The medical device maker declared a profit andsaw its revenue soar on a big jump in sales for its tiniest product.
Q: Pat: What is your analysis of Glaukos Corp.? It was a new issue in 2015, and I know you don’t like those. Thank you, I appreciate any advice you can provide.
A:GLAUKOS CORPORATION (symbol GKOS on NYSE; www.glaukos.com) first offered shares to the public in June 2015 at $18 per share; the share price rose 73.4% in its first day of trading.
Glaukos develops and markets medical devices and therapies to treat glaucoma. That disease is the result of excessive pressure on the eye’s optic nerve; it’s also the leading cause of blindness.
The company’s main product is a small medical device called iStent, which helps to lower pressure on the optic nerve and so reduces further vision loss due to glaucoma. The implant is the smallest medical device to ever be approved by the Food and Drug Administration at 1.0 millimetres in length and 0.33 millimetres wide. Glaukos launched the implant in the U.S. in 2012.
Surgeons have now placed the iStent in thousands of patients, usually during cataract surgery. That operation involves replacing the cloudy lens of an eye with an artificial lens in order to restore vision.
During that same surgery, doctors implant the iStent after making a small incision in the cornea. The tiny L-shaped implant is made of titanium and provides a path for fluid to drain from the eye.
On February 2, 2017, the company promoted Chief Commercial Officer Chris Calcaterra to Chief Operating Officer, a newly created position. A 25-year veteran of the ophthalmology industry, Calcaterra will now oversee manufacturing operations in addition to global sales and marketing.
Also in February, Glaukos named Joseph Gilliam as its chief financial officer, replacing retiring CFO Richard Harrison. Gilliam comes from J.P. Morgan where he was in charge of its healthcare investment banking group. These two moves strengthen the company’s management team.
The company continues to expand outside of North America. This past year it added eight international markets to the five it directly services through its sales force.
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Glaukos’s revenue jumped 63.6% in the fourth quarter ended December 31, 2016, to $33.2 million from $20.3 million a year earlier. The increase was mostly due to increased sales of the iStent device—it’s now approved for use in 13 markets. That most-recent quarter is the 14th consecutive one with year-over-year growth of at least 40%.
Glaukos earned $134,000, or nil per share, in the fourth quarter. A year earlier, it lost $2.3 million, or $0.07 a share. The growing number of markets for the iStent—along with higher profit margins for the implant—let Glaukos generate its first full-year profit in 2016—it made $4.5 million, or $0.14 a share.
In the quarter, the company’s research spending increased 17.5% to $7.4 million (22.3% of revenue) from $6.3 million (31.0%) a year earlier. Glaukos ended the quarter with cash and short-term investments of $95.6 million, or $2.82 a share. It has no long-term long debt.
The company reported revenue of $114.4 million in 2016, up 59.5% from $71.7 million a year ago. Its market cap of $1.6 billion represents a very high 14.0 times that revenue. Glaukos needs a major expansion of revenues to justify its current stock price, let alone go higher—but its iStent device holds a lot of promise.
Glaukos was a mid-2015 new issue with a price of $18 per share. After shooting up initially, it did fall to under $15 by early 2016. However, it then started to take off again.
Inner Circle recommendation: Glaukos Corporation is okay to hold, but only for aggressive investors.
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