intraocular pressure reductions and meaningful decreases in medication burden at two years.

So I haven't gotten, and won't get, more granular than that. Phase 3 will be the ultimate determinant of the iDose's success, and certainly, I want to be able to husband data away from potential competitors so that they don't know the true capabilities of this product. But I will tell you that I am more than enthusiastic and become increasingly convinced that iDose can become a very meaningful part of the glaucoma treatment paradigm. Chris?

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Chris M. Calcaterra, Glaukos Corporation - COO [49]

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As far as the second part, are we complete in terms of converting our iStent customers to iStent inject? We're largely through that process. And I do want to remind everybody that that's not going to be 100% conversion to iStent inject. What we've seen in other markets, in Germany, Australia, Canada, is roughly 90%. Not to say that that's what it will be in the U.S., but that gives you an idea of what's happened in other geographies.

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Operator [50]

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(Operator Instructions) Our next question comes from the line of Ryan Zimmerman.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [51]

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I want to follow up on Ravi's question a little bit, maybe ask in a little different way. I mean, understand that there's 1,100 accounts that Avedro's targeting and you're in 700 of those today. But from the accounts that Avedro hasn't identified, Tom or Reza, maybe you can characterize, of the cataract and refractive surgeons that are out there today, how many have interest in corneal health, or how would you characterize those that maybe have a corneal focus ophthalmologist or a corneal ophthalmologist who can do this, who maybe is not identified in those 700, or excuse me, 1,100 accounts, and what that looks like over time in their ability to get those revenue synergies that you're talking about in 2021? And then I have a follow-up question.

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Chris M. Calcaterra, Glaukos Corporation - COO [52]

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Ryan, this is Chris, and I'm going to address that one. Those additional accounts are refractive-only or cornea-only accounts, where they're specifically focused on that and wouldn't have any cross-over into glaucoma. So we'll address that in a different manner than just with our glaucoma team.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [53]

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Okay, understood. And then, I think, Tom, you made some commentary around a secondary group of sales reps eventually. So, you know, appreciating that you're going to combine or to leverage your existing salesforce into Avedro's sales channel, but maybe you could just talk about kind of the timing or when you think you could have maybe a more specialized salesforce, secondary to your existing salesforce today.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [54]

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Yes, I'd be happy to. So what I said before is that, Ryan, we had 75 representatives that are currently on the street in the United States, and that the total amount with Avedro are 17. Avedro has a very capable, highly qualified salesforce, and so what we want to be able to do is to see if we can't transform that salesforce into a specialized salesforce of what we'll call corneal health. And the deliveries will be a little bit different. They will be really supplementing the activities of the main salesforce. They'll be working strongly on utilization within practices, showing practices how to find these patients, how to identify them, how to sell them from the beginning opportunity and to alert them to this new pharmaceutical, single-use preparation. We also are quite skilled in the art at looking at OD referral networks, and trying to put ODs and optometrists in concert with ophthalmology practices. We do this all the time in glaucoma, and this corneal health salesforce will be dedicated to priming and utilizing those OD referral networks to be able to drive both identification, capture, adoption, and utilization of the Photrexa formula.

So I'm highly encouraged. There are great people on the ground today, both at Avedro and at Glaukos. We're going to spend some time really reviewing how we can put both these salesforces together so that the synergies are powerful.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [55]

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And just, Tom, if I could squeeze in one last one.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [56]

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Sure.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [57]

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What do you see as the ideal number? Given that they have 17 today, how undersized, in your view, is that salesforce, and where do you see yourselves taking that size over time, potentially?

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [58]

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Well, I think I wouldn't comment on kind of the upper scale. But what I would tell you is, if you think about it, what Avedro's accomplishing with 17 people is now going to be multiplied by, again, by the new math, by five -- or six, actually -- a total of over 90 combined people that are going to be able to go after the adoption and utilization of Photrexa. So I think, if I had to say today, I think that's going to be more than ample to be able to achieve the desired adoption rates that we'll want to see within the marketplace. But like all things, Ryan, we'll assess as we go. If we need to add more representatives, we will do so.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Director & Medical Technology Analyst [59]

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Thank you for taking the questions. Congrats on the acquisition.

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [60]

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You're welcome. Oh, thank you. Okay, so with--

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Operator [61]

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There are --

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Thomas William Burns, Glaukos Corporation - CEO, President & Director [62]

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Yes, so with that, first I'd like to thank Reza and Tom for their diligence in this process and really welcome their team into Glaukos. And I'd like to thank all of you for joining us today, for your time and attention, and for your continued interest in Glaukos, and now this combined entity. Thank you very much.

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Operator [63]

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Thank you for your presentation --

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Reza Zadno, Avedro, Inc. - President, CEO & Director [64]

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Thank you, Tom.

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Operator [65]

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Thank you for your presentation, and this concludes today's conference call. You all may now disconnect.