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Organization and Basis of Presentation

12 Months Ended

Dec. 31, 2019

Organization and Basis of Presentation

Organization and Basis of Presentation

Glaukos Corporation

Notes to Consolidated Financial Statements

Note 1.

Organization and Basis of Presentation

Organization and Business

Glaukos Corporation (Glaukos or the Company), incorporated in Delaware on July 14, 1998, is an ophthalmic medical technology and pharmaceutical company focused on developing novel therapies for the treatment of glaucoma, corneal disorders, and retinal disease. The Company developed Micro-Invasive Glaucoma Surgery (MIGS) to serve as an alternative to the traditional glaucoma treatment paradigm and launched its first MIGS device commercially in 2012. The Company also offers commercially a proprietary bio-activated pharmaceutical therapy for the treatment of a corneal disorder, keratoconus, that was approved by the U.S. Food and Drug Administration (FDA) in 2016 and is developing a pipeline of surgical devices, sustained pharmaceutical therapies, and implantable biosensors intended to treat glaucoma progression, corneal disorders such as keratoconus, dry eye and refractive vision correction, and retinal diseases such as neovascular age-related macular degeneration and diabetic macular edema.

The accompanying consolidated financial statements include the accounts of Glaukos and its wholly-owned subsidiaries. All significant intercompany balances and transactions among the consolidated entities have been eliminated in consolidation.

Liquidity

For the year ended December 31, 2019, the Company achieved net income of $15.4 million, however used $0.4 million of cash from operations and as of December 31, 2019 had an accumulated deficit of $189.7 million. For the year ended December 31, 2018, the Company incurred a net loss of $13.0 million, and generated $18.9 million of cash from operations. The Company has financed operations to date primarily through the sale of equity securities, the issuance of notes payable, cash from exercises of stock options and warrants to purchase equity securities and cash generated by commercial operations. Although the Company has been profitable for certain periods in its operating history, there can be no assurance that the Company will continue to be profitable or continue to generate cash from operations.

The Company plans to fund its operations and capital funding needs using existing cash, cash equivalents and investments, cash generated from commercial operations, and through future debt and equity financings. There can be no assurance that the Company will be able to obtain additional financing on terms acceptable to it, or at all. Any equity financing may result in dilution to existing stockholders and any additional debt financing may include restrictive covenants. As of December 31, 2019, the Company had cash, cash equivalents, restricted cash and short-term investments totaling $183.3 million and net working capital of $205.2 million. The Company has performed an analysis and concluded substantial doubt does not exist with respect to the Company being able to continue as a going concern through one year from the date of issuance of the consolidated financial statements for the year ended December 31, 2019.

Recent Developments

Acquisition of Avedro, Inc.

On August 7, 2019, the Company entered into an Agreement and Plan of Merger (Merger Agreement) with Atlantic Merger Sub, Inc. (Merger Sub) and Avedro, pursuant to which Merger Sub would merge with and into Avedro, with Avedro continuing as the surviving corporation and a wholly owned subsidiary of the Company (the Avedro Merger). Avedro is a hybrid ophthalmic pharmaceutical and medical technology company focused on developing therapies designed to treat corneal diseases and disorders and correct refractive conditions.

Under the terms of the Merger Agreement, each share of Avedro common stock and certain vested Avedro warrants that were issued and outstanding immediately prior to the effective time of the Avedro Merger were automatically cancelled and converted into the right to receive 0.365 of a share of common stock of Glaukos. Also, subject to certain exceptions, each option and its associated exercise price previously granted by Avedro that was outstanding and unexercised immediately prior to the effective time of the Avedro Merger, was assumed by the Company and converted using the same 0.365 ratio noted above, into a stock option exercisable for common stock of Glaukos. Lastly, each restricted stock unit award previously granted by Avedro that was outstanding immediately prior to the effective time of the merger, subject to certain exceptions, was assumed by Glaukos and was converted using the same 0.365 ratio noted above, into a restricted stock unit award with respect to common stock of Glaukos.

On November 21, 2019, the Avedro Merger was consummated in a stock-for-stock transaction for total consideration of $437.8 million (Merger Consideration). The total consideration 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).

Immediately following the Avedro Merger closing, the Company used approximately $22.5 million for payment of debt assumed as a result of the Avedro Merger.

See Note 4, Fair Value Measurements, Note 6, Business Combinations, Note 7, Intangible Assets and Goodwill and Note 9, Stock-Based Compensation and Note 10, Income Taxes for additional details regarding the impact of the Avedro Merger on the Company’s consolidated financial statements.

Licensing Arrangement with Intratus, Inc.

On July 22, 2019, the Company entered into a global licensing agreement with Intratus, Inc. (Intratus) for $1.5 million in cash, plus future performance-based consideration upon achievement of certain development, regulatory approvals and commercial milestones and royalties on commercial sales, pursuant to which the Company obtained an exclusive, royalty-bearing license to research, develop, manufacture and commercialize Intratus’ patented, non-invasive drug delivery platform designed for use in the treatment of dry eye disease, glaucoma and other corneal disorders such as blepharitis, conjunctivitis and related conditions.

The $1.5 million payment was immediately expensed to in-process research and development (IPR&D) as management determined there were no alternative future uses for the technology acquired.

Acquisition of DOSE Medical Corporation

On June 19, 2019, the Company entered into a definitive agreement and plan of merger to acquire DOSE Medical Corporation (DOSE) for $2.5 million in cash, plus potential future performance-based consideration upon achievement of certain regulatory approvals and commercial milestones and royalties on commercial sales (the DOSE Merger). If certain DOSE products receive FDA approval within ten years following the closing of the DOSE Merger, the Company will pay the DOSE shareholders amounts between $5.0 million and $22.5 million, depending on the type of DOSE product approved. The Company will pay additional performance-based payments to DOSE shareholders if within ten years of closing of the DOSE Merger, such DOSE products receive approval from the EU European Medicines Agency, in which case the Company will pay the DOSE shareholders either $1.25 million and/or $2.5 million, depending on the type of DOSE product approved. Following FDA approval of such DOSE products, the Company will pay the DOSE shareholders quarterly royalty payments equal to 5% of net sales of such DOSE products for a period of ten years. The Company will also pay the DOSE shareholders additional performance-based payments of $7.5 million and $20.0 million upon the achievement of certain net sales milestones with respect to such DOSE products. Finally, under the terms of the DOSE Merger, the Company may elect to buyout the additional milestone and royalty payments described above by paying former DOSE shareholders between $10.0 and $55.0 million, depending on the type of DOSE product involved. DOSE is currently conducting research and development on multiple micro-invasive, bioerodible, sustained-release drug delivery platforms designed to be used in the treatment of various retinal diseases, including age-related macular degeneration and diabetic macular edema.

On June 27, 2019, the Company completed its acquisition of DOSE and DOSE became a wholly-owned subsidiary of the Company. The transaction was accounted for as an asset acquisition. Of the $2.5 million initial cash payment, $2.2 million was immediately charged to IPR&D expense as management determined there was no alternative future use related to the single group of identifiable assets purchased. The remaining $0.3 million of upfront consideration was capitalized as property & equipment, net and is being depreciated over the corresponding asset’s useful life. Management will account for the payment of the future performance-based consideration if and when earned.

DOSE was spun out from the Company in 2010 and had operated as a stand-alone entity; however, DOSE was considered a variable interest entity and its operations were consolidated in the Company’s financial statements at that time. In 2015, the Company acquired the iDose product line and related assets from DOSE and upon the acquisition, the Company derecognized DOSE as a consolidated variable interest entity in the financial statements, and in 2017 the Company acquired DOSE’s IOP sensor system. Thomas W. Burns, the Company’s President, Chief Executive and board of directors member, and William J. Link, Ph.D., Chairman of the Company’s board of directors, served on the board of directors of DOSE and certain members of management and board of directors held an equity interest in DOSE prior to being acquired.

Commercial Agreement with Santen, Inc.

In April 2019, the Company announced it had entered into a multi-year agreement with Santen Inc., the U.S. subsidiary of Santen Pharmaceutical Co., Ltd. (Santen). Pursuant to this agreement the Company was appointed the exclusive U.S. partner for the sale of the MicroShunt, which is currently being studied in an FDA pivotal study and has not yet been approved by the FDA. Following anticipated completion of the premarket approval application (PMA) submission in 2020, Santen intends to seek FDA PMA approval and, if approved, U.S. launch of the product. The MicroShunt is an ab-externo device being developed for treatment of primary open-angle glaucoma where IOP is uncontrolled with maximum tolerated medical therapy or where progression of the disease warrants surgery.

The transactions described above are intended to expand the Company’s portfolio of pipeline products beyond the treatment of glaucoma to include pharmaceutical therapies for the treatment of retinal diseases and corneal disorders.