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Business Combinations | 12 Months Ended
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Dec. 31, 2019
Business Combinations |
Business Combinations | Note 6. Business Combinations As a result of the Avedro Merger previously discussed in Note 1, Organization and Basis of Presentation, effective November 21, 2019, Avedro is a wholly-owned subsidiary of the Company and the Avedro Merger is intended to expand the Company’s portfolio of pipeline products beyond the treatment of glaucoma to include pharmaceutical therapies for the treatment of corneal disorders as part of the Company’s strategic objective to build a portfolio of micro-scale surgical and pharmaceutical therapies in corneal health and retinal disease. ​ The fair value of consideration transferred at closing was $437.8 million (the Merger Consideration), that consisted of Glaukos shares worth $406.8 million issued to replace Avedro common stock, Glaukos shares worth $0.2 million to replace the certain vested Avedro warrants, and $30.8 million of value attributable to the pre-combination services associated with replacement of all Avedro outstanding and unexercised stock option awards and all outstanding restricted stock units (Replacement Awards). See Note 9, Stock-based Compensation for further details regarding the Replacement Awards. The following table summarizes the components of the Merger Consideration as of November 21, 2019 (in thousands, except shares and stock closing price): ​
​ | ​ | ​ | ​
​ |  | ​
Avedro shares of common stock outstanding at closing | ​ | ​ | 17,670,003
Exchange Ratio | ​ | ​ | 0.365
Right to receive shares of Glaukos | ​ | ​ | 6,449,551
Glaukos closing stock price on November 21, 2019 | ​ | $ | 63.07
​ | ​ | ​ | ​
Fair value of Glaukos common stock issued in the Merger, plus an immaterial amount of cash paid for fractional shares | ​ | $ | 406,776
Fair value of Glaukos common stock issued to replace certain vested Avedro warrants | ​ | $ | 189
Fair value of Replacement Awards attributable to pre-combination services | ​ | $ | 30,786
Total Merger Consideration | ​ | $ | 437,751
​ The Company performed a valuation analysis of the fair market value of Avedro’s assets and liabilities as of closing. The following table sets forth an allocation of the Merger Consideration to the identifiable tangible and intangible assets acquired and liabilities assumed, with the excess recorded to goodwill. This allocation of the Merger Consideration as of November 21, 2019 may be subject to revision if new facts and circumstances arise over the measurement period, which may extend up to one year from closing (in thousands): ​
​ | ​ | ​ | ​
​ |  | ​
Assets Acquired: | ​ | ​ | ​
Cash | ​ | $ | 49,101
Accounts receivable | ​ | ​ | 13,113
Inventory | ​ | ​ | 33,339
Prepaid expenses and other current assets | ​ | ​ | 2,522
Restricted cash | ​ | ​ | 551
Property and equipment | ​ | ​ | 1,489
Intangible assets | ​ | ​ | 385,200
Goodwill | ​ | ​ | 66,134
Liabilities Assumed: | ​ | ​ | ​
Accounts payable | ​ | ​ | 7,056
Accrued liabilities | ​ | ​ | 6,776
Deferred revenue | ​ | ​ | 1,389
Debt | ​ | ​ | 22,496
Deferred revenue, non-current | ​ | ​ | 43
Deferred tax liability | ​ | ​ | 75,938
Fair value of net assets acquired | ​ | $ | 437,751
​ Goodwill represents the excess of the Merger Consideration over the preliminary fair value of the underlying assets acquired and liabilities assumed. Goodwill is attributable to the assembled workforce of experienced personnel at Avedro and expected synergies, and is not deductible for tax purposes. ​ Additionally, the fair market value inventory adjustment totaled approximately $29.0 million and is being amortized to cost of sales over the inventory’s expected turnover period. As of December 31, 2019 the Company recorded approximately $4.0 million related to this amortization in cost of sales in the consolidated statement of operations. ​ The Company consolidated Avedro’s operating results into its consolidated financial statements beginning on November 21, 2019. The amount of net sales and net loss of Avedro included in the consolidated financial statements since the date of the acquisition is $6.0 million and $0.6 million, respectively. The fair value and estimated useful lives of the Avedro intangible assets are as follows (in thousands, except where noted): ​
​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Estimated
​ | ​ | Fair | ​ | Useful Life
​ |  | Value |  | (in years)
Intangible assets subject to amortization: | ​ | ​ | ​ | ​ | ​
Developed technology | ​ | $ | 252,200 | ​ | 11.4
Customer relationships | ​ | ​ | 14,100 | ​ | 5
Total | ​ | $ | 266,300 | ​ | ​
Intangible assets not subject to amortization: | ​ | ​ | ​ | ​ | ​
In-process research and development (IPR&D) | ​ | $ | 118,900 | ​ | Indefinite
Total intangible assets | ​ | $ | 385,200 | ​ | ​
​ Supplemental Pro Forma Information (unaudited): ​ The following supplemental financial information presents the pro forma combined results of the Company as if the Avedro Merger had occurred on January 1, 2018 (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2019 |  | 2018
Pro forma revenue | ​ | $ | 273,823 | ​ | $ | 211,447
Pro forma net loss | ​ | $ | (103,275) | ​ | $ | (27,200)
​ The above pro forma results are based on assumptions and estimates, which the Company believes to be reasonable; however, are not the operating results that would have been realized had the Avedro Merger actually closed on January 1, 2018 and are not necessarily indicative of the Company’s ongoing combined operating results. ​ The pro forma results include adjustments related to purchase accounting, acquisition and integration costs, amortization of intangible assets, and conforming accounting policies. Material non-recurring pro forma adjustments reflected in the pro forma results include: (1) the removal of $16.1 million in transaction and integration costs incurred in 2019; (2) the inclusion of $16.3 million in transaction and integration costs incurred in 2018; (3) a $2.5 million increase to Avedro revenue in 2018 in order to reflect the adoption of ASC 606; (4) the removal of a $75.9 million tax benefit from 2019, and the inclusion of a $75.9 million tax benefit in 2018 related to the partial release of the Company’s valuation allowance due to net deferred tax liabilities assumed in the Avedro Merger; and (5) the amortization of approximately $29.0 million of step-up in the fair value of inventory to cost of sales in 2018.

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