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Organization and Basis of Presentation

12 Months Ended

Dec. 31, 2021

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 sustained pharmaceutical therapies, surgical devices, 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, diabetic macular edema and retinal vein occlusion.

On November 21, 2019, the Company acquired Avedro, Inc. (Avedro), a hybrid ophthalmic pharmaceutical and medical technology company focused on developing therapies designed to treat corneal diseases and disorders and correct refractive conditions, in a stock-for-stock transaction (Avedro Merger). Avedro developed novel bio-activated drug formulations used in combination with proprietary systems for the treatment of progressive keratoconus and corneal ectasia following refractive surgery. The therapy is the first and only minimally invasive anterior segment product offering approved by the FDA shown to halt the progression of keratoconus.

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.

Recent Developments

2022 U.S. reimbursement rates

On November 2, 2021, the United States (U.S.) Centers for Medicare & Medicaid Services (CMS) published its final rules for 2022 Medicare physician fee payment rates and 2022 Medicare facility fee payment rates for services furnished in both the ambulatory surgery center and hospital outpatient settings (Final Rules). These Final Rules superseded the proposed rates that were issued by CMS in July 2021 and took effect January 1, 2022.

Attillaps License Agreement

On September 20, 2021, the Company announced that it had entered into a licensing agreement (Attillaps License Agreement) with Attillaps Holdings, Inc. (Attillaps) under which Attillaps granted the Company a global exclusive license to Attillaps’ proprietary library of investigational pharmaceutical compounds that target the eradication of Demodex mites, which are the root cause of Demodex blepharitis and often associated with meibomian gland dysfunction and related ophthalmic diseases. Under the Attillaps Licensing Agreement, the Company has the exclusive global right to research, develop, manufacture and commercialize products using certain acetylcholinesterase inhibitors for the treatment of ophthalmic diseases caused by Demodex mites. The Company paid $5.0 million upon the signing of the Attillaps License Agreement, which is included in in-process research and development within the consolidated statements of operations, as management determined there were no alternative future uses for the technology acquired. The Company will have ongoing milestone and royalty payment obligations depending on the success of the development, approval and commercialization of the compounds.

Settlement of Patent Litigation

On September 14, 2021, the Company entered into a settlement agreement (Settlement Agreement) with

Ivantis, Inc. (Ivantis), pursuant to which the Company and Ivantis agreed to terminate the patent infringement lawsuit we had filed against Ivantis on April 14, 2018 in the U.S. District Court for the Central District of California, Southern Division (the Lawsuit). In the Lawsuit, the Company alleged that Ivantis’ Hydrus® Microstent device infringes the Company’s U.S. Patent Nos. 6,626,858 and 9,827,143. Pursuant to the terms of the Settlement Agreement, Ivantis was to pay the Company a cash payment of $60.0 million, $30.0 million of which was paid to the Company during the year ended December 31, 2021, and $30.0 million of which will be paid by the earlier of (i) December 31, 2022, or (ii) 30 days after the consummation of the sale to a third party of all or substantially all of Ivantis’ equity or assets such that the third-party controls Ivantis. The $30.0 million cash payment received during the year ended December 31, 2021 is included in litigation-related settlement as a reduction of operating expenses on the consolidated statements of operations. See Note 15, Subsequent Events for details regarding payment by Ivantis of their second $30.0 million payment to the Company.

Additionally, Ivantis will make quarterly royalty payments to the Company in the amount of 10% of Ivantis’ Hydrus Microstent U.S. sales and any international sales supplied out of the U.S. beginning in the fourth quarter of 2021 through April 26, 2025, subject to a per-unit minimum payment. The Company and Ivantis have dismissed with prejudice all of their respective claims against the other in the Lawsuit, which was scheduled for trial beginning in September 2021, and in related lawsuits in other forums and jurisdictions. The parties also have agreed to mutual licenses and covenants not to sue the other party for patent infringement relating to Ivantis’ Hydrus Microstent or the Company’s micro-stent devices.

Santen License Agreement

On May 18, 2021, the Company announced that it entered into a new development and commercialization license agreement with Santen Pharmaceutical Co., Ltd. (Santen) for the PreserFlo MicroShunt superseding the previous collaboration and distribution agreements between the two parties. Under the new agreement, the Company obtains exclusive commercialization rights for the MicroShunt in the United States, Australia, New Zealand, Canada, Brazil, Mexico and the remainder of Latin America. The new agreement also provides the Company with full control over all development activities for the MicroShunt in these same territories, including all clinical development and regulatory affairs activities in the U.S. following a transition period. Santen submitted a premarket approval (PMA) application to the U.S. Food and Drug Administration (FDA) in June 2020 and discussions with the FDA remain ongoing. The Company did not make any payment in connection with the execution of the license agreement; however, should the Company be successful in obtaining regulatory approval for the PreserFlo MicroShunt, it would be required to pay Santen a milestone payment, followed by royalties and other potential future milestones depending on the success of the commercialization of the product.

Intratus License Amendment

On April 14, 2021, the Company announced that it had entered into an amended licensing agreement with Intratus, Inc. (Intratus) under which Intratus granted the Company a global exclusive license to research, develop, manufacture and commercialize Intratus’ patented, non-invasive drug delivery platform for application in the treatment of presbyopia. The addition of presbyopia expands upon the existing agreement between the Company and Intratus announced on July 22, 2019. The amendment includes a mechanism to further expand the existing agreement to other indications, applying the active pharmaceutical ingredients being advanced by the Company in glaucoma, corneal disorders and presbyopia to new ophthalmic fields. The Company paid $5.0 million upon the signing of the Intratus License Agreement, which is included in in-process research and development within the consolidated statements of operations, as management determined there were no alternative future uses for the technology acquired.

Liquidity

For the year ended December 31, 2021, the Company incurred net losses of $49.6 million and cash from operations provided $24.7 million and, as of December 31, 2021, the Company had an accumulated deficit of $365.2 million. For the year ended December 31, 2020, the Company incurred a net loss of $120.3 million, and $23.0 million of cash was used by operating activities. The Company has made and expects to continue to make significant investments in our global sales force, marketing programs, research and development activities, clinical studies and general and administrative infrastructure. FDA-approved IDE and IND studies and new product development programs in our industry are expensive. The Company also expects to incur additional construction costs related to its new facility in Aliso Viejo, California.

The Company’s 2.75% convertible notes due 2027 (Convertible Notes) may be converted at the option of the holders at the times and under the circumstances and at the conversion rate described in Note 8, Convertible Senior Notes. As of December 31, 2021, none of the conditions allowing holders of the Convertible Notes to convert had been met.

The Company plans to fund its operations, capital funding and other liquidity needs using existing cash and investments and, to the extent available, cash generated from commercial operations. The Company’s existing cash and investments include, in part, the net proceeds from the Convertible Notes issued in June 2020 (after payment for the related capped call transactions), and the $30.0 million paid to the Company by Ivantis in September 2021 pursuant to the terms of the Settlement Agreement, which the Company is using for working capital and general corporate purposes.

Although the Company has been profitable for certain periods in its operating history, there can be no assurance that it will be profitable or generate cash from operations. The Company may seek to obtain additional financing in the future through other debt or equity financings. There can be no assurance that the Company will be able to obtain additional financing on terms acceptable, or at all. As of December 31, 2021, the Company had cash, cash equivalents, restricted cash and short-term investments totaling $423.5 million and net working capital of $422.8 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, 2021.