Item 1A. Risk Factors
The risks and uncertainties discussed below are not the only ones facing our business but do represent those risks that we believe are material to us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business. Please read the cautionary notice regarding forward-looking statements preceding Part I, Item 1 in this Annual Report.
Risks Related to Our Business
The commercial success of our iDose TR is dependent upon multiple factors, the failure of any one of which could materially impact the prospects of this product and our business.
Our iDose TR travoprost intracameral implant was approved for sale in the U.S. by the FDA in December 2023 and we began commercializing the product in a controlled manner in February 2024. Its ultimate commercial success will depend upon a number of factors, including physician training on and adoption of the use of this product, establishment of consistent reimbursement, our ability to manufacture product in volumes sufficient to meet customer demand, marketing in compliance with label restrictions, satisfactory patient outcomes, particularly as we continue our commercial launch, product pricing, duration of efficacy, and the availability of commercial payor coverage and adequate reimbursement for the product. Our failure to successfully commercialize the iDose TR based upon these or other factors could materially adversely impact our net sales, our business or our financial condition.
Unfavorable global and regional conditions have adversely affected, and could in the future materially and adversely affect, our business, results of operations, financial condition, liquidity, and cash flows.
Recent geopolitical conflicts, natural disasters and public health crises, such as COVID-19, have led to or exacerbated certain unfavorable global and regional macroeconomic conditions, including inflation, volatility in the financial and credit markets, higher interest rates and capital costs, labor shortages, increased energy costs, and currency fluctuations, which have had, and could continue to have, an adverse effect on the global economy, the regional economies that we serve and our business, results of operations, financial condition, liquidity and ability to access our existing cash, cash equivalents and investments. Continuation or worsening of these unfavorable global and regional conditions, or similar new events or crises, could have a material adverse effect on our operations, including through foreign exchange rate headwinds, higher operating expenses and lower operating margins, and cause us to need to seek additional capital, which may not be available to us on favorable terms or at all.
In recent years, unfavorable economic conditions have also adversely impacted several financial institutions, including some financial institutions with whom we have banking relationships, and some banks have recently failed and gone into receivership. If banks and other financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash and cash equivalents to the extent those funds are not insured or otherwise protected by the FDIC.
Public health crises, such as the COVID-19 pandemic, have adversely affected, and could in the future adversely affect, our business, results of operations, financial condition, liquidity, and cash flows.
We are subject to risks associated with public heath crises, such as those experienced due to the COVID-19 pandemic. In particular, we have experienced, and may in the future experience, financial or operational impacts as a result of such public health crises which may be material, including:
● Risks associated with remote work, including increased cybersecurity risk;
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● Volatility in credit or financial markets.
If the supply and/or manufacture of our principal revenue-producing products, the iStent family of products, our Photrexa therapies, or the iDose TR is materially disrupted, it may adversely affect our ability to manufacture products and could reduce our gross margins and negatively impact our operating results.
Our sole manufacturing location for our iStent and iDose products is an approximately 120,000 square foot campus located in San Clemente, California, where we manufacture, inspect, package, release and ship nearly all of our implanted deviceproducts. We conduct substantially all of our research and development (R&D) activities, customer and technical support, and management and administrative functions at our corporate headquarters in Aliso Viejo, California (Aliso Facility). If either of our San Clemente or Aliso Facility suffers a crippling event or a natural disaster such as an earthquake, fire or flood, or if we lose insurance coverage for or are unable to renew insurance on these facilities, as some California residents have experienced, this could materially impact our ability to operate.
Additionally, we rely on a limited number of third-party suppliers, in some cases sole suppliers, to supply components for the iStent, the iStent inject models, the iStent infinite, the iDose TR, and our other pipeline products. If any one or more of our suppliers cease to provide us with sufficient quantities of components or drugs in a timely manner or on terms acceptable to us, we would have to seek alternative sources of supply. Because of factors such as the proprietary nature of our products, our domestic and international quality control standards and regulatory requirements including the FDA’s Quality System Regulation, the European Union’s Medical Device Regulation, and Current Good Manufacturing Practices (cGMP) regulations, we may be unable to obtain components or quickly engage replacement suppliers, who may not have access to previous suppliers’ proprietary processes, if our component suppliers are found to be in violation of such standards, which could delay or impact our business, including regulatory approval timelines. If our manufacturing facilities or those of any of our component suppliers or contract facilities are found to be in violation of applicable laws and regulations or fail to adequately remediate any issues discovered during an audit, the FDA or other regulatory bodies could take enforcement action. Despite our efforts to maintain an adequate supply of inventory, the loss of these suppliers, or their inability to provide us with an adequate supply of components or products, could cause delay in the manufacture of our products, thereby impairing our ability to meet the demand of our customers and causing significant harm to our business. Any disruption of this nature or increased expense could harm our commercialization efforts and adversely affect our operating results.
Our corneal health Photrexa therapies, and our Epioxa pharmaceutical therapies, which are not yet approved by the FDA, are produced by a small number of contract manufacturing organizations. The systems that bio-activate our Photrexa and Epioxa therapies are primarily manufactured in Burlington, Massachusetts. Any material disruption to the manufacture of these corneal health products could also adversely affect our operating results and clinical efforts.
We have incurred significant losses since inception and our operating results can be unpredictable and may fluctuate significantly from quarter to quarter, requiring substantial capital and operating expenditures for our business to operate and grow. These factors could adversely affect our business, financial condition, results of operations and the trading price of our common stock, and limit our ability to reach sustained profitability.
Since the Company’s inception in 1998, we have incurred significant operating losses. Although we have been profitable for certain periods in our operating history, there can be no assurance that we will be profitable or generate cash from operations in the future. As of December 31, 2024, we had an accumulated deficit of approximately $745.4 million, principally comprised of costs incurred in our clinical trials, R&D programs, our selling, general and administrative expenses, and from amortization expense related to our acquired developed technology intangible assets included in cost of sales. We have funded our operations to date from the sale of equity securities, including our June 2015 initial public offering, the issuance of notes payable, cash exercises of stock options and warrants to purchase
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equity securities, cash generated from commercial operations and the issuance of the Company’s 2.75% convertible notes due 2027 (Convertible Notes), which were fully exchanged, converted or redeemed in 2024. Our operations to date have been, and our future growth and success will be, impacted by our ability to expand our business, including the success of our marketing and sales efforts, our timely satisfaction of regulatory requirements, and our overall ability to maintain a competitive position. To implement our global business strategies we have made, and expect to continue to make, significant investments in R&D activities, clinical studies, expanding our manufacturing capabilities, growing our sales and marketing organization, engaging in market access activities, enforcing and defending our intellectual property rights, acquiring companies or in-license products and intellectual property, building our general and administrative infrastructure, and obtaining regulatory clearance or approval to commercialize our pipeline product globally and expand our existing products into international markets or products We expect our expenses will continue to increase as we pursue these objectives. While we believe we have sufficient cash to fund our operations for at least the next 12 months from the date our consolidated financial statements for the year ended December 31, 2024 are made publicly available, our ability to reach sustained profitability and generate positive cash flow in the future is highly uncertain.
Additionally, our net sales may experience volatility due to a number of factors, many of which are beyond our control, including, among other things, fluctuating demand, pricing pressures applicable to our products, changes in foreign currency exchange rates, Medicare payment rates established by U.S. Centers for Medicare & Medicaid Services (CMS) or Medicare Administrative Contractors (MACs), commercialization of our new products, the marketing of competitive products, results of clinical research and trials, regulatory approval requirements and timings, legislative changes affecting our products, variances in the sales terms, an increase in demand for our patient assistance and/or free drug programs, supply chain and inventory management, shortage or increased cost of raw materials, seasonality in the timing or volume of customer orders, the length of our sales cycle, and reductions in revenue associated with our participation in Medicaid Drug Rebate Program (MDRP), which varies and may be unpredictable. As a result, you should not rely solely on our results in any past period as an indication of future results and you should anticipate that fluctuations in our quarterly and annual operating results may continue and could generate volatility in the price of our common stock. We believe that quarterly comparisons of our financial results should not be relied upon as an indication of our future performance.
Our success depends on our ability to continue to generate sales of our commercialized products and develop and commercialize additional products, which we may not be able to accomplish.
Our primary sales-generating commercial products have been the iStent, the iStent inject and its successor, the iStent injectW, as well as our Photrexa therapies, which we acquired in connection with our acquisition of Avedro, Inc. (Avedro) in 2019. While we expect to continue to derive a significant portion of our net sales from the iStent, the iStent inject models, the iStent infinite and the Photrexa therapies, as well as our iDose TR product, which was approved by the FDA in December 2023 and which we began commercializing in a controlled manner in February 2024, it is important that we continue to build a more complete product offering. Developing additional products is expensive and time-consuming. Our research programs may fail to yield product candidates for clinical development despite showing initial promise. If we are unable to successfully commercialize additional products, our business prospects would be materially affected. Even if we are successful in developing our additional pipeline products, the success of our new product offerings is inherently uncertain and our products may not receive regulatory approval, may receive approval that requires restrictive labeling, or may not be profitable. Any current or new products could also quickly be rendered obsolete by changing customer preferences, third party payor reimbursement levels, or the introduction of competing products that (i) embody superior technologies, features, safety, quality or efficacy, (ii) reflect a broader label indication, or (iii) are available at lower prices. Our competitors include large publicly traded companies or divisions thereof and have more resources, greater name recognition, longer operating histories, more established relationships with healthcare professionals, customers and third-party payors, broader products lines, more established sales and marketing programs and distribution networks, and greater experience in obtaining regulatory clearance or approval. Additionally, the period of orphan drug exclusivity with respect to our Photrexa pharmaceutical therapy expired in 2023, which could allow competitive products to enter that market.
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As our growth strategy turns increasingly global, we are, and will continue to be, subject to a variety of risks associated with our international operations, which could adversely impact our results of operations and financial condition.
Our existing foreign operations, as well as our planned international growth, expose us to additional uncertainty and risks beyond regulatory authorization and reimbursement levels. We sell our products through direct sales organizations and a network of third-party distribution partners in other markets. These international operations expose us and our subsidiaries and third-party distributors to a variety of risks including, without limitation, the following:
● pricing pressure or longer sales and payment cycles;
● a shortage of qualified sales personnel and distributors;
● the challenges of managing foreign operations;
● different cultural norms which may impact how business is conducted;
● laws and business practices favoring local companies;
If we experience any of these risks, our sales in non-U.S. jurisdictions may be harmed, our results of operations would suffer, and our reputation and business prospects would be negatively impacted. Additionally, we are exposed to changes in foreign currencies relative to the U.S. dollar, which are references to the differences between the foreign-exchanges rates we use to convert the financial results of our international operations from local currencies into U.S. dollars for financial reporting purposes. This impact of foreign-exchangerate changes is calculated based on the difference between the current period’s currency exchange rates and that of the comparable prior period. Further, significant foreignexchangerate fluctuations resulting in a decline in the respective local currency may decrease our revenues and earnings from our foreign operations. As a result of our global operations, our revenue, gross margins, operating expense and operating income in some international markets have been and may continue to be affected by foreign currency fluctuations.
If the quality or delivery of our products does not meet our customers’ expectations, our reputation could suffer and ultimately our sales and operating earnings could be negatively impacted.
As a manufacturer, we have addressed and must continue to address quality issues associated with our products, including in our engineering, design, manufacturing and delivery processes, as well as issues with third-party pharmaceuticals or components included in our products. Because our products are highly complex, the occurrence of
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performance issues may increase as we continue to introduce new products and rapidly scale up manufacturing to meet increased demand. Although we have established internal procedures to minimize risks that may arise from product quality issues, there can be no assurance that we will be able to eliminate or mitigate occurrences of these issues and associated liabilities. In addition, identifying the root cause of performance or quality issues, particularly those affecting third-party components or other elements, may be difficult, which increases the time needed to address quality issues as they arise and increases the risk that similar problems could recur. Finding solutions to quality issues can be expensive and we may incur significant costs, lost revenue or reputational damage in connection with, for example, shipment holds, product recalls and warranty or other service obligations. Quality issues can also impair our relationships with new or existing customers or result in product liability suits against us, which may be expensive to defend and could impact the reimbursement coverage of our products, our product liability insurance rates and/or our cash reserves in the event our existing insurance coverage is insufficient. The occurrence of any of the foregoing could harm our reputation as a producer of high-quality products and could adversely affect our business, financial condition or results of operations.
Ophthalmic surgeons may not use our products if they do not believe they are safe, efficient, effective and preferable alternatives to other treatment solutions in the market or may use our products without being adequately trained, which could result in inferior clinical outcomes.
We believe that ophthalmic surgeons will not use our products unless they conclude that our products provide a safe, efficient, effective and preferable alternative to currently available treatment options. Publications of clinical results by us, our competitors and other third parties may impact whether, and the degree to which, our products are used by physicians and the procedures and treatments those physicians choose to administer to their patients. If ophthalmic surgeons determine that any of our products are not sufficiently effective, efficient or safe, whether based on longer-term patient studies or clinical experience or unsatisfactory patient outcomes or patient injury, our sales would be harmed. Surgeons may base such determination on patient outcomes that are the result of other unqualified surgeons performing procedures for which they haven’t been trained. It is also possible that as our products become more widely used, latent defects could be identified, creating negative publicity and liability problems for us and adversely affecting demand for our products. If an increasing number of ophthalmic surgeons do not continue to adopt the use of our products, our operating and financial results will be negatively impacted.
If we fail to manage our anticipated growth effectively, we may not be able to meet customer demand for our products and our business could suffer.
Since the commercial launch of the iStent in 2012, we have seen significant period-to-period growth in our business, both organically and through transactions, and we must continue to grow in order to meet our business and financial objectives. However, continued growth creates numerous challenges, including, among others, new and increased responsibilities for our management team; increased competition; increased and, with respect to new products such as the iDose TR, uncertain product demand which could strain our manufacturing capacity or create product shortages; the management of an increasing number of customer, supplier and other relationships; increased pressure on our operating, financial and reporting systems; entry into new international territories with unfamiliar regulations and business approaches; and the need to hire, train and manage additional qualified personnel. If we fail to manage any of these challenges effectively, our business may be harmed.
If we are unable to retain or recruit qualified personnel for growth, our business results could suffer.
We have benefited substantially from the leadership and performance of our senior management and other key employees. For example, our chief executive officer, as well as other key members of our senior management, has experience successfully developing novel technologies and scaling early-stage medical device and pharmaceutical companies to achieve profitability. We also rely on our qualified sales representatives and on consultants and advisors in our research, operations, clinical and commercial efforts to grow our business, develop and commercialize new products and implement our business strategies. Our success will depend on our ability to retain our current management and key employees, consultants and advisors, and to attract and retain qualified personnel in the future, including by providing competitive compensation and benefit programs, flexible work arrangements, career advancement prospects and sufficient opportunities to develop leadership, managerial and other valuable skills. The loss of services of these personnel, which could occur without notice and without cause, could prevent or delay our growth plans and the
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implementation of our strategic objectives, or divert management’s attention to seeking qualified replacements. Our U.S. employees, including our senior management, are not subject to non-competition agreements. Accordingly, the adverse effect of losing key personnel could be compounded by our inability to prevent them from competing with us.
We have and may continue to enter into acquisitions, collaborations, in-licensing agreements, joint ventures, alliances or partnerships with third parties that could fail.
We have and may continue to enter into acquisitions, collaborations, in-licensing agreements, joint ventures and partnerships in order to retain our competitive position within the marketplace, develop new products or expand into new markets. Examples include our acquisitions of DOSE Medical and Avedro, as well as our licensing of Santen’s PRESERFLO® Microshunt® (Preserflo MicroShunt), the Intratus drug delivery platform and the Attillaps, iVeena, Stuart and Ripple pharmaceutical compounds and our collaboration agreement with Radius XR to market its wearable patient engagement and diagnostic system. However, we cannot assure you that we will be able to successfully complete any future acquisition we may pursue, or that we will be able to successfully integrate any acquired business, product or technology in a cost-effective and non-disruptive manner. Our future successes will depend, in part, on our ability to manage an expanded business, which may pose substantial challenges for our management, such as increased costs and complexity. There can be no assurances that we will be successful in managing such expanded business or that we will realize the expected economies of scale, synergies and other benefits currently anticipated from recent or future acquisitions or strategic transactions. Additionally, these collaborations, joint ventures, and partnerships may fail to result in any commercialized product, including due to delays in or failures to obtain regulatory approvals, such as the failure to receive approval of the PreserFlo MicroShunt in the U.S., and could require us to invest a substantial amount of resources only to ultimately change regulatory strategies or to fail. In addition, these arrangements may be terminated before we are able to realize net sales to sufficiently cover the costs associated therewith, which could materially impact our business. We cannot assure you that any such transaction would result in the benefits expected from the transaction, including revenue growth, increased profitability or an enhancement in our business prospects. Further, pursuing acquisitions, collaborations, in-licensing agreements, joint ventures, alliances or partnerships with third parties, whether or not completed, is costly and time-consuming and could distract Company management from the operation of the business, which could negatively impact our operating results.
Failure to protect our information systems against cybersecurity threats, cybersecurity incidents, service interruptions, or data corruption could materially disrupt our operations and adversely affect our business, operating results, or the effectiveness of our internal controls over financial reporting.
The efficient operation of our global business depends on our information systems, including telecommunications, the internet, network communications, email and various computer hardware and software applications. We rely on our information systems to effectively manage sales and marketing data, accounting and financial functions, inventory management, product development tasks, clinical data, quality systems, customer service and technical support functions. Our information systems are vulnerable to damage or interruption from earthquakes, fires, floods and other natural disasters, terrorist attacks, power losses, computer system or data network failures, data corruption and security breaches or other cybersecurity incidents, some of which we have experienced and continue to monitor and expect may experience in the future. Cybersecurity incidents can include ransomware, computer denial-of-service attacks, worms, and other malicious software programs introduced to our computers and networks, including intrusions that are designed to evade detection for an extended period of time, phishing attacks, social engineering attacks, and efforts to discover and exploit any design flaws, bugs, security vulnerabilities or weaknesses, as well as intentional or unintentional acts by employees or other insiders with access privileges, intentional acts of vandalism or fraud by third parties and sabotage. Additionally, cybersecurity threats and the techniques used in cyberattacks change, develop and evolve rapidly, including from emerging technologies, such as advanced forms of artificial intelligence (AI) and quantum computing. Further, use of AI by our employees, third-party service providers, strategic partners or other contractors or consultants, whether authorized or unauthorized, increases the risk that our intellectual property and other proprietary information will be unintentionally disclosed. While none of the cybersecurity incidents or service interruptions that we have experienced to date have had a material adverse impact on our business, financial condition or operations, the preventative measures we have implemented to date may not be sufficient to prevent, mitigate or offset a future incident that may materially and adversely impact us and the cybersecurity insurance we have obtained may or may not cover such an incident. In addition, some of our software systems are cloud-based data management
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applications, hosted by third-party service providers whose security and information technology systems are subject to similar risks. The failure to protect either our or our service providers’ information technology infrastructure could disrupt our entire operation, resulting in decreased sales, increased overhead costs, product shortages, or loss or misuse of intellectual property or proprietary, confidential, sensitive or personal information, all of which could have a material adverse effect on our reputation, business, financial condition and operating results or result in investigations, claims and administrative penalties by regulators.
Our enterprise resource planning (ERP) system is integral to our ability to accurately and efficiently maintain our books and records, record transactions, and prepare our financial statements. Any disruptions or difficulties that may occur in connection with our ERP system (whether in connection with the regular operation, periodic enhancements or upgrades of such systems, or due to cybersecurity incidents) could adversely affect our ability to provide services, fulfill contractual obligations, file reports with the SEC in a timely manner, operate our business or otherwise affect our controls environment. If our independent registered public accounting firm determines that we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the New York Stock Exchange, the SEC, or other regulatory authorities. Any of these events could have an adverse effect on our operating results and financial condition.
Failure to comply with data privacy and security laws could have a material adverse effect on our business.
We are subject to state, federal and foreign laws relating to data privacy and security in the conduct of our business, including state breach notification laws, the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009,the European Union’s General Data Protection Regulation (GDPR), the U.K. Data Protection Act and the U.K. GDPR, the California Consumer Privacy Act, and the California Privacy Rights Act, among others. These laws affect how we collect and use data of our employees, consultants, customers and other parties, including patients treated with our products. They may further restrict our transfer and use of such data, and may allow individuals to make requests or exercise rights that could limit use of data and require the expenditure of significant resources and time and effort to address. In addition, as a result of the release and availability of AI technologies, including generative AI platforms, we have seen a global trend toward more comprehensive and refined regulation of AI that may impact our business, such as the EU AI Act, that are designed to ensure the ethical use, security, and privacy of AI and create standards for transparency, accountability, and fairness. These laws, as well as similar laws being enacted by other states and countries, impose substantial requirements that involve the expenditure of significant resources and the investment of significant time and effort to comply. We also rely on third parties to host or otherwise process some of this data. In some instances, these third parties have experienced failures to protect data privacy. Our failure or the failure of these third parties to comply with these laws or prevent security breaches of such data could result in significant liability, fines and penalties under applicable data privacy laws, cause disruption to our business, harm our reputation and have a material adverse effect on our business.
We cannot be certain that our net operating loss tax carryforwards will be available to offset future taxable income.
At December 31, 2024, we had approximately $527.5million, $437.0 million and $6.5 million of net operating loss (NOL) carryforwards for federal, state and foreign purposes, respectively. Portions of federal NOL carryforwards incurred prior to 2018 will expire annually, if unused, while $322.8 million will not expire but can only be used to offset 80 percent of federal taxable income. Additionally, portions of state and foreign NOL carryforwards will expire annually, if unused.
At December 31, 2024, we had federal and state R&D credit carryforwards of approximately $48.2 million and $28.6 million, respectively. Portions of federal and $4.6 million of state R&D credits will expire annually, if unused, while $24.0 million of state R&D credits carry forward indefinitely. Additionally, at December 31, 2024, we had California economic development credit carryforwards of $3.0 million. These economic development credits can only be used to offset California taxable income and begin to expire in 2028, if unused.
We continue to provide a valuation allowance against a portion of these tax attributes because we believe that uncertainty exists with respect to their future realization. Utilization of these tax attributes may be subject to annual
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limitations under IRC Sections 382 and 383 if we experience an ownership change. To the extent available, we intend to use these NOL and credit carryforwards to offset future taxable income and/or income tax liabilities associated with our operations. There can be no assurance that we will generate sufficient taxable income in the carry forward period to utilize the remaining tax attributes before they expire.
Risks Related to Indebtedness
If we incur future indebtedness, our obligation to service the indebtedness could limit the cash flow available for our operations and have other consequences that could adversely affect our business, and we may not have sufficient cash flow from our business to pay our debt obligations.
We may in the future incur indebtedness to meet future financing needs. Interest payments, fees, covenants and restrictions under agreements governing future indebtedness could have significant consequences, including the following: impairing our ability to successfully continue to commercialize our future products; limiting our ability to obtain additional financing on satisfactory terms; increasing our vulnerability to general economic downturns, competition and industry conditions; requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness; and inhibiting our flexibility to plan for, or react to, changes in our business. The occurrence of any one of these events could have an adverse effect on our business, financial condition, operating results or cash flows.
Our ability to make scheduled payments of the principal and interest on, or to refinance the amounts payable under, future indebtedness while still making necessary investments in our business, will depend on our operating and financial performance, including our ability to generate sufficient cash flow from operations, which may be subject to economic, financial, competitive and other factors beyond our control. If we are unable to generate such cash flow, we may be required to sell assets, restructure existing debt or obtain additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability to refinance any future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or secure desirable terms, which could result in a default on our debt obligations.
The capped call transactions may affect the value of our common stock, and subject us to counterparty risk.
In connection with the issuance of the Convertible Notes, we entered into capped call transactions with certain option counterparties. The capped call transactions initially covered, subject to customary adjustments, the number of shares of common stock initially underlying the Convertible Notes. The capped call transactions were expected generally to reduce the potential dilution of our common stock upon any conversion of the Convertible Notes or at our election (subject to certain conditions), offset any cash payments we would be required to make in excess of the aggregate principal amount of converted Convertible Notes, as the case may be, with such reduction or offset subject to a cap. We have been advised that the option counterparties or their respective affiliates have established initial hedges of the capped call transaction, and may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Convertible Notes, or following any termination of any portion of the capped call transactions in connection with any repurchase, redemption or early conversion of the Convertible Notes. In December 2024, we unwound a portion of capped call transactions corresponding to fifty percent of the number of shares of the Company’s common stock initially underlying the Convertible Notes. However, the remaining capped call transaction may still modify their hedge positions and such hedge modification activity could impact the market price of our common stock.
The option counterparties to the capped call transactions are financial institutions, and we are subject to the risk that any or all of them might default under the capped call transactions. Our exposure to the credit risk of the option counterparties is not secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the capped call transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price of our common stock, subject
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to the cap and in the volatility of our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.
Risks Related to Our Regulatory Environment
Healthcare legislative reform measures and changes in U.S. and international trade policies may have a material adverse effect on our business and results of operations.
The current administration has enacted or proposed legislative, administrative and executive actions and regulatory changes that could affect our ability to profitably sell our commercialized products or products for which we obtain marketing approval. For example, the current administration previously enacted several executive actions that could impose pressures on and create uncertainty surrounding the U.S. federal government’s budget and potential changes in budgetary priorities and spending levels. Such pressures and uncertainty could adversely affect staffing levels and the funding for the FDA and as a result, prevent or delay marketing approval of our current or future pipeline products, restrict or regulate post-approval activities and affect our ability to profitably sell any product for which we obtain marketing approval, each of which may negatively impact our business. Further, there have been, and may continue to be, legislative and regulatory proposals at the U.S. federal and state levels and in foreign jurisdictions directed at broadening the availability and containing or lowering the cost of healthcare including plans announced by the current administration to reform the U.S. pharmaceutical pricing system significantly through rulemaking and executive orders. In addition, existing legislation aimed at patient affordability in the United States such as the Patient Protection and Affordable Care Act may be repealed or replaced. The continuing efforts of the government, insurance companies and third-party payors to contain or reduce costs of healthcare may adversely affect our ability to set prices for our products that would allow us to achieve or sustain profitability. In addition, governments may impose price controls on any of our products, which may adversely affect our future profitability. These risks may also impact the development decisions we make with respect to our pipeline products.
Additionally, the U.S. government has recently made statements and taken certain actions that have created significant uncertainty about the future relationship between the U.S. and various other countries with respect to trade policies, treaties, government regulations and tariffs, which may lead to the imposition of tariffs and export control restrictions affecting certain products manufactured in certain other countries. As a result of these statements and actions, we are exposed to the possibility of product supply disruption and increased costs and expenses. While we cannot predict the likelihood, nature or extent of the potential impact, unfavorable government policies on international trade, such as export controls, or tariffs, may increase the cost of manufacturing our commercialized products or developing our pipeline products, affect the demand for our products (if and once approved), or restrict our access to raw materials and components used in the manufacture of our current products and the development of our future products, each of which could negatively impact our financial condition and results of operations.
Our business, products and processes are subject to extensive regulation both in the U.S. and abroad and it can be costly to comply with these regulations. Any failure to adhere to applicable regulations could harm our business, financial condition and operating results.
Our medical devices, drugs, drug/device combination products and other products are subject to extensive government regulation in the U.S. by the FDA, state regulatory authorities and foreign regulatory authorities in the countries in which we conduct business. These regulations relate to, among other things, approval or clearance of our products for sale, R&D, labeling, advertising, promotion, pricing and discounts, recordkeeping, reporting, import and export, post-approval studies and the sale and distribution of our products. See Item 1, Business, “Government Regulation – U.S. Regulation & Reimbursement” and “International Regulation & Reimbursement” in this Annual Report for additional information. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA, or state or foreign regulatory authorities, which may include, among other things, warning letters, fines, injunctions, recalls, refusals to grant or delays in granting requests, civil fines and penalties, operating restrictions, withdrawal of approvals and even criminal prosecution.
The process of obtaining clearances or approvals to market our products can be expensive and lengthy, and we cannot guarantee that our current products will receive clearance or approval for additional indications or that our future products will receive clearance or approval on a timely basis, or without restrictions, if at all. Additionally, our pipeline
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products that are determined to be drug-device combination products, such as our iDose TR product, requires review and coordination by each of FDA’s drug and device centers prior to approval, which may delay approval of our future products. In some instances, we or our partners have pursued, and may in the future pursue, a regulatory clearance or approval that proves unsuccessful, such as the FDA’s failure to approve the PreserFlo Microshunt in the U.S. and our determination to conduct a second pivotal confirmatory study of our Epioxa pharmaceutical therapy based on recommendations from the FDA in pre-NDA submission meetings. When this occurs, the time and financial resources required to obtain FDA or other regulatory approval may substantially increase or new competitive products could reach the market faster than our product candidate, which could materially adversely impact our competitive position and prospects.
Before we can obtain regulatory approval for any product candidate, we may have to undertake complex, time-consuming and expensive clinical testing in humans to demonstrate safety and efficacy, the outcomes of which are inherently uncertain and may never result in approved products or commercial sales. We have experienced in the past, and could experience in the future, delays in the commencement or completion of clinical trials or testing that could significantly affect our product development costs. We do not know whether planned clinical trials will begin on time, need to be redesigned, enroll an adequate number of patients in a timely manner or be completed on schedule, if at all, or be deemed insufficient by the FDA, which may require additional lengthy, time-consuming and expensive trials, which would further delay approval. We may suffer significant setbacks in clinical trials, even after earlier trials showed promising results, and failure can occur at any time during the clinical trial process. We, the clinical trial investigators, the independent review board overseeing the trial, the FDA, or another regulatory authority may suspend, delay or terminate clinical trials at any time due to a number of factors, including failure to conduct the trial in accordance with applicable regulatory requirements or trial protocols, failure to demonstrate a benefit from using the product, lack of sufficient funding, medical device product malfunctions, adverse events, or to avoid exposing trial participants to unacceptable health risks. Any delay or failure in clinical trials would delay or prevent our ability to obtain necessary regulatory approvals, which would have a material adverse effect on our business, financial condition and prospects.
If our facilities, or those of our third-party manufacturers or suppliers, fail to meet the FDA’s Quality System Regulation or cGMP regulations, as applicable, or other standards required by the FDA, we could experience a delay in obtaining the necessary regulatory clearances or approvals to commercialize our pipeline products, which could have a material adverse effect on our business and financial condition and results.
We have ongoing responsibilities under FDA regulations and applicable foreign laws and regulations and we may also be required to seek additional regulatory approvals to modify our approved products or their manufacturing processes or indications, which may entail significant time and expense. We and our suppliers are subject to extensive post-marketing regulatory requirements and failure to comply with applicable requirements in a timely manner could subject us to enforcement actions, including recall or product approval withdrawals. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA. Other post-market requirements on our products include reporting of adverse events and device malfunctions, product tracing, reporting of corrections and removals (recalls), labeling requirements, and promotional restrictions. See Item 1, Business, “Government Regulation – U.S. Regulation & Reimbursement – Post-Market Regulation” in this Annual Report for additional information. Additionally, any recall or product withdrawal, whether required by the FDA, another regulatory authority or initiated by us, could harm our reputation with customers, cause us to incur significant expense and negatively affect our sales.
In addition, our promotional materials, sales techniques, pricing programs and training methods must comply with FDA and other applicable laws and regulations. The FDA or other regulatory authorities may limit the indications for use of our products, thereby restricting our ability to promote the drug or device. Physicians may use our products, particularly newly-approved products, off-label or in combination with other products that are not indicated or appropriate, as the FDA does not restrict or regulate a physician's choice of treatment within the practice of medicine. However, if the FDA determines that our promotional materials, sales techniques, pricing programs or training constitutes promotion of an off-label use or encourages over-utilization of our products or use of our products in combinations that are not indicated or appropriate, it could request that we modify our materials, techniques, programs or training or subject us to enforcement actions.
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We are subject to healthcare fraud and abuse, anti-kickback, false claims and transparency laws and regulations, among others, which are enforced by federal, state and international governments with respect to our marketing, training, customer arrangements, discount, rebate and pricing programs, product bundling, financial arrangements with physicians, patient assistance programs, reimbursement support services, and other practices. See Item 1, Business, “Government Regulation – U.S. Regulation & Reimbursement” and “International Regulation & Reimbursement” contained in this Annual Report on Form 10-K for additional information about the laws and regulations which apply to us. The U.S. Department of Justice has increased its scrutiny of interactions between manufacturers and healthcare providers, as well as various patient, product and reimbursement support programs and speaker bureaus, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Although we try to structure our arrangements within available safe harbors whenever possible, we may nevertheless become subject to government scrutiny or investigation. Violations may result in civil monetary penalties, criminal penalties, and exclusion from participation in government healthcare programs, including Medicare and Medicaid, all of which would have an adverse effect on our business.
We are also subject to compliance with various anti-bribery laws and regulations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar anti-bribery laws in other jurisdictions, which generally prohibit companies and their agents from making bribes or other improper payments to officials for the purpose of obtaining or retaining business. We are also subject to limitations on trade with persons in sanctioned countries. Our sales in international markets increase the inherent risks of encountering such issues. While our employees, distributors and agents are required to comply with these laws and regulations, no assurance can be given that our training efforts and internal policies and procedures will prevent violations of these laws. Any actual or alleged violations of these laws and regulations could subject us to government investigations, criminal sanctions, severe fines and penalties that could have a material adverse impact on our reputation, financial condition, results of operations and cash flows.
The scope and enforcement of each of the laws applicable to our business and products is uncertain and subject to rapid change in the current environment of healthcare reform. Responding to a government investigation is time and resource intensive, and may cause harm to our business and reputation even if we are able to successfully defend against it. Additionally, resolution of any such investigation may require agreement to onerous corporate integrity agreements or other compliance or reporting requirements, which may negatively affect our business.
Legislative or regulatory reform of the healthcare system could hinder or prevent our products’ commercial success.
In the U.S. and in certain states and foreign jurisdictions, there have been a number of legislative and regulatory proposals and adoptions to change the healthcare systems in ways that could impact our ability to sell our products profitably, if at all. In addition, new regulations and interpretations of existing healthcare statutes and regulations are frequently adopted and we may not be able to comply with the changed laws, they could increase the cost of manufacturing, marketing or selling our product, could make approvals of pipeline products more difficult or prevent us from selling at all. We expect there will continue to be a number of legislative and regulatory changes to the U.S. health care system that could significantly change the statutory provisions governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof and may impose additional costs or lengthen review times of planned or future products. It is also difficult to predict whether and how the policies and priorities of a new administration could materially impact the regulation governing our products. A new U.S. administration may propose policy changes that create additional uncertainty for our business, such as changes to the level of scrutiny to enforce the 340B drug pricing program (340B program) non-compliance, new price restrictions on products we sell to Medicaid, Medicare or other government purchasers, or other regulatory changes impacting reimbursement or competitive dynamics in the markets in which we operate. The extent to which such policy changes impact the healthcare regulatory environment remains uncertain and could materially impact our business and operations.
Additionally, in its June 2024 decision in Loper Bright Enterprises v. Raimondo (the “Loper ”), the U.S. Supreme Court overturned the longstanding Chevron doctrine, under which courts were required to give deference to regulatory agencies’ reasonable interpretations of ambiguous federal statutes. The Loper decision could result in additional legal challenges to regulations and guidance issued by federal agencies applicable to our operations, including those issued by the FDA and CMS. Further, the Loper decision may result in increased regulatory uncertainty, inconsistent judicial interpretations and other impacts to the agency rulemaking process. We cannot predict which
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additional measures may be adopted or the impact of current and additional measures on the marketing, pricing and demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.
We are also subject to the EU’s Medical Devices Regulation (MDR), which could result in substantial additional costs of compliance. In addition, our products could be reclassified in international markets, which would impose an entirely new regulatory framework on us and our contract manufacturers and compliance may prove costly and difficult or may not be achievable at all. Our failure, or the failure of our contract manufacturers, to obtain CE marks for all of our products under MDR on a timely basis, or to comply with MDR or applicable European Medicines Agency regulations regarding drug products, could restrict our ability to sell our products in the EU or other parts of the world, which would have a material adverse effect on our business and financial results.
From time to time, we increase the prices of our products, as we have previously done with our Photrexa therapies. Drug pricing by pharmaceutical manufacturers is subject to federal and state reporting requirements and is currently, and is expected to continue to be, under close scrutiny, including with respect to manufacturers that increase the price of products after acquiring those products from other companies. In some cases, such scrutiny has resulted in congressional inquiries and federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturers’ patient support programs, and reform government program reimbursement methodologies for products. Although our price increases have been based upon third party studies of the projected economic value of our products to the healthcare system, they may still become subject to such scrutiny.
As a condition of having our iDose TR product covered under certain federal healthcare programs such as Medicare and Medicaid, we are required to participate in the MDRP with respect to all of our pharmaceutical products, which requires us to calculate and report certain pricing metrics to the government, comply with certain pricing limitations and pay a rebate to each state Medicaid program for our covered products based on utilization of our products by Medicaid beneficiaries. Any company that participates in the MDRP also must participate in the 340B program. The 340B program, which is administered by the Health Resources and Services Administration, requires participating companies to agree to charge statutorily defined covered entities no more than the 340B “ceiling price” for covered outpatient drugs. The 340B program ceiling price is calculated using a statutory formula, which is based on pricing data calculated under the MDRP.
Additionally, the U.S. Inflation Reduction Act of 2022 (IRA), which is designed to, among other things, have a direct impact on drug prices and reduce drug spending by the federal government, requires drug manufacturers to pay rebates to Medicare if they increase prices faster than inflation for certain drugs used by Medicare beneficiaries. The expansion of inflation-based rebates may complicate our pricing strategies. See Item 1, Business, “Government Regulation – U.S. Regulation & Reimbursement” in this Annual Report for more information on the MDRP. To the extent applicable, these and other similar legislation or regulations will reduce the prices we can charge, and impact the rebate amount we must pay, on sales of our products subject to that act, particularly on sales to our customers if they qualify as covered entities eligible to receive the discounted 340B ceiling price. Compliance with these laws and programs may reduce our net sales, and could require significant resources, which would reduce our profitability. Further, we cannot predict how our participation in, or how future CMS guidance or rules governing, MDRP will affect our profitability (including the potential for increases in our overall Medicaid rebate liability and the obligation to charge reduced prices to covered entities). Any changes to the limitations, calculations, or scope of these programs could negatively impact the results of our operations. Additionally, pricing and rebate calculations are complex and often subject to interpretation by the manufacturer, governmental agencies and courts. A manufacturer that becomes aware that its Medicaid reporting for a prior was incorrect or has changed as a result of a recalculation of pricing data is obligated to resubmit corrected data up to three years after the data was originally due. Restatements and recalculations may result in an overage or shortfall in our rebate liability for prior periods, and may affect our 340B ceiling price and therefore liability under the 340B program.
If we cannot sell our products profitably, whether due to our own inability to comply with, or the inability of other economic operators in our supply chain to qualify under, any legislative reform or pricing programs, our business would be harmed. In addition, any change in the laws or regulations that govern the clearance and approval processes
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relating to our current and future products could make it more difficult and costly to obtain clearance or approval for new products, or to produce, market and distribute existing products.
Inadequate or inconsistent reimbursement for our products may adversely impact our business.
Our ability to successfully commercialize and achieve market acceptance of our products and compete against other therapies designed to address the same disease states depends in significant part on adequate financial coverage and reimbursement from third party payors, including governmental payors (such as the Medicare and Medicaid programs in the U.S.), managed care organizations and private health insurers. See Item 1, Business, “Government Regulation – U.S. Regulation & Reimbursement” and “International Regulation & Reimbursement” contained in our Annual Report for additional information. Payors continually review the clinical evidence for new therapies and can change their coverage policies without notice or deny payment if the product was not used in accordance with the payor’s coverage policy. Therefore, coverage for our products can differ significantly from payor to payor. As a result, the coverage determination process is often time-consuming and costly and requires us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage will be obtained or will be maintained once it is obtained.
In addition to uncertainties surrounding coverage policies, there are uncertainties regarding appropriate reimbursement for the procedures associated with certain of our products like iAccess, a precision blade, iPRIME, a viscoelastic delivery system, and iStent infinite and iDose TR, as well as sporadic volatility in reimbursement levels of existing products, including our Photrexa therapy and the procedures associated with our existing products, such as our iStent family of products. For example, in 2022 the CMS’ payment rates significantly lowered the Medicare physician fee payment rates and slightly lowered the Medicare facility fee payment rates related to the implantation of trabecular bypass stents, such as our iStent family of products, in conjunction with cataract surgery, furnished in the ambulatory surgery center setting, which we believe disrupted traditional customer ordering patterns and resulted in certain of our customers’ utilization of competitive products, causing reduced glaucoma sales volumes in the U.S. in 2022 and 2023. Additionally, the facility fee payment rates for the standalone procedure that hospitals and ambulatory surgery centers will use with Glaukos’ iStent infinite product were lower than anticipated for 2022 and were not significantly modified by CMS for 2023 facility fee payment rates, which had an adverse impact on procedural iStent family product volumes and our revenues and net income.
The demand for, and the profitability of, our products could be materially harmed if the Medicaid program, Medicare program, other healthcare programs in the U.S. or elsewhere, or third party commercial payors in the U.S. or elsewhere, deny reimbursement for our products, limit the indications for which our products will be reimbursed, are unclear on appropriate reimbursement codes or provide reimbursement only on unfavorable terms. For example, in June 2023 five MACs, which set physician fee payment rates for products covered by temporary CPT Category III codes, published proposed local coverage determinations (LCDs) that deemed certain ophthalmic procedures, including the procedures using our iAccess and iPRIME products, investigational and therefore not covered by Medicare and not reimbursed, which LCD was ultimately adopted and then reversed by these MACs. This non-coverage determination was not included in the proposed LCDs subsequently published by the five MACs in April 2024 and finalized in November 2024. Additionally, the physician fee payment rates for the procedures using our iDose TR product will be determined by the MACs, the majority of which have not yet published this rate. Also, when procedures associated with our products transition from temporary CPT Category III codes to permanent CPT Category I codes, the physician and facility reimbursement levels associated with the procedures using these products could be decreased, such as the decreased payment rates for procedures using our iStent-related products, in conjunction with cataract surgery, established by CMS for 2022 and 2023, as discussed above. Even when a permanent billing code has been assigned to a product, there is no guarantee that coverage will be provided. If we are unable to maintain our existing codes or obtain new permanent codes for procedures using our products, use existing codes for new products or obtain new reimbursement codes for our products in development, we may be subject to significant pricing pressure, that could harm our results of operations, financial condition and prospects. In the foreign markets in which we operate, different pricing and reimbursement systems, could result in lower reimbursement, harming our ability to operate our business.
We cannot predict to what extent current global economic conditions may disrupt healthcare systems and access to our products or result in a widespread loss of individual health insurance coverage due to unemployment, a shift from
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commercial payor coverage to government payor coverage, or an increase in demand for patient assistance or free drug programs, any of which could adversely affect our net revenue. In addition, payers consistently engage in cost containment efforts, which could result in decreased reimbursement levels for prescription drugs and the imposition of prior authorization for the use of our products. We cannot predict actions that third party payors may take, including limiting access to or the level of reimbursement for our products or refusal to provide any approvals or coverage.
Risks Related to Our Intellectual Property
If we are unable to adequately protect our intellectual property, our competitors and other third parties could develop and commercialize products similar or identical to ours, which would substantially impair our ability to compete.
Our success and ability to compete depends significantly upon our ability to obtain, maintain and protect our proprietary rights and licensed intellectual property rights to the technologies and inventions used in or embodied by our products. We rely on a combination of patents and trademark rights, and to a lesser extent on trade secrets and copyrights, together with licenses and nondisclosure agreements to protect our technologies. These legal means, however, afford only limited protection and may not adequately protect our business. We also have not pursued or maintained, and may not pursue or maintain in the future, patent protection for our products in every country or territory in which we sell or will in the future sell our products. In addition, we cannot be sure that any of our pending patent applications or pending trademark applications will issue or issue in a form that will be advantageous to us.
Despite our efforts, we cannot guarantee that we will be able to adequately protect our proprietary rights, which could substantially impair our ability to compete. Our patents may be challenged and held invalid or we may be unable to extend the protection on products with expiring patents. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. Further, although it is our policy to require each of our employees, consultants and any other parties who may be involved in the development of intellectual property on our behalf to execute proprietary information and inventions agreements, we may be unsuccessful in doing so with each party who in fact develops intellectual property that we regard as our own. The relevant assignment provisions may not be self-executing or may be breached, resulting in ownership disputes and/or litigation.
We have many foreign patents and patent applications, and expect to pursue patent protection in the most significant markets in which we do business. The laws of other countries in which our products are or may be sold may not protect our product offerings and intellectual property to the same extent as U.S. laws, if at all. Many companies have encountered significant difficulties in obtaining, protecting and defending such rights in international markets. In addition, many countries limit the enforceability of patents against other parties, including government agencies or government contractors. In these countries, the patent owner may have limited remedies, and certain countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to other parties. We also may be unable to protect our rights in trade secrets and unpatented proprietary technology in these countries. If we encounter such difficulties or are otherwise precluded from effectively protecting our intellectual property rights in these countries, our business, financial condition and results of operations could be substantially harmed.
We may not be able to accurately estimate or control our future operating expenses in relation to obtaining, enforcing and/or defending intellectual property, which could lead to cash shortfalls. Our operating expenses may fluctuate significantly in the future as a result of the costs of preparing, filing, prosecuting, defending and enforcing patent claims and other patent related costs, including litigation costs and the results of such litigation or costs associated with administrative proceedings and the results of such proceedings.
We have been and may in the future become involved in patent and other intellectual property litigation or administrative proceedings relating to our intellectual property rights, which could be costly, time consuming and unsuccessful and could interfere with our ability to successfully commercialize our products.
Intellectual property rights are essential to our business. We have asserted and may in the future need to assert claims of infringement against third parties to protect our rights, or to invalidate or challenge the intellectual property
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rights of a third party, including those rights owned by our competitors. Additionally, third parties could assert infringement or misappropriation claims against us with respect to our current or future commercial products and seek to invalidate one or more of our patents or trademarks. Such claims could arise in situations where certain employees, consultants or contractors were previously, or are currently, employed by other medical device, biotechnology or pharmaceutical companies, including our competitors or potential competitors; we may be subject to claims that we or these individuals have, inadvertently or otherwise, misappropriated the intellectual property or disclosed the alleged trade secrets or other proprietary information, of these other employers.
There is no guarantee that we would be successful enforcing or defending our intellectual property rights in court. A court could hold that some or all of our asserted intellectual property rights are not infringed, or could invalidate our rights, hold our rights unenforceable, or substantially narrow the scope of protection. Further, we could be prohibited from manufacturing or selling our products or a court could order us to pay substantial compensatory damages as well as other penalties and fines. Any such adverse result would undermine our competitive position. Regardless of the final outcome, any litigation to enforce our intellectual property rights in patents, copyrights, trade secrets or trademarks is highly unpredictable and could result in substantial costs and diversion of resources, which could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Common Stock
Anti-takeover provisions in our Charter and Bylaws and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
Provisions in our Restated Certificate of Incorporation (Charter) and amended and restated bylaws (Bylaws) may have the effect of delaying or preventing a change of control or changes in our management. Our Charter and Bylaws include provisions that:
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.
The exclusive forum provisions in our organizational documents could limit our stockholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or its directors, officers or other employees.
Our Charter and Bylaws provide that, unless the Company consents in writing, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the
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Company, (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company or its stockholders, (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our Charter or Bylaws, or (iv) any action or proceeding asserting a claim governed by the internal affairs doctrine (the Delaware Exclusive Forum Provision). The Delaware Exclusive Forum Provision is intended to apply to claims arising under Delaware state law and would not apply to claims brought pursuant to the Exchange Act or the Securities Act, or any other claim for which the federal courts have exclusive jurisdiction.
Further, our Bylaws provide that the federal district courts of the U.S. will, to the fullest extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action under the Securities Act (the Federal Forum Provision). Our decision to adopt the Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such provisions are facially valid under Delaware law and means that suits brought by stockholders to enforce any duty or liability created under the Securities Act must be brought in federal court and cannot be brought in state court.
The exclusive forum provisions in our Charter and Bylaws will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder and, accordingly, actions by our stockholders to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder must be brought in federal courts. Our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations. The exclusive forum provisions in our Charter and Bylaws may limit a stockholder's ability to bring a claim in a judicial forum of its choosing for disputes with the Company or its directors, officers or other employees, which may discourage such lawsuits. In addition, stockholders who do bring a claim in the Court of Chancery of the State of Delaware pursuant to the Delaware Exclusive Forum Provision could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. The court in the designated forum under our exclusive forum provisions may also reach different judgments or results than would other courts, including courts where a stockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to the Company than to our stockholders. Further, the enforceability of similar exclusive forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and it is possible that a court could find any of our exclusive forum provisions to be inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings. If a court were to find all or any part of our exclusive forum provisions to be inapplicable or unenforceable in an action, we might incur additional costs associated with resolving such action in other jurisdictions.
ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
ITEM 1C.CYBERSECURITY
Risk Management and Strategy
We recognize the importance of maintaining the security of our information systems and assets, and have several cybersecurity processes and controls designed to identify, assess and manage the risks associated with cybersecurity threats and cybersecurity incidents.
Risk Management Systems and Processes
To identify and assess material risks from cybersecurity threats, our enterprise risk management program considers cybersecurity threat risks alongside other company risks as part of our overall risk assessment process. Our enterprise risk management program is administered by the Company’s legal and internal audit functions, and facilitates the process of identifying and assessing cybersecurity threat risks, as well as monitoring the effectiveness of our risk mitigation efforts. During the year, our senior management periodically identifies the cybersecurity risks facing the Company and reviews our mitigation plans related to these risks. These senior leaders conduct an evaluation of the severity of these identified risks and any changes to the risk level or the Company’s mitigation efforts since the prior evaluation. The severity of risks is measured based upon the potential adverse impact that could result, the immediacy of
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the threat and the availability of mitigating factors, among other elements. Management may consult with outside consultants, such as legal counsel or cybersecurity advisors, in assessing risks and developing mitigation plans. The Audit Committee of the Board regularly receives reports from such outside experts in response to emerging or higher risk areas.
We also have specific cybersecurity risk assessment processes which help identify our cybersecurity threat risks, including a comparison of our processes to industry standards as well as periodic third-party assessments of our programs. We compare our Information Security Program with industry standards including the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF) and ISO 27001. In order to enhance internal expertise, members of our Global Technology Systems (GTS) department maintain various cybersecurity-related certifications. We also maintain written incident response and security policies that seek to ensure we are protected and ready to respond should a security incident occur. Incidents are investigated and analyzed for potential impact. If any potential impact is determined to present, the appropriate departments, key employees, and executive management team members are notified as part of the incident response process. Our incident response plan coordinates the activities we would take to respond to and recover from cybersecurity incidents, which include processes to triage, assess severity of, escalate, contain, investigate, and remediate the incident, as well as to comply with potentially applicable legal obligations and mitigate potential liability and reputational damage. If appropriate, incidents may be reported to senior management, the Audit Committee or the full Board.
To provide for the availability of critical data and systems, maintain regulatory compliance, manage our material risks from cybersecurity threats, and to protect against, detect, and respond to cybersecurity incidents, we undertake the activities listed below:
Engagement of Third Parties
As part of the above processes, we regularly engage with assessors, consultants, and other third-parties to review our cybersecurity program. These reviews are intended to evaluate the effectiveness and robustness of the security measures implemented in our networks and information systems, identifying potential vulnerabilities, performance improvements, and recommended improvement strategies. These security assessments may focus on key areas such as user access controls, data encryption processes, auditing and monitoring of database activities, system and server configuration and update procedures.
Threats from Third Party Service Providers
Our processes also address cybersecurity threat risks associated with our use of third-party software and system providers. Third-party risks are included within our enterprise risk management assessment program, which is discussed above. In addition, cybersecurity considerations affect the selection and oversight of our third-party service providers.
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We perform diligence on high-risk third-parties that provide us software or have access to our systems or highly sensitive information, and monitor cybersecurity threat risks identified through such diligence. New software is evaluated for risk and approved by our internal Software Approval Board before purchase or installation on our systems. We formed a Software Approval Board, which is made up of cross-functional members from Quality, Internal Audit, Information Security, Business Systems, and R&D, to help determine risk and impact of any potential newly proposed software. Additionally, we generally require those high risk third parties to agree by contract to manage their cybersecurity risks in specified ways. This approach is designed to mitigate risks related to data breaches or other security incidents originating from third parties.
Material Impact of Cybersecurity Threats or Incidents
We describe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, under the heading “Risks Related to our Business,” included as part of our risk factor disclosures at Item 1A of this Annual Report, which disclosures are incorporated by reference herein.
We are not aware of any material cybersecurity incidents that have occurred in the last three fiscal years, and the expenses we have incurred from cybersecurity incidents were immaterial, including penalties and settlements, of which there were none.
Governance
Cybersecurity is an important part of our risk management processes and an area of increasing focus for our Board and management.
Board Oversight
The Audit Committee of our Board is responsible for the oversight of risks from cybersecurity threats. At least twice a year, the Audit Committee receives a report from the head of Information Security of our cybersecurity threat risk management and mitigation strategy covering topics such as data security posture, results from third-party assessments, progress towards pre-determined risk-mitigation-related goals, our incident response plan, and potentially material cybersecurity threat risks or incidents, as well as the steps management has taken to respond to such risks. In such sessions, the Audit Committee generally receives information describing current and emerging material cybersecurity threat risks, and describing the Company’s plans to mitigate those risks, and discusses such matters with our head of GTS and other members of senior management. Potential material cybersecurity threat risks are also considered during separate Board discussions of important matters like enterprise risk management. Two members of our Board, including one member of the Audit Committee, have earned cybersecurity certifications to help them identify cybersecurity threats and oversee management’s efforts to manage and mitigate them.
Management Oversight
While the Audit Committee reviews and oversees the Company’s information security efforts, senior leadership is responsible for the day-to-day management of cybersecurity risk and the design and implementation of policies, processes and procedures to identify and mitigate this risk. Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by our Legal department and our Internal Audit department, working with our GTS department. Members of this team include a Certified Information Systems Auditor (CISA), a Certified Information Security Manager (CISM), a Certified Data Privacy Solutions Engineer (CDPSE), Certified Information Systems Security Professionals (CISSP), as well as members of ISACA and ISC2 industry organizations.These members of management are informed about and monitor the prevention, mitigation, detection, and remediation of cybersecurity incidents through their management of, and participation in, the cybersecurity risk management and strategy processes described above, including the operation of our incident response plan.
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ITEM 2.PROPERTIES
The Company’s office building lease in Aliso Viejo, California (Aliso Facility) is one property containing three existing office buildings, comprising approximately 160,000 rentable square feet of space, and serves at the Company’s global headquarters. The term of the Aliso Facility commenced on May 1, 2019 and continues for thirteen years. The agreement contains an option to extend the lease for two additional five year periods at market rates. On December 18, 2018, we also purchased approximately 2.5 acres of vacant land located adjacent to the Aliso Facility for future expansion purposes. In 2022, the Company relocated its corporate administrative headquarters and marketing functions, along with certain laboratory, R&D and warehouse space, to the Aliso Facility.
The Company leases two adjacent buildings, two suites, and a warehouse as part of its manufacturing campus located in San Clemente, California. Each of the leases for the two adjacent buildings expires on May 31, 2035, and each contains an option to extend the lease for one additional five-year period at market rates. The total leased square footage of both buildings totals 101,000. The square footage of the other suites and warehouse in San Clemente, California totals 19,000. The Company’s San Clemente locations will continue to serve as its main manufacturing location for the foreseeable future.
We also occupy approximately 60,000 square feet of leased manufacturing space in Burlington, Massachusetts pursuant to a lease agreement that expires on July 31, 2033. Our remaining foreign subsidiaries’ leased office and warehouse space totals less than 35,000 square feet.
In December 2024, we reached agreement with the city of Huntsville, Alabama to develop a new 200,000 square foot R&D and manufacturing facility. We expect construction to begin in 2026.
We believe our existing properties are well maintained, in good operating condition and are adequate to support our present level of operations.
ITEM 3.LEGAL PROCEEDINGS
Neither we nor any of our subsidiaries is a party to, and none of their respective property is the subject of, any material legal proceeding, although we are from time to time party to legal proceedings that arise in the ordinary course of business.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information for Common Stock
Our common stock trades on the New York Stock Exchange (NYSE) under the symbol “GKOS”.
As of February 19, 2025, we had 46 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. The number of record holders also does not include stockholders whose shares may be held in trust by other entities.
Stock Performance Graph
The following performance graph shows the cumulative total stockholder return during the last five years in (i) our common stock, (ii) the S&P Small Cap 600 index and (iii) the S&P Small Cap 600 Healthcare index. The graph assumes that $100 was invested at the closing price of our common stock on the last trading day of fiscal year 2019 and all dividends were reinvested. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that section and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act.
Dividend Policy
We have never declared or paid any cash dividends on our common stock or any other securities. We anticipate that we will retain all available funds and any future earnings, if any, for use in the operation of our business and do not anticipate paying cash dividends in the foreseeable future.
ITEM 6.[RESERVED]
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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included in this Annual Report on Form 10-K. This discussion and analysis and other parts of this Annual Report on Form 10-K contain forward-looking statements that reflect our current plans, expectations, estimates and beliefs that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events may differ materially from those discussed in these forward-looking statements. You should carefully read Item 1A - “Risk Factors” included in this Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements and Industry Data.”
Overview
We are an ophthalmic pharmaceutical and medical technology company focused on developing novel, dropless platform therapies and commercializing associated products for the treatment of glaucoma, corneal disorders, and retinal disease. We first developed Micro-Invasive Glaucoma Surgery (MIGS) as an alternative to the traditional glaucoma treatment paradigm, launching our first MIGS device commercially in 2012. In 2024, we commenced commercial launch activities for iDoseTR, an intracameral procedural pharmaceutical implant designed to continuously deliver therapeutic levels of a proprietary formulation of travoprost inside the eye for extended periods of time. We also offer commercially a proprietary bio-activated pharmaceutical therapy for the treatment of a rare corneal disorder, keratoconus, that was approved by the United States (U.S.) Food and Drug Administration (FDA) in 2016. Beyond our approved products, we continue to develop and advance a robust pipeline of novel, dropless platform technologies designed to advance the standard of care and improve outcomes for patients suffering from chronic eye diseases.
Financial Overview
The most important financial indicators that we use to assess our business are net sales, gross margin, operating expenses, and cash on hand.
December 31, December 31,
Gross margin 75 % 76 %
Please see Results of Operations and Liquidity and Capital Resources below for a detailed discussion of each of the above items including analysis of the fluctuations from year to year.
We incurred net losses of $146.4 million, $134.7 million and $99.2 million for the years ended December 31, 2024, December 31, 2023, and December 31, 2022, respectively and as of December 31, 2024, we had an accumulated deficit of $745.4 million.
Recent Developments
Convertible Notes and Capped Call Unwind
In June 2020, we issued $287.5 million in aggregate principal amount of Convertible Notes pursuant to an indenture dated June 11, 2020, between us and Wells Fargo Bank, National Association, as trustee (the Indenture), in a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended. The Convertible Notes were senior unsecured obligations and bore interest at a rate of 2.75% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. In connection
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with issuing the Convertible Notes, we received $242.2 million in proceeds, after deducting fees and offering expenses and paying the cost of the capped call transactions described below.
In June 2024 we executed a Convertible Notes Exchange whereby certain investors exchanged $230.0 million in aggregate principal of Convertible Notes held for an aggregate of 4,253,423 shares of our common stock, leaving $57.5 million aggregate principal of remaining Convertible Notes outstanding. Then on October 4, 2024, we issued a notice of redemption (the Redemption Notice) for all remaining $57.5 million aggregate principal outstanding of the Convertible Notes to be redeemed on December 16, 2024 (the Redemption Date) for the principal amount together with accrued and unpaid interest. The Redemption Notice triggered a right to conversion by holders, at their election, into shares of our common stock (Common Stock) pursuant to physical settlement at any time prior to the Redemption Date. The conversion rate for the Convertible Notes was 17.8269 shares of Common Stock per $1,000 principal amount, plus additional shares of 0.3501 per $1,000 principal amount, thus totaling 18.1770 shares of Common Stock per $1,000 principal amount surrendered for conversion thereunder.
Between the issuance of the Redemption Notice and the Redemption Date, holders of Convertible Notes totaling approximately $57.4 million of outstanding principal amount elected to convert, resulting in the issuance of 1,044,066 shares of our common stock. On December 16, 2024, the remaining approximately $0.1 million of outstanding principal amount was redeemed, along with accrued and unpaid interest, for cash.
On December 2, 2024, we entered into unwind agreements with certain financial institutions (Option Counterparties) relating to a portion of the capped call transactions (Capped Call Unwind Agreements) that we previously entered into with such Option Counterparties in connection with the issuance of our Convertible Notes. The Capped Call Unwind Agreements relate to a portion of capped call transactions corresponding to fifty percent of the number of shares of our common stock initially underlying the Convertible Notes. Pursuant to the Capped Call Unwind Agreements, the Option Counterparties delivered to us approximately $53.2 million, which amount was determined based upon the volume-weighted average price per share of our common stock during the averaging period from December 3, 2024 through December 5, 2024.
Strategic Transactions
On March 7, 2024, we issued $5.0 million of our common stock and paid approximately $5.1 million in cash in connection with the acquisition of 100% of the outstanding equity interests in a clinical stage biopharma company (the Seller) focused on developing novel therapeutics for rare ophthalmic diseases, including all related patents and patent applications, technology and know-how. Under the terms of the agreement, if these proprietary technologies are commercialized, we may have to make potential payments of up to $51.0 million upon the achievement of certain event-based development milestones, potential payments of up to $150.0 million upon the achievement of certain commercial sales-based milestones should annual net sales of a licensed product eventually exceed various levels, and up to a low double digit royalty on net sales.
Effective March 17, 2023, we entered into a sales agreement (Sales Agreement) with Celanese Canada ULC (Celanese) under which Celanese will make available and supply us certain raw materials used to create a nanoporous membrane utilized in the iDose TR, and authorized us to reference its Drug Master File (DMF) with respect to such raw materials, which is required for us to commercialize iDose TR. The term of the Sales Agreement is four years after the iDose TR launch date in February 2024. In exchange for the ability to obtain future raw materials and the rights related to the DMF, we are subject to minimum compensation payments over four years of $6.3 million and potential additional royalties based on a percentage of sales of the iDose TR product. We recognized an intangible asset related to the minimum compensation payments at fair value of $5.2 million upon the date of acquisition, which was determined to be the iDose TR launch date. The $5.2 million is included in Intangible assets, net on the consolidated balance sheets and will be amortized to cost of sales over its useful life of four years, which is the initial term of the Sales Agreement. A member of the Celanese board of directors also sits on our board of directors.
Market and Business Update
Impact of the Current Global Economic Environment
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During the last twelve months, global and regional economies have experienced, in connection with ongoing macroeconomic conditions, inflation, supply shortages or delays, changes in supply and demand, foreign exchange rate fluctuations and other conditions that have led to disruptions in commerce and pricing stability. Additionally, some of our vendors are continuing to experience supply challenges, both in the acquisition of raw materials as well as due to labor shortages and other disruptions. These challenges have occasionally led to longer lead times and delays of certain components needed for the manufacture of our products, in some cases requiring us to find alternative sources for materials. As a result of these supply chain challenges and ongoing inflationary pressures, we have experienced higher costs for certain components and raw materials. While these supply challenges have generally stabilized over the course of 2024, if these supply issues persist or worsen in the future, they could impact our ability to ship some of our products to our customers, or bring some of our pipeline products to market, in a timely manner. We expect some supply challenges and higher costs of certain components and raw materials to continue throughout 2025. Additionally, while the U.S. government has recently made statements and taken certain actions that have created significant uncertainty about the future relationship between the U.S. and various other countries with respect to trade policies, treaties, government regulations and tariffs, we believe our exposure to such potential policies, tariffs and restrictions is limited as we do not source a material amount of our raw materials and product components from countries other than the U.S.
Additionally, the effects of foreign currency fluctuations were most notably experienced in our international glaucoma business. Our annual growth rate of net sales for the year ended December 31, 2024 was negatively affected by approximately 185 basis points, primarily related to the Japanese Yen. For the year ended December 31, 2023, net sales of our international glaucoma business were negatively impacted by approximately 145 basis points, primarily related to the Japanese Yen.
Developments Impacting Reimbursement Rates and Coverage
In the U.S., healthcare providers use separate billing codes to report the provision of medical procedures and use of supplies to third-party payors, such as government programs or private insurance, and seek reimbursement for all or a portion of those costs. Physician fee payment rates for products covered by temporary Current Procedural Terminology (CPT) codes, such as our iStent infinite and iDose TR products, are set by the multi-state, regional contractors, or Medicare Administrative Contractors (MACs), of which there are currently seven, that are responsible for administering Medicare claims. MACs have in the past, and may in the future, change coverage terms, and there can be no assurance that coverage and adequate reimbursement will be obtained from, or maintained by, the MACs.
In October and November 2023, five of the seven MACs released final local coverage determinations (LCDs) confirming reimbursement coverage of the standalone procedure utilizing the iStent infinite, which received FDA clearance in August 2022, and non-coverage for certain procedures, including the ophthalmic canaloplasty procedure utilizing our iPRIME product. These LCDs also indicated that surgical MIGS procedures should not be performed in combination with other MIGS or surgical glaucoma procedures. In December 2023, prior to their respective effective dates, those five MACs rescinded the final LCDs and determined there would be no change in the current status of coverage for MIGS. In April 2024, five of the seven MACs released draft LCDs that would confirm reimbursement coverage of the standalone procedure utilizing the iStent infinite, which received FDA clearance in August 2022, and that would confirm non-coverage for surgical MIGS procedures in combination with other surgical MIGS procedures (but did not prohibit coverage for use of a procedural pharmaceutical such as our iDose TR, in combination with surgical MIGS procedures). These draft LCDs were finalized in November 2024 and took effect on November 17, 2024. The other two MACs have taken preliminary steps to assess coverage of iStent infinite through temporary local coverage article (LCA) updates. In the case of these two MACs, coverage of the iStent infinite is currently determined on a case-by-case basis.
On April 2, 2024, CMS assigned a unique, permanent Healthcare Common Procedure Coding System J-code for iDose TR indicated for the reduction of intraocular pressure in patients with open-angle glaucoma or ocular hypertension. The new J-code for iDose TR, J7355, became effective July 1, 2024. J-codes are used by U.S. government and commercial payers, as well as surgeons, to streamline the billing and reimbursement process for procedural pharmaceuticals administered by a healthcare professional, such as iDose TR, along with other certain treatments. In addition to the J-code, on March 21, 2024, CMS assigned the CPT codes that are designed to be used to cover the procedural component of iDose TR, 0660T and 0661T, to ambulatory payment classification 5492 (Level 2 Intraocular
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Procedures), retroactively effective as of January 1, 2024. The professional fees associated with an iDose TR procedure have been published by three of the seven MACs.
On January 1, 2025, the U.S. Centers for Medicare & Medicaid Services’ (CMS’) final rules on 2025 Medicare physician fee and facility fee payment rates (2025 Final Rule) became effective. The 2025 Final Rule did not materially modify the 2024 Medicare physician fee and facility fee payment rates with respect to physician fee and facility fee payment rates for procedures using our iStent family of products in conjunction with cataract surgery, which 2024 payment rates contained significant increases in the facility fee rates for ASCs and hospitals that perform iStent infinite procedures in a standalone setting under its temporary Category III CPT code.
We estimate that approximately 80% of procedures utilizing our iStent family of products in the U.S. are performed in the ASC setting and the remaining estimated 20% of procedures are performed in the hospital.
Business Outlook
CMS physician fee payment rate decreases have disrupted traditional customer ordering patterns and may have resulted in certain of our customers’ utilization of competitive products, which may have reduced U.S. Glaucoma sales volumes of our iStent family of products used in conjunction with cataract surgery in each of the three years ended December 31, 2024, December 31, 2023 and December 31, 2022. Our corneal health sales have experienced sporadic headwinds in recent years due to U.S. commercial payer volatility. We believe investments in our market access organization were successful in reducing volatility during the years ended December 31, 2024 and December 31, 2023, although we cannot predict whether such success will continue.
In addition to the foregoing, we commercialized certain of our products for several years in the U.S. with few or no direct competitors. Other competitive products have now become available in the U.S. and globally that have impacted and may continue to impact adoption of or demand for our products. We are also aware of similar products being developed by third parties that could enter the market and increase the competitive pressures we face. These other products could achieve greater commercial acceptanceor demonstrate better safety or effectiveness, clinical results, ease of use or lower costs than our products, which could adversely impact our net sales.
Components of Results of Operations
Net Sales
Our net sales are generated primarily from sales of our iStent family of products to customers, Photrexa and other associated drug formulations, our proprietary bioactivation systems and royalty income. We also began commercializing iDose TR in a controlled manner in February 2024.Customers are primarily comprised of ambulatory surgery centers, hospitals and physician private practices, with independent distributors being used in certain international locations where we currently do not have a direct commercial presence. We currently operate in one operating and reportable segment and our primary business activity is the development and commercialization of therapies across several end markets within ophthalmology.
We sell the majority of our products through a direct sales organization in the United States. Internationally, we sell our products primarily through direct sales subsidiaries and through independent distributors in certain countries in which we do not have a direct presence or maintain a modest commercial presence. The primary end-user customers for our products are surgery centers, hospitals and physician private practices.
Revenue is recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services, which includes estimates of reductions to revenue for commercial and governmental rebates owed, variable consideration for product returns and warranty replacements and other discounts and incentives.
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Cost of Sales
Cost of sales reflects the aggregate costs to manufacture our products and includes raw material costs, labor costs, manufacturing overhead expenses and the effect of changes in the balance of reserves for excess and obsolete inventory.
We manufacture our iStent family of products and iDose TR at our facilities in San Clemente, California and our KXL systems at our manufacturing facility in Burlington, Massachusetts. We contract with third-party manufacturers in the U.S. and Germany to produce our Photrexa and other associated drug formulations. We currently intend to maintain our manufacturing facilities at our San Clemente and Burlington locations for the foreseeable future.
Due to the relatively low production volumes of our iStent family of products, iDose TR and our KXL systems compared to our potential capacity for those products, a significant portion of our per unit costs is comprised of manufacturing overhead expenses. These expenses include quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management.
In 2022, cost of sales included a charge equal to a low single-digit percentage of worldwide net sales of certain iStent products, with a required minimum annual payment of $0.5 million, which amount became payable to the Regents of the University of California (the University) in connection with our December 2014 agreement with the University related to a group of our U.S. patents (the Patent Rights). This ongoing product payment obligation changed as patent coverage on certain products has lapsed, and terminated entirely on the date the last of the Patent Rights expires, which was December 29, 2022. For the year ended December 31, 2022, we recorded approximately $3.1 million in cost of sales in connection with the product payment obligation.
Cost of sales has included amortization of the $252.2 million developed technology intangible assets recorded as a result of our acquisition of Avedro, Inc (Avedro) and our Celanese Agreement. For the year ended December 31, 2024, the amortization expense was $22.2 million and for each of the years ended December 31, 2023, December 31, 2022, the amortization expense was $22.1 million.
Our future gross profit as a percentage of net sales, or gross margin, will be impacted by numerous factors including commencement of sales of products in our pipeline, or any other future products, which may have higher pricing, or conversely, higher product costs. Our gross margin will also be affected by manufacturing or supply chain disruptions or inefficiencies that we may experience as we attempt to manufacture our products on a larger scale, manufacture new products and change our manufacturing capacity, processes or output. Additionally, our gross margin will continue to be affected by amortization of Avedro developed technology and Celanese Agreement intangible assets, the impact of rebates associated with government and commercial programs and by royalty expenses on current or future products associated with various licensing agreements. Our gross margin in future periods may also be impacted by other factors adversely affecting our net sales in future periods such as the impact of government pricing programs and reductions of payment rates for certain of our products and related services and inflationary pressures.
Selling, General and Administrative
Our selling, general and administrative (SG&A) expenses primarily consist of personnel-related expenses, including salaries, sales commissions, bonuses, fringe benefits and stock-based compensation for our executive, sales, marketing, market access, financial, legal, and other administrative functions. Other significant SG&A expenses include marketing programs; advertising; post-approval clinical studies; conferences and congresses; travel expenses; costs associated with obtaining and maintaining our patent portfolio; professional fees for accounting, auditing, consulting and legal services; costs associated with our global enterprise systems and information systems; and allocated facility expenses.
SG&A expenses also include amortization of the $14.1 million customer relationships intangible assets recorded as a result of our acquisition of Avedro, Inc. (Avedro). Amortization expense was $2.5 million for the year ended December 31, 2024, and $2.8 million for each of the years ended December 31, 2023 and December 31, 2022.
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We expect SG&A expenses to continue to grow as we increase our infrastructures for our global sales and marketing functions, commercial support organizations, and general administration departments. We also expect other non-employee‐related costs, including sales and marketing program activities for new products, market access efforts, outside services, accounting services and general legal costs to increase as our overall operations grow. The timing of these increased expenditures and their magnitude are primarily dependent on the commercial success and sales growth of our products, as well as on the timing of any new product launches and other potential business and operational activities.
Research and Development
Our research and development (R&D) activities primarily consist of new product development projects, pre-clinical studies, Investigational New Drug studies, and clinical trials. Our R&D expenses primarily consist of personnel-related expenses, including salaries, fringe benefits and stock-based compensation for our R&D employees; research materials; supplies and services; in-licenses, including event-based milestones; and the costs of conducting clinical studies, which include payments to investigational sites and investigators, clinical research organizations, consultants, and other outside technical services; and the costs of materials, supplies and travel. We expense R&D costs as they are incurred. We expect our R&D expenses to continue to increase as we initiate and advance our development programs, including our expanding pharmaceutical development efforts and clinical trials across the glaucoma, corneal health and retinal disease spectrums.
Costs for our clinical development programs include expenses for all activities necessary for obtaining regulatory approvals. Our research programs vary significantly for each current and future product candidate and completion dates are difficult to predict. As a result, while we expect our R&D costs to continue to increase for the foreseeable future, we cannot estimate with any degree of certainty the timing or the amount of costs we will incur in connection with the development of our product candidates. We anticipate we will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs, results of ongoing and future clinical trials, the availability of funding resources, as well as ongoing assessments as to each current or future product candidate’s commercial potential and our likelihood of obtaining necessary regulatory approvals. We are not currently able to fully track expenses by product candidate.
Acquired In-Process Research and Development
Our acquired in-process research and development (IPR&D) expenses generally relate to acquisitions of technologies that management determinesare not a business combination and do not have any alternative future uses. Future costs to develop these assets are expensed as R&D when incurred. We may have ongoing milestone and royalty payment obligations depending on the success, development, regulatory approval and commercialization of the proprietary technologies we have acquired.
Our IPR&D for the years ended December 31, 2024, December 31, 2023 and December 31, 2022 totaled $14.2 million, $5.0 million and $10.0 million, respectively, relating to one-time upfront payments and stock issuances associated with our exclusive licensing agreements with various third-parties, whereby we were granted the exclusive, worldwide licenses for certain technologies that are in development.
We may have ongoing milestone and royalty payment obligations depending on the success, development regulatory approval and commercialization of the proprietary technologies we have acquired.
Non-Operating Expense, Net
Non-operating expense, net primarily consists of charges associated with our Convertible Note exchange, interest expense associated with our finance lease for our Aliso Facility and for our Convertible Notes, interest income derived from our short-term investments and unrealized gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the U.S. dollar, primarily related to intercompany loans.
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Income Taxes
Our tax provision is primarily comprised of state and foreign income taxes offset by release of uncertain tax positions for which the statute of limitations has expired. Our net deferred tax liability of $6.9 million at December 31, 2024 primarily represents the excess of our indefinite-lived deferred tax liabilities over our indefinite-lived deferred tax assets. We continue to provide a full valuation allowance against our other net deferred tax assets.
We record reserves for uncertain tax positions where we believe the ability to sustain the tax position does not reach a more likely than not threshold.
Results of Operations
For discussion related to the results of operations and changes in financial condition for the year ended December 31, 2023 compared to the year ended December 31, 2022 refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2023 Annual Report on Form 10-K, which was filed with the United States Securities and Exchange Commission on February 23, 2024
Comparison of Years Ended December 31, 2024 and December 31, 2023
Year ended
December 31, % Increase
(in thousands) 2024 2023 (decrease)
Statements of operations data:
Operating expenses:
Acquired in-process research and development 14,229 5,000 185 %
Non-operating loss, net (23,235) (5,027) NM
Income tax provision 771 934 (17) %
Net Sales
Net sales for the years ended December 31, 2024 and December 31, 2023 were $383.5 million and $314.7 million, respectively, reflecting an increase of $68.8 million or 22%.
Net sales of glaucoma products in the United States were $199.6 million and $151.5 million for the years ended December 31, 2024 and December 31, 2023, respectively, increasing by approximately 32%. This increase is primarily due to the introduction of iDose TR as well as higher volumes sold of our iStent family of products due to higher demand, primarily iStent infinite.
International sales of glaucoma products for the years ended December 31, 2024 and December 31, 2023 were $103.7 million and $85.6 million, respectively, increasing by approximately 21%. The increase in international sales reflects continued broad-based growing volume in many key international markets for glaucoma procedures, primarily France, Japan, the United Kingdom and Australia, the dollar-based results of which were slightly affected by unfavorable foreign exchange rates over the course of the year, primarily related to the Japanese Yen, during the year ended December 31, 2024 as compared to the year ended December 31, 2023.
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Net sales of corneal health products were $80.2 million and $77.7 million for the years ended December 31, 2024 and December 31, 2023, respectively, increasing by 3%.Of the approximately $2.5 million increase in net sales generated by our corneal health products, $2.3 million related to an increase in U.S. net sales of Photrexa using direct sales operations, which was positively impacted by higher realized average sales prices of Photrexa along with increases in sales to existing customers and new account starts, mostly offset by accrued rebates related to our participation in the Medicaid Drug Rebate Program (MDRP). Our net sales of iLink devices in the U.S. increased $0.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Our international corneal health sales decreased $0.1 million from net sales in countries outside the U.S. during the year ending December 31, 2024 as compared to the year ended December 31, 2023.
Cost of Sales
Cost of sales for the years ended December 31, 2024 and December 31, 2023 were $94.0 million and $75.6 million, respectively, reflecting an increase of approximately $18.5 million or 24% that is generally proportionate to the increase in net sales for the corresponding period, offset by certain new product launch manufacturing costs associated with iDose TR along with an inventory write-down charge associated with product line optimizations. Our gross margin was approximately 75% and 76% for the years ended December 31, 2024 and December 31, 2023, respectively.
Selling, General and Administrative Expenses
SG&A expenses for the years ended December 31, 2024 and December 31, 2023 were $261.2 million and $224.1 million, respectively, reflecting an increase of $37.1 million or 17%.
Of the total $37.1 million increase in SG&A expenses for the year ended December 31, 2024 as compared to the year ended December 31, 2023, $19.0 million related to increased compensation and related employee costs, with $3.0 million of the incremental amount related to an increase in stock-based compensation expense, the majority of which was associated with certain performance equity awards that were achieved during the year. The residual increase primarily relates to enhancements of various customer and patient support functions, our business intelligence function, and growth in our commercial infrastructure in glaucoma and corneal health, along with increased travel, meetings and accompanying costs as business activities have expanded.
The remaining increase of $18.1 million primarily relates to discretionary expenses supporting the above personnel growth as well as our ongoing administrative operations, inclusive of information technology, facilities and allocated expenses.
Research and Development Expenses
R&D expenses for the years ended December 31, 2024 and December 31, 2023 were $136.4 million and $138.8 million, respectively, reflecting a decrease of $2.3 million or 2%.
For the year ended December 31, 2024, we incurred $84.6 million in core R&D expenses and $51.8 million in clinical expenses, comprised of $79.9 million in compensation and related employee expenses, $2.0 million of which was related to increased stock-based compensation, with the remaining $56.5 million spent on the continued research and development, clinical studies, regulatory activities, quality assurance, clinical inventory and supplies for surgical glaucoma product candidates and pharmaceutical projects, such as next generation iDose products;Epioxa, a pharmaceutical therapeutic system for the treatment of keratoconus without the removal of the epithelium (also referred to as “epi-on”); and our earlier stage programs forglaucoma, corneal, retinal and other therapeutic investments. For the year ended December 31, 2023, we incurred $86.3 million in core R&D expenses and $52.5 million in clinical expenses, comprised of $77.9 million in compensation and related employee expenses with the remaining $60.9 million spent on the abovementioned programs.
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Acquired In-process Research and Development
During the year ended December 31, 2024 we issued $5.0 million of our common stock, paid approximately $5.1 million in cash, and incurred $1.6 million of contingent consideration in connection with the asset acquisition of 100% of the outstanding equity interests in a clinical stage biopharma company focused on developing novel therapeutics for ophthalmic diseases, including all related patents and patent applications, technology and know-how. Also included in IPR&D for the year ended December 31, 2024 is a $2.5 million payment related to an additional license agreement pursuant to which we obtained an exclusive, worldwide license to develop and commercialize drug products incorporating certain proprietary technology.
IPR&D expenses for the year ended December 31, 2023 related to the issuance of $3.0 million of our common stock for the acquisition of intellectual property rights, as well as a $2.0 million upfront payment related to our exclusive license agreement with Stuart Therapeutics, Inc. License Agreement.
Non-Operating Expense, Net
We had non-operating expense, net of $23.2 million and $5.0 million for the years ended December 31, 2024 and December 31, 2023, respectively. The $18.2 million increase primarily relates to charges associated with our Convertible Note Exchange.
Income Tax Provision
Our effective tax rate for the year ended December 31, 2024 was (0.50)%. For the year ended December 31, 2024 and December 31, 2023, we recorded a provision for income taxes of $0.8 million and $0.9 million, respectively. For the years ended December 31, 2024 and December 31, 2023, our tax provision was primarily comprised of state and foreign income tax expense offset by release of uncertain tax positions for which the statute of limitations has expired.
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash, cash equivalents and short-term investments, and generally cash generated from operating, financing and investing activities. Our primary uses of cash have been for commercial activities, acquired in-process research and development, clinical and research and development programs, general and administrative expenses, and capital expenditures.
The following table summarizes our cash and cash equivalents, short-term investments and selected working capital data as of December 31, 2024 and December 31, 2023 (in thousands):
December 31, December 31,
Main Sources of Liquidity
We plan to fund our operations, commitments for capital expenditures and other short and long-term known contractual and other obligationsusing existing cash and investments and, to the extent available, cash received from commercial operations as well as cash generated from employee stock option exercises.
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We may seek to obtain additional financing in the future through other debt or equity financings. There can be no assurance that we will be able to obtain additional financing on terms acceptable to us, or at all and although we have been profitable for certain periods in our operating history, there can be no assurance that we will be profitable or generate cash from operations in future periods.
Cash, Cash Equivalents, Short-term Investments and Restricted Cash
As of December 31, 2024, our cash, cash equivalents and short-term investments totaled approximately $318.9 million and our restricted cash totaled approximately $4.7 million.
Cash Flow used in Operations
For the twelve months ended December 31, 2024, our operating activities used $61.3 million in net cash.
Short-term Liquidity Requirements
Our short-term liquidity requirements primarily consist of regular operating costs, R&D project funding, capital expenditures as we continue the development of our manufacturing facilities and office spaces, operating and financing lease obligations and other firm purchase commitments. As of December 31, 2024, we had net working capital of $374.7 million, which indicates that our current assets are sufficient to cover our short-term liabilities.
Long-term Liquidity Requirements
Our long-term liquidity requirements primarily consist of capital expenditures for the continued development of our manufacturing facilities and office spaces, potential future payments related to our licensing agreements, and firm purchase commitments. As demand grows for our products, we will continue to expand global operations to meet demand through investments in our manufacturing capabilities. In December 2024, we reached an understanding with the city of Huntsville, Alabama to develop a new 200,000 square foot R&D and manufacturing facility. We expect construction to begin in 2026.
Material Cash Requirements
The following table summarizes our material cash requirements, including commitments for capital expenditures and known contractual and other obligations as of December 31, 2024, and the amount required to satisfy those requirements in future periods.
Payments due by period
Less than More than
(in thousands) Total 1 year 1 - 3 years 3 - 5 years 5 years
After funding the current operations of our commercial activities, the first planned use of our cash flow from operations is to provide capital funding for our R&D and clinical activities. In addition to investing in R&D and clinical activities, we expect to utilize cash for various capital expenditures. We have made and expect to continue to make significant investments in our global sales force, marketing programs, market access, research and development activities, clinical studies, facilities and general and administrative infrastructure.
We believe that cash from operating, financing and investing activities, together with our cash and investment balances, will be sufficient to meet ongoing operations, capital expenditures, commitments, working capital requirements and other known contractual and other obligations and satisfy our liquidity requirements for at least the next 12 months and the foreseeable future.
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Cash Flows
Our historical cash outflows have primarily been associated with cash used for operating activities such as the expansion of our commercial and R&D activities; purchase of and growth in inventory and other working capital needs; the acquisition of intellectual property; and expenditures related to equipment and improvements used to increase our manufacturing capacity and improve our manufacturing efficiency and for overall facility expansion.
The following table is a condensed summary of our cash flows for the periods indicated:
Year ended
December 31,
Net cash (used in) provided by:
Exchange rate changes (3,017) 1,341
At December 31, 2024, our cash and cash equivalents were held for working capital purposes. We do not enter into investments for trading or speculative purposes. Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity.
Operating Activities
In the years ended December 31, 2024 and December 31, 2023 our operating activities used $61.3 million and $57.8 million, respectively.
For the year ended December 31, 2024, our net cash used in operating activities reflected our net loss of $146.4 million, adjusted for non-cash items of $120.1 million, primarily consisting of stock-based compensation expense of $50.2 million, depreciation of $10.9 million, inducement expense related to Convertible Notes Exchange of $17.4 million, amortization of intangible assets of $24.7 million, non-cash lease expense of $4.3 million, amortization of debt issuance costs of $0.7 million, amortization of premium of $4.0 million, a write-down charge of $4.4 million associated with product line optimizations that was recorded against inventory and prepaid assets and other assets, and IPR&D acquired through issuance of common stock of $5.0 million. Additionally, changes in operating assets and liabilities resulted in a net use of cash of $39.5 million, which resulted primarily from increases in accounts receivable of $22.0 million, mostly because extended payment terms have been offered as part of our iDose TR commercial launch during 2024, increases in inventory of $18.8 million, an increase in other assets of $2.1 million, partially offset by decreases in prepaids and other current assets of $3.3 million.
For the year ended December 31, 2023, our net cash used in operating activities reflected our net loss of $134.7 million, adjusted for non-cash items of $87.0 million, primarily consisting of stock-based compensation expense of $43.5 million, depreciation of $8.7 million, amortization of intangible assets of $24.9 million, amortization of lease right-of-use assets of $4.3 million, and amortization of debt issuance costs of $1.4 million, accretion of discount $1.7 million and IPR&D acquired through issuance of common stock of $3.0 million. Additionally, changes in operating assets and liabilities resulted in a net use of $10.1 million, which resulted primarily from increases in inventory of $4.8 million, increases in accounts receivable of $3.8 million, increase in other assets of $1.9 million and increases in prepaids and other current assets of $0.9 million, offset by increases in accounts payable and accrued liabilities of $1.3 million.
Investing Activities
In the years ended December 31, 2024 and December 31, 2023, our investing activities provided cash of $47.8 million and $14.1 million, respectively.
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In the year ended December 31, 2024, we used approximately $190.0 million for purchases of short-term investments and approximately $6.3 million for purchases of property and equipment, primarily related to our facilities in Aliso Viejo, California; and San Clemente, California. We also received cash of approximately $247.2 million from sales and maturities of short-term investments and used approximately $3.2 million related to investments in company-owned life insurance.
In the year ended December 31, 2023, we used approximately $265.6 million for purchases of short-term investments, approximately $20.2 million for purchases of property and equipment, primarily related to our facilities in Aliso Viejo, California; Burlington, Massachusetts; and San Clemente, California; and approximately $3.2 million related to investments in company-owned life insurance, and we received cash of approximately $303.1 million from sales and maturities of short-term investments.
We expect levels of our capital expenditures to be higher in 2025 than in 2024 as we upgrade certain manufacturing facilities and continue investing in R&D equipment needed to advance our product pipeline.
Financing Activities
In the years ended December 31, 2024 and December 31, 2023, our financing activities provided $91.5 million and $15.0 million of net cash, respectively.
In the year ended December 31, 2024, we received $53.2 million related to our Capped Call Unwind Agreements, $46.8 million from the exercises of stock options and purchases of our common stock by employees pursuant to our Employee Stock Purchase Plan and used $6.6 million for payment of employee taxes related to restricted stock unit vestings. Additionally, we paid $0.9 million in principal on our finance lease.
In the year ended December 31, 2023, we received $19.0 million from the exercises of stock options and purchases of our common stock by employees pursuant to our Employee Stock Purchase Plan and used $3.3 million for payment of employee taxes related to restricted stock unit vestings. Additionally, we paid $0.7 million in principal on our finance lease.
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Significant Estimates
Management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue and expenses at the date of the consolidated financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions and such differences could be material to our financial position and results of operations.
While our significant accounting policies are more fully described below and in the Notes to our consolidated financial statements in Part II, Item 8 in this Annual Report on Form 10-K, we believe the following accounting policy to be most critical for fully understanding and evaluating our financial condition and results of operations.
Revenue Recognition
We derive our revenue from sales of our products in the United States and internationally. Customers are primarily comprised of ambulatory surgery centers, hospitals and physician private practices, with distributors being used in certain international locations where we do not have a direct commercial presence.
We concluded that one performance obligation exists for the majority of our contracts with customers which is to deliver products in accordance with our normal delivery times. Revenue is recognized when this performance
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obligation is satisfied, which is the point in time when we consider control of a product to have transferred to the customer. Revenue recognized reflects the consideration to which we expect to be entitled in exchange for those products or services. We have determined the transaction price to be the invoice price, net of adjustments that reduce revenue,which includes estimates of volume-based rebates, rebates for government pricing programs, variable consideration for certain product returns and warranty replacements, and other discounts and incentives that reduce revenue.
We only recognize revenue when it is probable that we will collect the consideration we are entitled to in exchange for the goods transferred to a customer. This requires management to perform an assessment related to the probability of collecting the consideration. The assessment can contain judgment when it is performed for customers with declining credit conditions or those with no history or a limited history of product sales with us.
We offer volume-based rebate agreements to certain customers and, if earned by the customer, we provide a rebate (in the form of a credit memo) at the contract’s conclusion. In such cases, the transaction price is allocated between our delivery of product and the issuance of a rebate at the contract’s conclusion for the customer to utilize on prospective purchases. The performance obligation to issue a customer’s rebate, if earned, is transferred over time and our method of measuring progress is the output method, whereby the progress is measured by the estimated rebate earned to date over the total rebate estimated to be earned over the contract period. The provision for volume-based rebates is estimated based on customers' contracted rebate programs and the customers’ projected sales levels.
Non-volume-based rebates consist primarily of rebates for government pricing programs, which were estimated using the expected value method, based upon a range of possible outcomes for the estimated number of actual claims invoices we expect to receive. We apply this estimate to the respective period’s sales to determine the rebate accrual and related expense. This estimate is evaluated regularly to ensure that the historical trends are as current as practicable. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue.
We regularly monitor our rebate programs to ensure the rebate allowance is fairly stated. Our rebate allowance is included in accrued liabilities in the consolidated balance sheets.
Additionally, we have performance obligations related to certain customers’ right to a future discount on single dose pharmaceutical purchases in the U.S., as well as voluntary patient assistance programs to provide financial assistance to qualified patients. Each of these performance obligations is expected to be recognized when the customer or patient elects to utilize the discount, which is generally within one year. The impact of these programs on revenue were not material for the periods presented.
Customers are not granted specific rights of return; however, we may permit returns of certain products from customers if such product is returned in a timely manner and in good condition. We generally provide a warranty on our products for one year from the date of shipment, and offer an extended warranty for our KXL systems. Any product found to be defective or out of specification will be replaced or serviced at no charge during the warranty period. Estimated allowances for sales returns and warranty replacements are recorded at the time of sale of the product and are estimated based upon the historical patterns of product returns matched against sales, and an evaluation of specific factors that may increase the risk of product returns. Product returns and warranty replacements to date have been consistent with amounts reserved or accrued and have not been significant. If actual results in the future vary from our estimates, we will adjust these estimates which would affect net product revenue and earnings in the period such variances become known.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2 of the notes to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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ITEM 7A.Quantitative and qualitative disclosures about market risk
Interest Rate Risk
We are exposed to market risks in the ordinary course of our business. Our cash and cash equivalents include cash in readily available checking and money market accounts, as well as certificates of deposit. These securities are not dependent on interest rate fluctuations that could cause the principal amount of these assets to fluctuate and thus do not pose any interest rate risk to us. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value.
Credit Risk
In addition, we maintain significant amounts of cash and cash equivalents at one or more U.S. financial institutions that are in excess of federally insured limits.
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar. Increases or decreases in our foreign-denominated revenue from movements in foreign exchange rates are often partially offset by the corresponding increases or decreases in our foreign-denominated operating expenses.
To the extent that our international operations grow, our risks associated with fluctuation in currency rates will become greater, and we will continue to assess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar can increase the costs of our international operations. To date, we have not entered into any foreign currency hedging contracts although we may do so in the future.
A hypothetical 10% increase or decrease in the value of foreign exchange rates relative to the U.S. dollar as of December 31, 2024 would have had an immaterial impact on our net loss.
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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 53
Consolidated Balance Sheets 55
Consolidated Statements of Operations 56
Consolidated Statements of Comprehensive Loss 57
Consolidated Statements of Stockholders’ Equity 58
Consolidated Statements of Cash Flows 59
Notes to Consolidated Financial Statements 60
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Glaukos Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Glaukos Corporation (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework),and our report dated February 24, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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/s/ Ernst & Young LLP
We have served as the Company's auditor since 2006.
Irvine, California
February 24, 2025
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Glaukos Corporation
Consolidated Balance Sheets
(in thousands, except par values)
December 31,
Assets
Current assets:
Prepaid expenses and other current assets 12,455 18,194
Operating lease right-of-use asset 30,254 27,146
Finance lease right-of-use asset 41,816 44,180
Liabilities and stockholders' equity
Current liabilities:
Convertible senior notes - 282,773
Deferred tax liability, net 6,928 7,144
Commitments and contingencies (Note 12)
Stockholders’ equity:
Accumulated other comprehensive income 2,615 1,165
Total liabilities and stockholders' equity $ 974,756 $ 940,414
See accompanying notes to consolidated financial statements.
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Glaukos Corporation
Consolidated Statements of Operations
(in thousands, except per share amounts)
Year ended
December 31,
Operating expenses:
Acquired in-process research and development 14,229 5,000 10,000
Litigation-related settlement - - (30,000)
Non-operating expense:
Charges associated with convertible senior notes (18,012) - -
Basic and diluted net loss per share $ (2.77) $ (2.78) $ (2.09)
See accompanying notes to consolidated financial statements.
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Glaukos Corporation
Consolidated Statements of Comprehensive Loss
(in thousands)
Year ended
December 31,
Other comprehensive income (loss):
Foreign currency translation gain 926 (110) 985
Unrealized gain (loss) on short-term investments 524 4,250 (3,975)
Other comprehensive income (loss) 1,450 4,140 (2,990)
See accompanying notes to consolidated financial statements.
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Glaukos Corporation
Consolidated Statements of Stockholders’ Equity
(in thousands)
Accumulated
Additional other
Shares Amount capital income (loss) deficit Shares Amount equity
Stock-based compensation - - 38,561 - - - - 38,561
Other comprehensive loss - - - (2,990) - - - (2,990)
Net loss - - - - (99,195) - - (99,195)
Stock-based compensation - - 43,528 - - - - 43,528
Other comprehensive income - - - 4,140 - - - 4,140
Net loss - - - - (134,661) - - (134,661)
Unwinding of capped calls - - 53,881 - - - - 53,881
Stock-based compensation - - 50,207 - - - - 50,207
Other comprehensive income - - - 1,450 - - - 1,450
Net loss - - - - (146,372) - - (146,372)
See accompanying notes to consolidated financial statements.
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Glaukos Corporation
Consolidated Statements of Cash Flows
(in thousands)
Year ended
December 31,