Table of Contents
(Mark one)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
Commission File No. 001-37463
GLAUKOS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
33-0945406
(I.R.S. Employer Identification No.)
229 Avenida Fabricante
San Clemente, California
(Address of principal executive office)
92672
(Zip Code)
(949) 367-9600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Trading Symbol(s)
GKOS
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth
company. (See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act).
Large accelerated filer ☒
Smaller reporting company ☐
Emerging growth company ☐
Non-accelerated filer ☐
Accelerated filer ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2020, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of common stock held by non-affiliates of the
registrant, based on the closing sales price for the registrant’s common stock as reported on The New York Stock Exchange, was $1,634 million.
The number of shares of the Registrant’s common stock outstanding as of February 25, 2021 (latest practicable date) was 45,786,180 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2021 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K
to the extent stated herein. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the close of the registrant's fiscal year
ended December 31, 2020.
Table of Contents
TABLE OF CONTENTS
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Selected Financial Data.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
Directors, Executive Officers and Corporate Governance.
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
Exhibits and Financial Statement Schedules.
Form 10-K Summary
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
PAGE
1
14
29
30
31
32
33
35
37
54
55
100
101
103
104
105
106
107
108
109
113
We use Glaukos, our logo, iStent, iStent inject, iStent Infinite, iStent SA, iPrism, iDose, iPRIME, MIGS, Avedro,
Photrexa, iLink, KXL, Mosaic and other marks as trademarks. This report contains references to our trademarks and service marks
and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report, including
logos, artwork and other visual displays, may appear without the ® or ™ symbols, but such references are not intended to indicate
in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to
these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks
to imply a relationship with, or endorsement or sponsorship of us by, any other entity.
References throughout this document to the “Company,” “we,” “us,” “our,” or “Glaukos” refer to Glaukos Corporation
and its consolidated subsidiaries.
i
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended
(Exchange Act). These statements are based on management’s beliefs and assumptions and on information currently available to
management. Some of the statements under Item 1 - “Business,” Item 1A - “Risk Factors,” Item 7 - “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K contain
forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “may,” “will,”
“could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,”
“continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking
statements contain these words.
These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity,
performance or achievements to be materially different from the information expressed or implied by these forward-looking
statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Annual
Report on Form 10-K, we caution you that these statements are based on a combination of facts and factors currently known by us
and our projections of the future, about which we cannot be certain.
In addition, you should refer to the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of
important factors that may cause actual results to differ materially from those expressed or implied by the forward-looking
statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report on Form
10-K will prove to be accurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be
material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a
representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or
at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
This Annual Report on Form 10-K contains market data and industry forecasts that were obtained from industry
publications. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such
information. Although we believe that the industry publications on which the market and industry statements are based are
reliable and we are not aware of any misstatements regarding any market data or industry forecasts presented herein, we have not
independently verified any of the third party information. Statements in this Annual Report on Form 10-K regarding our market
position, market opportunity, market size and our general expectations involve risks and uncertainties and are subject to change
based on various factors, including those discussed under Item 1A - “Risk Factors” and Item 7 - “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on Form 10-K.
ii
Table of Contents
ITEM 1.
BUSINESS
Overview
PART I
Glaukos is an ophthalmic medical technology and pharmaceutical company focused on developing novel therapies for
the treatment of glaucoma, corneal disorders, and retinal disease. We developed Micro-Invasive Glaucoma Surgery (MIGS) to
serve as an alternative to the traditional glaucoma treatment paradigm and launched our first MIGS device commercially in 2012.
We have developed 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. We are also 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
(AMD), diabetic macular edema (DME), and retinal vein occlusion (RVO).
Ophthalmic diseases and disorders are a national and global health concern and, as the population ages, the number of
individuals with vision impairment and blindness is increasing. Moreover, improving access to cost-effective tools is increasing
the diagnosis of sight-threatening ocular diseases globally and driving demand for innovative products, technologies, and
therapies that improve clinical outcomes, and provide ease of use and reliability. In response to the significant unmet needs that
exist within ophthalmology we have designed commercial and development-stage solutions to provide ophthalmologists with
treatment options.
Our commercial solutions and development-stage product candidates include:
• MIGS products that primarily involve the insertion of a micro-scale device or drug delivery system designed to
reduce intraocular pressure (IOP) by restoring the natural aqueous humor outflow pathways for patients suffering
from glaucoma and MIGS biosensors to measure pressure within the eye;
•
topical pharmaceuticals that are bio-activated on the eye by one of our proprietary systems intended to
strengthen, stabilize, and reshape the cornea for patients impacted by corneal ectatic disorders or refractive
disorders; and
topical pharmaceuticals that are applied to the eyelid and meant to treat dry eye, glaucoma and other ocular
•
surface diseases and disorders, and
proprietary micro-invasive, bio-erodible sustained release drug delivery implants that are designed to elute
•
pharmaceuticals over time to improve the vision of patients impacted by retinal diseases such as AMD, DME,
RVO, and diabetic retinopathy (DR).
Impact of COVID-19 Pandemic and Current Economic Environment
In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. The World
Health Organization declared COVID-19 to be a “pandemic,” spreading across the globe and impacting worldwide economic
activity. In the U.S., certain federal, state and local governmental authorities issued stay-at-home and other orders, proclamations
and/or directives, including restrictions on elective procedures and therapies, aimed at minimizing the spread of COVID-19.
Although some of these governmental restrictions have since been lifted or scaled back, recent surges of COVID-19 have in some
cases led, and future surges could lead, to the reinstitution of stay-at-home or other orders and may further result in restrictions
being re-implemented in response to efforts to reduce the spread of COVID-19. Even if stay-at-home or other orders are
removed, potential patients may elect to stay at home voluntarily. The COVID-19 pandemic and subsequent economic slowdown
has materially impacted the global demand for our products, which are used in procedures and therapies that are considered
elective. This decrease in demand was most significantly felt in the latter part of the quarter ended March 31, 2020 and the earlier
part of the quarter ended June 30, 2020. Beginning in May 2020, we began to see an early recovery toward more normalized
levels for cataract and
1
Table of Contents
keratoconus procedures, a trend that continued through the quarter ended December 31, 2020. The ultimate impact of the
COVID-19 pandemic on our operations going forward is unknown and will depend on future developments which are highly
uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 outbreak, the status of
health and safety actions taken to contain its spread and any additional preventative and protective actions that governments, or
we, may take, any future surges of COVID-19 that may occur, the dynamics associated with the rollout of the COVID-19
vaccines, and how quickly and to what extent economic and operating conditions normalize within the markets in which we
operate. For additional information, see the section titled Risks Related to Our Business within Item 1A. Risk Factors of this
Annual Report on Form 10-K.
We have taken a number of steps aimed at minimizing the spread of COVID-19 and protecting our employees,
including shifting the majority of our workforce to remote operations, which continues through the date hereof. We have
maintained streamlined manufacturing and assembly processes in order to consistently provide product to our customers who
depend on us. In addition to other health and safety protocols that follow applicable guidance and regulations, employees
involved in such operation-critical processes have been organized into a number of small shifts designed to minimize the time
any one individual is required to be onsite. Further, in an effort to identify, and avoid further infection from, asymptomatic cases,
we have offered periodic voluntary COVID-19 viral testing to on-site employees.
We also sought to preserve our cash position by instituting a number of cost saving initiatives, the majority of which
have been reinstated, although we continue to carefully manage our discretionary spending. These actions were designed to
preserve jobs and core research and development programs. Further, in June 2020, we issued an aggregate principal amount of
$287.5 million of 2.75% convertible notes due 2027 (the Convertible Notes), the net proceeds of which will be used for working
capital and general corporate purposes. As of December 31, 2020, we had cash, cash equivalents, short-term investments, and
restricted cash of approximately $413.9 million, compared to $183.3 million as of December 31, 2019.
We continue to actively assess the impact of COVID-19 on our clinical trials and other pipeline products. The closure
of ophthalmic practices and deferral of elective procedures beginning in the first quarter of 2020 in response to COVID-19
disrupted new patient enrollment in our ongoing clinical trials. This disruption has continued even as facilities have reopened as
doctors prioritize their standard procedures over clinical trial enrollment. In particular, patient enrollment for our iDose clinical
trials remains impacted, which has delayed our estimated iDose approval timeline, where we now expect a potential FDA
approval of this product in 2023.
Material Changes and Transactions
Glaukos was formed in 1998 with a focus on treating glaucoma progression, initially developing MIGS to serve as an
alternative to traditional glaucoma treatment and management paradigms. We launched the iStent, our first MIGS device, in the
U.S. in 2012, our next-generation iStent inject device in late 2018, and our latest iStent inject W device in the second half of 2020,
while also developing a broader portfolio of development-stage product candidates designed to treat glaucoma progression. In
recent years, we began to execute a long-term strategy that leverages our core competencies and extends our focus to include
therapies for chronic eye diseases beyond glaucoma into corneal disorders and retinal health.
In June 2020, we issued $287.5 million in aggregate principal amount of 2.75% convertible notes due 2027 (the
Convertible Notes), the proceeds of which are expected to be used for working capital and general corporate purposes.
Products and Pipeline
The Company operates in one operating segment as our primary business activity is the development and
commercialization of therapies across several end markets within ophthalmology. In an effort to provide greater visibility into our
performance and progress, the following discussion is presented based on our three principal franchises: glaucoma, corneal
disorders and retinal diseases.
2
Table of Contents
Glaucoma
Glaucoma is a group of eye diseases characterized by progressive, irreversible and largely asymptomatic vision loss in
which elevated levels of IOP are often associated with optic nerve damage that can cause blindness. While some glaucoma
patients do not experience an increase in IOP, it is widely considered a major risk factor in glaucoma’s progression, and reduction
in IOP is the only clinically proven treatment for the disease. Elevated IOP occurs when aqueous humor is not circulating
normally or properly draining from the front part of the eye.
We have three primary commercialized products designed to treat mild-to-moderate open-angle glaucoma, the iStent,
the iStent inject, and the iStent inject W. The iStent, the iStent inject, and the iStent inject W are FDA-approved micro-bypass
stents that improve aqueous humor outflow inserted through the small corneal incision made during cataract surgery. Our iStent,
which reduces IOP by restoring the natural physiologic pathways for aqueous humor, was the first commercially available MIGS
treatment solution. Our next generation iStent inject and iStent inject W devices include two stents pre-loaded in an auto-injection
system designed to allow the surgeon to inject stents through a single corneal entry. The iStent, iStent inject, and iStent inject W
procedures are currently reimbursed in the U.S. by Medicare and all major national private payors. The iStent and iStent inject
technologies are commercially available in Japan, Brazil, Canada, Australia, and certain European Union (EU) and other
countries, even though reimbursement may not always be available for all such procedures.
We are also developing several pipeline products, including the iStent Infinite, iStent SA and iDose TR, none of which
have been commercialized. The iStent Infinite consists of three stents that are designed for use as a standalone procedure in
patients with refractory glaucoma. In 2019, we completed patient enrollment of an IDE study of iStent Infinite in order to pursue
future FDA clearance. Similar to the iStent inject and the iStent inject W, the iStent SA is a two-stent product that uses a different
auto-injection inserter. However, the iStent SA is designed for use as a standalone glaucoma procedure. The iDose drug delivery
system is a targeted injectable implant based on our micro-scale device-platform that is designed to continuously deliver
therapeutic levels of medication from within the eye for extended periods of time. We commenced our Phase III IND clinical trial
for iDose TR in 2018. Additionally, our glaucoma pipeline includes the extended release iDose (TREX), iDose (ROCK), iPrime
and the IOP Sensor which are still in a research and development (R&D) stage.
In addition to our organic R&D efforts, in 2019 we entered into a multi-year agreement with Santen, which appointed us
to serve as the exclusive U.S. partner for the sale of the Preserflo MicroShunt, which is currently being studied in an FDA pivotal
study and has not yet been approved by the FDA. The MicroShunt is an ab-externo device being developed for treatment of
glaucoma where IOP is uncontrolled with maximum tolerated medical therapy or where progression of the disease warrants
surgery.
In addition, in 2018 we entered into a research and development collaboration agreement with D. Western Therapeutics
Institute (DWTI) in which we are conducting the evaluation and development of novel intraocular products for the treatment of
glaucoma using compounds from DWTI’s proprietary Rho Kinase inhibitor compound library.
Corneal Disorders
The cornea, the eye’s outermost layer, is a clear, dome-shaped surface that functions best as a lens when the cornea is
strong and shaped properly. The cornea is responsible for the majority of the eye’s total focusing power and corneal disorders,
including ectasia, refractive vision errors and dry eye, among others, can cause vision impairment. Corneal ectatic disorders are
comprised of a class of diseases characterized by an ectatic, or misshaped, cornea. Corneal ectasia is typically caused by a
weakening of the cornea, which can be due to a number of factors, including genetic causes, adverse side effects from ophthalmic
refractive procedures such as LASIK, or excessive eye rubbing. We are currently targeting two primary corneal ectatic disorders
with our bio-activated pharmaceuticals: keratoconus and corneal ectasia following refractive surgery, although our therapies may
also offer benefits to individuals with presbyopia and myopia. Keratoconus is mostly a hereditary, degenerative ectatic disease
that is often first seen in older children or young adults in which the typically round, dome-shaped cornea progressively thins and
weakens, causing a cone-like corneal bulge due to normal internal pressure of the eye. Corneal ectasia following refractive
surgery is a serious complication that involves the cornea becoming weakened following a refractive procedure, such as LASIK,
with symptoms similar to naturally occurring keratoconus. Refractive vision errors, or the inability of the cornea to
3
Table of Contents
properly focus light, are prevalent in the U.S. and abroad and include disorders such as presbyopia and myopia. Presbyopia is a
natural part of aging due to the hardening of the eye’s crystalline lens over time, resulting in a loss of lens elasticity or the ability
of the lens to change shape in order to focus incoming light on the retina. Myopia, or nearsightedness, is a vision condition in
which close objects are seen clearly, but objects farther away appear blurred, and is usually caused by an elongation of the
eyeball or a cornea having too much curvature. Presbyopia affects nearly everyone over the age of 40 while myopia first occurs
in school-age children and typically progresses until about age 20.
Our pharmaceutical iLink therapies, a suite of novel single-use drug formulations that are bio-activated by our
proprietary systems, address both keratoconus and corneal ectasia. These iLink therapies, bioactivated upon the delivery of
ultraviolet A (UVA) light to the cornea induce a biochemical reaction called corneal collagen cross-linking, or corneal cross-
linking (CXL). CXL strengthens, stabilizes and reshapes the cornea to treat corneal ectatic disorders. The KXL System, which
delivers UVA light to a large portion of the cornea, is approved by the FDA for use in the U.S. following removal of the
epithelium (often referred to as “iLink epi-off”), a procedure familiar to ophthalmologists. In May 2019, patient enrollment in a
pivotal Phase 3 clinical trial was completed to evaluate the safety and efficacy of our latest pharmaceutical iLink therapeutic
system for the treatment of keratoconus without the removal of the epithelium (often referred to as “iLink epi-on”). We now
expect a potential approval of iLink epi-on product in 2023, with the delay being primarily the result of our decision to change
contract drug manufacturers in advance of completing registration batches and, ultimately, commercialization. Outside the U.S.,
our pharmaceutical therapies can also be administered with the KXL System to address corneal weakening caused by refractive
surgery such as LASIK. Our next generation systems are being developed to provide metered beams of UVA light to a targeted
portion of the cornea. Our pharmaceutical products bio-activated by these systems may also offer a means of improving the
vision of patients with presbyopia, myopia or other corneal diseases.
We have also entered into an exclusive global licensing arrangement with Intratus to research, develop, manufacture and
commercialize a patented, non-invasive transdermal drug delivery platform designed for application on the eyelid in the
treatment of dry eye disease, glaucoma, and other ocular surface diseases and disorders.
Retinal Diseases
Retinal diseases vary widely but universally affect the retina, a thin layer of tissue inside the back wall of the eye
containing light-sensitive cells that convert light into neural signals. Most retinal diseases cause visual impairment, including
blurred or distorted vision and vision loss. Our R&D efforts in our retinal franchise are focused on treating AMD, DME, RVO,
and other retinal diseases. AMD is a progressive disease that occurs when the macula, the central portion of the retina, is
impaired, which can result in severe vision problems. DME is highly prevalent among individuals with type 2 diabetes and is
associated with DR, the impairment of small blood vessels in the retina caused by increased glucose levels. Advanced DR can
lead to fluid leaking into the macula, which causes DME and severe vision impairment. RVO occurs when the flow of blood from
the retina is blocked, often due to a blood clot blocking the retinal vein, which can result in severe vision problems.
We are developing sustained release pharmaceutical retinal platforms leveraging our expanded pharmaceutical and
sustained drug delivery R&D capabilities, including Triamcinolone Acetonide SR, Multi-Kinase Inhibitor SR and Anti-VEGF
SR. If commercialized, these platforms would be designed to treat AMD, DME, RVO, and other retinal diseases. The focus of
our retinal research and development efforts is to develop potential treatment options with a longer duration-of-effect than current
standards of care products.
Research & Development
We devote significant resources to our R&D efforts, which are focused on developing new products, and enhancing the
effectiveness, ease of use, safety, and reliability of our commercialized products. Our R&D objectives are:
●
●
to advance glaucoma patient care through continuous improvement of our MIGS technologies;
to further enhance treatment options for keratoconus, while expanding iLink and CXL indications to include
treatment for certain refractive and other corneal conditions and developing pharmaceutical therapies for dry eye
disease and other corneal disorders; and
4
Table of Contents
●
to leverage our expertise in sustained pharmaceutical systems to identify and develop viable treatment options for
retinal diseases such as AMD, DME and RVO.
A considerable portion of our R&D investment includes clinical trials and the collection of evidence that provide data
for use in regulatory submissions and required post-market approval studies involving applications of our products. We expect
our R&D and clinical expenditures to increase as we continue to devote significant resources to clinical trials and regulatory
approvals of our pipeline products. We currently conduct R&D activities primarily in the U.S. but are expanding our clinical
capabilities to sites outside the U.S.
Sales and Marketing
Our global sales efforts and promotional activities are currently aimed at ophthalmic surgeons and other eye care
professionals and our primary customers include ambulatory surgery centers, hospitals and physician private practices. In the
U.S., we sell our products through a direct sales organization. Outside the U.S., we sell our products through direct sales
organizations in sixteen countries and a network of distribution partners in other markets where we do not have a direct
commercial presence or maintain a modest commercial presence. In 2020, sales to customers inside and outside the U.S.
accounted for 77% and 23% of our net sales, respectively. No single customer or distributor accounted for more than 10% of our
total net sales in 2020. For the year ended December 31, 2020, our iStent technologies, the iStent, the iStent inject, and the iStent
inject W and related accessories, which comprise our key product family, accounted for approximately 80% of our net sales,
while our iLink therapies accounted for approximately 20% of our net sales.
Competition
The medical technology and pharmaceutical industries are highly competitive. We may compete with many companies,
including divisions of companies much larger than us that may have greater resources and name recognition, and smaller
companies that compete against specific products or in certain geographies. Furthermore, new product development, discoveries,
and technological change characterize the areas in which we compete. Our present or future products could be rendered obsolete
as a result of advances by one or more of our present or future competitors or by other surgical or pharmaceutical therapy
development. We must continue to develop and commercialize new products, technologies, and therapies to remain competitive
in the ophthalmology industry. We believe that we compete primarily on the basis of clinical superiority supported by extensive
data, and innovative features that enhance patient benefit, product performance, and safety.
The ophthalmic segment of the medical technology and pharmaceutical industries is dynamic and subject to significant
change due to cost-of-care considerations, regulatory reform, industry and customer consolidation, and evolving patient needs.
The ability to provide products, technologies, and therapies that demonstrate value, are reimbursed through government or third-
party payors, improve clinical outcomes and provide ease of use and reliability is becoming increasingly important for companies
within ophthalmology.
In glaucoma, our MIGS offerings primarily compete against Ivantis, however there are a considerable number of large
and small companies providing more invasive surgical glaucoma technologies, laser-based therapies, and pharmaceuticals that
may provide indirect competition or with whom we may compete should our broad clinical development pipeline be approved
and commercialized. In corneal disorders, we have, under an orphan drug designation, the only FDA approved bio-activated
pharmaceutical therapy for the treatment of keratoconus, but globally we compete against numerous providers of corneal
crosslinking therapies such as PeschkeTrade GmBH. Our corneal disorder pipeline, if approved, would vastly expand our
competition to numerous large companies such as AbbVie Inc., Alcon and Johnson & Johnson, and small companies that provide
medical technology and pharmaceutical therapies for several areas including dry eye and refractive conditions. Our retinal health
pipeline, if approved, may face substantial competition from large pharmaceutical companies such as AbbVie Inc., Novartis AG,
Genentech/Roche, Regeneron, and Bayer, and there are also a considerable number of large and small companies with
development efforts in the field.
5
Table of Contents
Facilities, Manufacturing and Distribution
Our corporate headquarters and our manufacturing operations for the iStent, iStent inject and iStent inject W are located
in an approximately 98,000 square foot campus in San Clemente, California which is comprised of two main buildings. Our
pharmaceutical therapies for keratoconus are primarily manufactured and supplied by third parties in the U.S. and Germany. We
lease approximately 27,000 square feet of office and laboratory space in Waltham, Massachusetts, and our manufacturing
operations for the majority of our proprietary systems are located in Burlington, Massachusetts, with some limited manufacturing
operations in Dublin, Ireland. In the fourth quarter of 2018, we entered into an office building lease pursuant to which we lease
one property containing three existing office buildings, comprising approximately 160,000 rentable square feet of space, located
in Aliso Viejo, California (Aliso Facility). The term of the Aliso Facility lease commenced on April 1, 2019 and will continue for
thirteen years, with an option to extend the lease for two additional five-year periods at market rates. We intend to relocate our
corporate administrative headquarters, along with certain laboratory, research and development and warehouse space previously
based in San Clemente, to the Aliso Facility. We currently intend to maintain manufacturing facilities for the iStent, iStent inject,
and iStent inject W at our San Clemente location for the foreseeable future. Our international subsidiaries also lease facilities in
Australia, Brazil, Canada, Germany, Japan and the United Kingdom.
Intellectual Property
The strength of our competitive position depends substantially upon our ability to obtain and enforce intellectual
property rights protecting our technology both domestically and internationally. We rely on a combination of intellectual property
rights, including patents, trademarks, service marks, copyrights, trade secrets and other similar intellectual property, as well as
customary contractual protections and security measures used to protect our proprietary, trade secret information.
In the aggregate, our intellectual property assets are of material importance to our business. We are significantly
dependent on our patent and other intellectual property rights and the failure to protect such rights could negatively impact our
ability to sell current or future products or prohibit us from enforcing our patents or other intellectual property rights against
others. For additional information see the section titled Risks Related to Our Intellectual Property within Item 1A. Risk Factors
of this Annual Report on Form 10-K.
As of December 31, 2020, we owned or exclusively licensed in certain fields of use over 300 issued patents, pending
U.S. patent applications, issued foreign patents and pending foreign patent applications. We may, from time to time, choose to
acquire or license additional patents and patent applications, or we may choose to abandon, sell, or license certain Company
patents and patent applications, depending on our needs. The issued patents that protect our commercial products and current
product pipeline expire between 2021 and 2038.
Government Regulation
Our products and operations are subject to extensive and rigorous regulation by federal, state, and local authorities, as
well as foreign regulatory authorities. These governmental agencies regulate, among other things, the research, development,
testing, manufacturing, approval, labeling, storage, recordkeeping, advertising, promotion and marketing, distribution, post
approval monitoring and reporting, and import and export of medical devices and drugs (including drug/device combination
products) in their respective jurisdictions to assure the safety and effectiveness of medical products and pharmaceuticals for their
intended use. In general, there has been a trend of increased regulation of medical device and drug products, which has resulted
in, and will likely continue to result in, increased prices to bring new products to market.
Regulation & Reimbursement in the United States
The FDA has broad regulatory authority over medical devices and drugs in the U.S. The FDA regulates, among other
things, product safety, efficacy, manufacturing, advertising, labeling and safety reporting.
6
Table of Contents
Medical Device Requirements
Each medical device commercially distributed in the United States requires one of the following: (i) clearance under a
510(k) premarket notification;(ii) approval under a Premarket Approval (PMA) application; (iii) approval of a de-novo
classification petition; or (iv) approval under an IDE.
The FDA classifies devices into one of three classes—Class I, Class II or Class III—depending on the degree of risk
associated with each medical device and the extent of manufacturing and regulatory control needed to ensure its safety and
effectiveness. Class III devices, which include our iStent products that produce the majority of our revenue, are deemed to pose
the greatest risk, such as life-sustaining, life-supporting or implantable devices and devices deemed not substantially equivalent
to a predicate device. Class III devices require FDA approval of the more demanding PMA application before marketing of a
Class III device can proceed.
PMA Approval Pathway
Class III devices typically require a PMA before they can be marketed. In a PMA, the manufacturer must demonstrate
that the device is safe and effective for its intended use, and the PMA must be supported by extensive data, including data from
preclinical studies and human clinical trials. If the FDA accepts the application for review, it has 180 days under the FDCA to
complete its review of a PMA, although in practice, the FDA’s review can take up to several years. The FDA will generally
conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or
facilities to ensure compliance with the QSR. Even after a PMA approval, the FDA may require post-approval conditions to
ensure the safety and effectiveness of the device, including additional clinical studies or post-market surveillance. Failure to
comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.
Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or
changes in the design performance specifications, which may affect the safety or effectiveness of the device, require submission
of a PMA supplement.
Clinical Trials of Medical Devices
Clinical trials are almost always required to support a PMA for a Class III device. All clinical investigations must be
conducted in accordance with the FDA’s IDE regulations. If the device presents a “significant risk,” to human health, as defined
by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, showing with appropriate data that it
is safe to test the device in humans and that the testing protocol is scientifically sound.
Regardless of the degree of risk presented by the medical device, clinical studies must be approved by, and conducted
under the oversight of, an Institutional Review Board (IRB) for each clinical site, which is responsible for the initial and
continuing review of the IDE. During a study, the sponsor and any clinical investigators are required to comply with the
applicable FDA requirements. After a trial begins, the sponsor, the FDA or the IRB could suspend or terminate a clinical trial at
any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits.
Post-Market Regulation
After a device is approved for marketing, numerous and pervasive regulatory requirements continue to apply. These
include:
●
Establishment registration and device listing with the FDA;
● QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design,
testing, control, documentation and other quality assurance procedures during all aspects of the design and
manufacturing process;
7
Table of Contents
●
Labelling, advertising and promotion regulations, which require that promotion is truthful, not misleading, fairly
balanced and provide adequate directions for use and that all claims are substantiated, and also prohibit the promotion of
products for unapproved or “off-label” uses and impose other restrictions on labeling;
● Approval of product modifications of approved devices that affect safety or effectiveness or that would constitute a
major change in intended use of an approved device;
● Medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may
have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it
markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;
● Correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field
corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a
violation of the FDCA that may present a risk to health; and
●
Post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the
public health or to provide additional safety and effectiveness data for the device.
The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that we failed to comply
with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of
the following sanctions:
● warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;
●
●
●
recalls, withdrawals, or administrative detention or seizure of products;
operating restrictions or partial suspension or total shutdown of production;
refusing or delaying requests for approvals of new products or modified products;
● withdrawing 510(k) clearances or PMA approvals that have already been granted;
●
●
refusal to permit the export or import of our products; or
criminal prosecution.
Drug Requirements
The development and commercialization of drug products is subject to extensive regulation by governmental authorities
in the U.S. and other countries. Before marketing in the U.S., a drug must undergo rigorous preclinical and clinical studies and an
extensive regulatory approval process implemented by the FDA under the FDCA.
Before commencing clinical studies in humans in the US, we must submit to the FDA an investigational new drug
application (IND) that includes, among other things, the general investigational plan and protocols for specific human studies and
the results of preclinical studies. Once clinical studies have begun under the IND, they are usually conducted in three phases and
under FDA oversight. These phases generally include the following:
Phase 1. Introduction into patients or healthy human volunteers and is tested for safety, dose tolerance and
pharmacokinetics.
Phase 2. Introduction into a limited patient population to assess the efficacy of the drug in specific, targeted indications,
assess dosage tolerance and optimal dosage, and identify possible adverse effects and safety risks.
8
Table of Contents
Phase 3. Expansion to further demonstrate clinical efficacy, optimal dosage and safety within an expanded patient
population.
The results of drug development, preclinical studies and clinical studies must be submitted to the FDA as part of a New
Drug Application (NDA). The NDA also must contain extensive manufacturing information. The Prescription Drug User Fee Act
(PDUFA) establishes timeframes for FDA review of NDAs and the 2007 Food and Drug Administration Amendments Act gave
the FDA authority to require implementation of a formal Risk Evaluation and Management Strategy to ensure that the benefits of
a drug outweigh its risks. At the end of the review period, the FDA communicates either approval of the NDA or a complete
response listing the application’s deficiencies.
Once approved, the FDA may require post-marketing studies, sometimes referred to as Phase 4 studies, to monitor the
safety and effectiveness of approved drugs, and may limit further marketing of the drug based on the results of these post-
marketing studies.
If regulatory approval for a drug is obtained, the clearance to market the drug will be limited to those diseases and
conditions approved by FDA and for which the drug was shown to be effective, as demonstrated through clinical studies and
specified in the drug’s labeling. Even if this regulatory approval is obtained, a marketed drug, its manufacturer and its
manufacturing facilities are subject to continual review and periodic inspections by the FDA. The FDA ensures the quality of
approved drugs by carefully monitoring manufacturers’ compliance with its current Good Manufacturing Practice (“cGMP”)
regulations, which contain minimum requirements for the methods, facilities, and controls used in manufacturing, processing, and
packaging of a drug. The FDA may withdraw drug approval if compliance with post-marketing regulatory standards is not
maintained or if safety or quality issues are identified after the drug reaches the marketplace.
We are also subject to various laws and regulations regarding laboratory practices, the experimental use of animals and
the use and disposal of hazardous or potentially hazardous substances in connection with our research. In each of these areas, as
above, the FDA and other regulatory authorities have broad regulatory and enforcement powers, including the power to withdraw
approvals.
Health Care Regulatory Laws
Additional laws and regulations also govern our business operations and products in the U.S., including among others:
●
●
●
the federal health care Anti-Kickback Statute which prohibits, among other things, persons from knowingly and
willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce
or reward either the referral of an individual for, or the purchase, lease, order, arrangement for, or
recommendation of, items or services for which payment may be made, in whole or in part, under federal health
care programs;
the federal civil False Claims Act prohibits, among other things, knowingly presenting or causing the presentation
of a false or fraudulent claim for payment of government funds, or knowingly making, using, or causing to be
made, a false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an obligation
to pay money to the federal government. False Claims Act liability is significant in the healthcare industry
because the statute provides for treble damages and significant mandatory penalties per false claim or statement
for violations (adjusted annually for inflation);
federal and state laws and regulations that govern the collection, dissemination, security, use, disclosure and
confidentiality of patient-identifiable health and other proprietary and personally-identifiable information, in
particular, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health
Information Technology for Economic and Clinical Health Act of 2009 (HITECH). HIPAA created federal
criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a
scheme to defraud any healthcare benefit program; and
9
Table of Contents
●
the Physician Payments Sunshine Act, which requires applicable manufacturers like us to report annually to the
Centers for Medicare and Medicaid Services (CMS) information related to payments and other “transfers of
value” made to physicians and teaching hospitals, and ownership and investment interests held by physicians and
their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report
information regarding payments and transfers of value provided (starting in 2021) to physician assistants, nurse
practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives.
Certain states also mandate implementation of corporate compliance programs, require compliance with the industry’s
voluntary compliance guidelines, impose restrictions on manufacturer marketing practices, require registration or licensing of
manufacturers and their sales representatives, and/or require tracking and reporting of gifts, compensation, and other
remuneration to healthcare professionals and entities. Some states have proposed or enacted legislation that will create
new data privacy and security obligations for certain entities, such as the California Consumer Privacy Act that went into effect
January 1, 2020. Violations of these laws may subject us to administrative, civil, and criminal penalties, including imprisonment
of individuals, the imposition of significant fines, monetary penalties, and damages, exclusion from participation in (or
reimbursement for our products from) federal health care programs like Medicare or Medicaid, imposition of compliance
obligations or monitoring, curtailment or restructuring of our operations, and damage to our reputation.
Reimbursement
Ambulatory surgery centers, hospitals and physician private practices that purchase our products typically bill various
third-party payors, such as government programs, private insurance plans and managed care programs, to cover all or a portion of
the costs and fees associated with the therapeutics or procedures in which our products are used and bill patients for any
applicable deductibles or co-payments. In the U.S., physicians are typically paid separately from the facility for surgical
procedures involving our products; however, there is no published Medicare payment schedule at the national level for physician
payment amounts. The physician payment rate is left to the discretion of the regional Medicare Administrative Contractors
(MACs), with each MAC separately determining coverage and no assurance that coverage and adequate reimbursement will be
obtained from, or maintained by, the MACs. MACs have in the past, and may in the future, change coverage terms.
In the U.S., no uniform policy of coverage and reimbursement exists among third-party payors; coverage and
reimbursement can differ significantly from payor to payor. In addition, payors continually review new products for possible
coverage and existing products for changes in coverage and can, without notice, deny coverage.
One key aspect of reimbursement in the U.S. are the distinct billing codes that are used by healthcare providers to report
the provision of medical procedures and the use of supplies for specific patients to payors. There are different categories of
Current Procedural Terminology (CPT) codes (Category I, II and III) based on the procedure or supply. Although we have
received a permanent healthcare common procedure coding system J code for our Photrexa pharmaceutical therapies, we have
only obtained temporary Category III CPT codes for the professional fees associated with CXL and iStent-related procedures.
Prior to expiration, there are two options: submit an application to convert a temporary code to a permanent code or submit an
application for a five-year extension of the temporary code. With the approaching expiration of our temporary Category III CPT
code for the professional fees associated our iStent-related procedures, we have applied for a permanent Category I CPT code. In
connection with this transition to a permanent code, both the physician fee and facility fee associated with the procedures using
our iStent products will be reevaluated. In some cases, the physician fees and/or facility fees have been decreased at the time
codes are transitioned from temporary to permanent. Further, even when a permanent billing code has been assigned to a product,
there is no guarantee that coverage will be provided.
Regulation & Reimbursement outside the U.S.
In addition to regulations in the U.S., we are subject to a variety of regulations in other jurisdictions governing clinical
trials, commercial sales and distribution of our products and reporting of payments to physicians. Whether or not we obtain FDA
approval for a product, we must obtain authorization before commencing clinical trials or obtain marketing authorization or
approval of a product under the comparable regulatory authorities of countries outside the
10
Table of Contents
U.S. The approval process varies from country to country and the time may be longer or shorter than that required for FDA
approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly
from country to country. In addition, certain countries have adopted transparency legislation that requires us to report contracts
with or payments made to physicians in those countries and many have enacted anti-kickback laws and regulations, which
generally prohibit the offer, receipt, or payment of remuneration in exchange for or to induce the use of our products.
Similar to the trend within the U.S., other major international markets are also moving toward more stringent regulatory
frameworks for medical device and drug products. For example, in May 2017, the EU adopted a new regulatory scheme for
medical devices under the Medical Device Regulation (MDR). The MDR is expected to become fully effective in May 2021 and
will bring significant new requirements for many medical devices, including enhanced requirements for clinical evidence and
documentation, increased focus on device identification and traceability, and additional post-market surveillance and vigilance,
which could result in substantial additional expense.
The EU has also adopted increasingly stringent data protection and privacy rules that have and will continue to have a
substantial impact on the use of patient data across the healthcare industry. The EU General Data Protection Regulation, or
GDPR, became effective in May 2018 and applies across the EU and includes, among other things, a requirement for prompt
notice of data breaches to data subjects and supervisory authorities in certain circumstances and significant fines for non-
compliance.
Reimbursement
Outside the U.S., reimbursement levels vary significantly by country and by region within some countries.
Reimbursement is obtained from a variety of sources, including government-sponsored and private health insurance plans, and
combinations of both. Some countries require additional clinical data before granting or expanding coverage and reimbursement
for our products. In general, obtaining broad-based reimbursement and adequate payment for new technologies is more difficult
in these markets than in the U.S. Many countries require new medical technologies to not only be safe and effective, but also to
be able to demonstrate clinical benefits that outweigh the costs when compared to the standard of care. As in the U.S.,
reimbursement decisions can change, resulting in the elimination or reduction of reimbursement payments, which could adversely
affect our financial results and our ability to invest in and grow our business.
Other
Our operations and many of the products we manufacture or sell are subject to extensive regulation by numerous other
governmental agencies, both within and outside the U.S. In the U.S., apart from the agencies discussed above, our facilities,
operations, employees, products (their manufacture, sale, import and export) and services are regulated by the Environmental
Protection Agency, the Occupational Health & Safety Administration, the Department of Labor, Customs and Border Protection,
the Department of Commerce, the Department of Treasury, the Department of Justice and others. State agencies also regulate our
facilities, operations, employees, products and services within their respective states. Government agencies outside the U.S. also
regulate public health, product registration, manufacturing, environmental conditions, labor, exports, imports and other aspects of
our global operations.
These regulatory agencies and any current or future legislation could impact our business operations, reimbursement for
our products, and the healthcare environment generally, which could adversely affect our ability to operate our business and our
financial results. Compliance with these regulations has not had a material effect on our capital expenditures, earnings, or
competitive position to date, but current or new legislation could have such an effect in the future. We cannot estimate the
expenses we may incur to comply with potential new laws or changes to existing laws, or the other potential effects these laws
may have on our business.
Human Capital Management
Glaukos is committed to developing a comprehensive, cohesive and positive employee experience. We consider talent
attraction, development, engagement and retention a key driver of our business success. As of December 31, 2020, we had 653
full-time employees. Our Board of Directors, through the Compensation, Nominating and Governance
11
Table of Contents
Committee, retains direct oversight of our human capital management process, including demographics, talent development,
employee retention, material aspects of employee compensation as well as diversity and inclusion recruitment, retention and
compensation efforts. Additionally, the Compensation, Nominating and Governance Committee assists management with the
implementation of the Company’s diversity strategy. We report on human capital matters at each regularly scheduled Board of
Directors meeting and periodically throughout the year. The most significant human capital measures or objectives that we focus
on in managing our business and our related human capital initiatives include the following:
● Workforce Diversity: We believe that truly innovative companies must find new ways to address the
marketplace’s needs and the most effective innovation happens when our workforce represents a diversity of
ideas and experiences. We embrace diversity in our employee recruiting, hiring, and development practices. Our
workforce was made up of 37% female employees and 39% racially or ethnically diverse employees as of
December 31, 2020, with 34% and 23% of management positions being filled by female and racially or
ethnically diverse individuals, respectively. During 2020, of the promotions that were earned within our
workforce, 37% were earned by female employees and 32% were earned by racially or ethnically diverse
employees.
●
Inclusion and Belonging: We strive to create a work environment that emphasizes respect, fairness and dignity
and do not tolerate discrimination or harassment. Individuals are evaluated based on merit, without
discrimination, including discrimination based on race, color, religion, national origin, citizenship, marital status,
gender (including pregnancy), gender identity, gender expression, sexual orientation, age, disability, veteran
status, or other characteristics protected by law. We are committed to providing equal opportunities to every
member of our workforce.
● Health, Safety, and Wellness: Above all else, we are dedicated to the safety and wellbeing of our employees. As
the COVID-19 pandemic unfolded in 2020, we quickly shifted to a remote work environment and provided
employees with the resources necessary to effectively perform their job responsibilities. Additionally, we
implemented changes to our manufacturing and distribution operations to include the use of personal protective
equipment and ensure social distancing. In an effort to identify, and avoid further infection from, asymptomatic
cases, we have offered periodic voluntary COVID-19 viral testing to on-site employees. Further, we adopted
COVID-19 pay policies that provide our employees up to ten additional days of paid leave if they experience
COVID-19 exposure or illness or to need time to care for exposed or ill family members.
●
Philanthropy and Volunteerism: We created the Glaukos Charitable Foundation to assist the company in its
philanthropic endeavors. Glaukos has donated over $10 million worth of its products to assist individuals in need.
Additionally, we regularly hold local volunteer events and fundraising campaigns, over 20 total in 2020, to
encourage our employees to give back to our communities, a commitment that we further support by offering
employees paid time off for charitable volunteering. One of our more impactful volunteer events involved
Glaukos employees adopting over 50 disadvantaged families globally to help provide a more special holiday
experience.
● Training and Development: Employees receive regular development feedback through quarterly management
reviews during which they are encouraged to cultivate new skills and opportunities. We coach our leaders to
facilitate effective conversations and measure the effectiveness of these conversations by surveying our
employees. In addition to training and development opportunities, all new employees are required to participate
in substantial training seminars to introduce them to Glaukos’ business, pipeline and position within
ophthalmology. We value knowledge and continuous improvement and conduct frequent informational sessions
to further expose our employees to different departments, projects and business priorities.
● Compensation and Benefits: To attract, retain and recognize talent, we aim to ensure merit-based, equitable
compensation practices and strive to provide competitive compensation and benefit packages to our workforce.
Employees at all levels are eligible for discretionary cash bonuses. To align employees
12
Table of Contents
with the organization’s performance, all U.S. employees are eligible to receive new hire and annual awards of
restricted stock units. In furtherance of our commitment to internal pay equity and pay transparency, Glaukos
conducts an annual pay equity analysis to evaluate compensation distribution, which analysis is also conducted in
connection with new hires, promotions and our annual affirmative action planning process. Despite the
difficulties presented by COVID-19, we expanded our global benefits programs, including broadening our
employee assistance program globally, adding elderly and childcare assistance and introducing parental leave for
new and adoptive parents for U.S. based employees, and expanding access to our trackless paid time off policy.
●
For additional information on human capital matters, please see our most recent proxy statement or Sustainability
Report, each of which is available on our website at www.glaukos.com.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to
reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act, are available on our web site at
www.glaukos.com, free of charge, as soon as reasonably practicable after the electronic filing of these reports with, or furnishing
of these reports to, the Securities and Exchange Commission (SEC). In addition, the SEC maintains a web site at www.sec.gov
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the
SEC, including us.
13
Table of Contents
Item 1A. Risk Factors
The risks 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 under the heading “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.”
Risks Related to Our Business
The COVID-19 pandemic has adversely affected, and could continue to materially and adversely affect, our business, results
of operations, financial condition, liquidity, and cash flows.
In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. The World
Health Organization has declared COVID-19 to be a “pandemic,” spreading across the globe and impacting worldwide economic
activity. While the impacts of COVID-19 have had, and we expect them to continue to have, an adverse effect on our business,
results of operations, financial condition, liquidity and cash flows, we are unable to predict the extent or nature of these impacts
at this time.
In an effort to reduce the spread of COVID-19, certain federal, state and local governmental authorities have issued, and
in some cases reinstituted, stay-at-home and other orders, proclamations and/or directives. To protect our employees and adhere
to the guidance and orders of these various governmental authorities, beginning in the first quarter of 2020 and continuing
through the date hereof, we shifted the majority of our workforce to remote operations and implemented changes to our
manufacturing and distribution operations to include the use of personal protective equipment and ensure social distancing.
Further, in an effort to identify, and avoid further infection from, asymptomatic cases, we have offered periodic voluntary
COVID-19 viral testing to on-site employees.
Government restrictions and advisories on elective procedures and therapies enacted to slow the spread of COVID-19
led to a material decrease in demand for our products versus levels achieved prior to the COVID-19 outbreak, which decrease in
demand was most significantly felt in the latter part of the quarter ended March 31, 2020 and the earlier part of the quarter ended
June 30, 2020. Beginning in May 2020, we began to see a return toward more normalized levels for cataract and keratoconus
procedures, which normalization has continued through the quarter ended December 31, 2020. However, we cannot predict the
timing and full impact of the pandemic on our future financial and operating results given the continued uncertainties associated
with the situation, including the possibility of future surges of COVID-19, uncertainties about the severity and transmission rates
of new variants of COVID-19, the availability, distribution and efficacy of vaccines and therapeutics for COVID-19 and patient
reluctance to seek primary care from optometrists and ophthalmologists or undergo medical procedures during or following the
pandemic. Restrictions on elective procedures and therapies and the closures of ophthalmic practices in an effort to halt the
spread of COVID-19 have also impacted the progress of our pipeline products. For example, new patient enrollment in our iDose
clinical trial slowed significantly which delayed the iDose approval timeline. Any further prolonged economic slowdown or
reinstitution of stay-at-home orders may cause additional delays in the progress of our pipeline products, including those in
clinical trials.
We implemented significant cost saving initiatives in order to preserve jobs globally and protect core research and
development programs. However, the majority of our planned expenditures have been reinstated. We continue to carefully
manage our discretionary spending, which may slow the growth trajectory of the Company or require us to delay projects that
could have benefitted the Company. In addition to the cost saving measures, we issued $287.5 million in aggregate principal
amount of 2.75% convertible notes due 2027 (the Convertible Notes) in June 2020, the proceeds of which are expected to be used
for working capital and general corporate purposes.
Our supply chain has experienced some delays due to COVID-19 disruptions impacting some of our suppliers and third-
party partners and it is possible our suppliers or third-party partners could incur further challenges supplying the materials needed
for the manufacture of our products. Additionally, we have experienced a number of COVID-19 cases among our workforce,
particularly in the fourth quarter of 2020, and we could experience a wider-spread outbreak of COVID-19 in our manufacturing
facilities, which could require us to temporarily shut down manufacturing operations
14
Table of Contents
and/or cause a disruption to, or shortage in, our workforce. If a widespread outbreak were to occur, we may experience delays in
our responses to our customers and possible delays in shipments of our products, which could harm our customer relations and
adversely impact our competitive positioning and sales. We have also experienced restrictions on the ability of our personnel to
travel and access customers and clinical sites for training and support. Other potential disruptions include delays in approvals by
regulatory bodies; delays in product development efforts; and further challenges to our capacity to manufacture, sell and support
the use of our products.
We have incurred significant losses since inception and our business requires substantial capital and operating expenditures
to operate and grow. There can be no guarantee that we reach sustained profitability.
Since the Company’s inception in 1998, we have incurred significant operating losses. As of December 31, 2020, we
had an accumulated deficit of approximately $310.1 million, principally from costs incurred in our clinical trial, research and
development programs and from our general and administrative expenses. We have funded our operations to date from the sale of
equity securities, including our June 2015 initial public offering (IPO), the issuance of notes payable, cash exercises of stock
options and warrants to purchase equity securities, cash generated from commercial operations and the issuance of the
Convertible Notes. To implement our global business strategies we need to, among other things, fund ongoing research and
development activities, expand our manufacturing capabilities, grow our sales and marketing organization, enforce or defend our
intellectual property rights, acquire companies or in-license products or intellectual property, and obtain regulatory clearance or
approval to commercialize our existing products in international markets or to commercialize those currently under development
in the U.S. and internationally. As a result, we expect our expenses to 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, 2020 are made publicly available, our ability to reach sustained profitability is highly
uncertain, especially given our increasingly competitive landscape, which makes forecasting our sales more difficult.
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, which we began selling in the U.S. in 2012, the
iStent inject, which we began selling in the U.S. in the second half of 2018, and its successor, the iStent inject W, launched in the
second half of 2020, as well as our Photrexa therapies, which we acquired in connection with our acquisition of Avedro, Inc.
(Avedro) in November 2019. We expect to continue to derive a significant portion of our net sales from the iStent, the iStent
inject models and the Photrexa therapies.
It is important that we continue to build a more complete product offering. Developing additional products is expensive
and time-consuming. Even if we are successful in developing our additional pipeline products, including those currently in
development, the success of our new product offerings is inherently uncertain and there can be no assurance that our products
will produce net sales in excess of the costs of development. Any current or new products could also quickly be rendered obsolete
by changing customer preferences or the introduction by our competitors of products embodying superior technologies, features
or better product safety, quality or efficacy. Our competitors include large publicly traded companies or divisions of publicly
traded companies and have more resources, greater name recognition, longer operating histories, more established relationships
with healthcare professionals, customers and third-party payors, broader products lines that provide rebate and bundling
opportunities, more established sales and marketing programs and distribution networks, and greater experience in obtaining
regulatory clearance or approval. Additionally, our research programs, which are expensive and time-intensive, may initially
show promise in identifying potential products, yet fail to yield product candidates for clinical development. If we are unable to
successfully commercialize additional products, our business prospects would be materially affected.
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. Outside the U.S., we sell our products through
15
Table of Contents
direct sales organizations in sixteen countries 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:
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
different, and in some cases more exacting and lengthy, regulatory approval processes, regulations and laws, and
pricing and reimbursement systems;
reduced or varied protection for intellectual property rights or difficulties enforcing our intellectual property rights
and defending against third-party threats and intellectual property enforcement actions against us, our distributors,
or any of our third-party suppliers;
pricing pressure or longer sales and payment cycles;
different competitive dynamics, including smaller market sizes, which we may not be able to fully appreciate
before entering certain foreign markets;
a shortage of high-quality regional sales managers, direct sales representatives and distributors, and the difficulties
of managing foreign operations;
relative disadvantages compared to competitors with more recognizable names, longer operating histories and
better established distribution networks and customer relationships;
political and economic instability, international terrorism and anti-U.S. sentiment, or the imposition of U.S. or
international sanctions that could restrict or prohibit continued business;
changes in duties and tariffs, license obligations and other non-tariff barriers to trade;
scrutiny of foreign tax authorities that could result in significant fines, penalties and additional taxes being imposed
on us;
different cultural norms which may impact how business is conducted;
laws and business practices favoring local companies;
difficulties in maintaining consistency with our internal guidelines;
difficulties in enforcing agreements and collecting receivables through foreign legal systems;
failures by our third-party partners to properly assist us with local guidance on operations, financial and other
reporting, accounting, tax, payroll, legal and regulatory matters; and
the imposition of costly and lengthy new export licensing requirements and restrictions, particularly relating to
technology.
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 business prospects would be negatively impacted.
If the supply and/or manufacture of our principal revenue-producing products, the iStent, the iStent inject models and our
Photrexa therapies, is materially disrupted, it may adversely affect our ability to manufacture products and could reduce our
gross margins and negatively affect our operating results.
Our corporate headquarters and the manufacturing operations for our iStent products are currently located in an
approximately 98,000 square foot campus located in San Clemente, California. This location serves as our sole manufacturing
location where we manufacture, inspect, package, release and ship nearly all of our iStent and iStent inject products. This is also
the location where we currently conduct substantially all of our research and development (R&D) activities, customer and
technical support, and management and administrative functions. We intend to relocate our corporate administrative
headquarters, along with certain laboratory, R&D and warehouse space, to a new facility located in Aliso Viejo, California. If our
San Clemente facility or our future facility in Aliso Viejo suffers a crippling event, or a force majeure event such as an
earthquake, fire or flood, 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 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 FDA’s Quality System Regulation (QSR) and Current Good
Manufacturing Practices (cGMPs) regulations, we may from time to time be unable to obtain components if our component
suppliers are found to be in violation of such standards and we may have difficulty quickly engaging additional or replacement
suppliers for some of our critical components, which could delay
16
Table of Contents
or impact our business, including the regulatory approval timelines as has happened with iLink epi-on. 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 notified bodies could take
enforcement action. Even if we are able to identify and qualify a suitable second source to replace one of our key suppliers, if
necessary, that replacement supplier would not have access to our previous supplier’s proprietary processes and would therefore
be required to develop its own, which could result in further delay. 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 are produced by a small number of contract manufacturing organizations. The
systems that bio-activate our Photrexa therapies are primarily manufactured in Burlington, Massachusetts. Any material
disruption to the manufacture of our corneal health products, either our pharmaceuticals or their bio-activation systems, could
also adversely affect our operating results and clinical efforts.
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.
In the course of conducting our business, we have had to and must continue to adequately address quality issues
associated with our products, including in our engineering, design, manufacturing and delivery processes, as well as issues in
third-party components included in our products. Because our products are highly complex, the occurrence of performance issues
may increase as we continue to introduce new products and as we rapidly scale up manufacturing to meet increased demand for
our products. 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, 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 or lost revenue in connection with,
for example, shipment holds, product recalls and warranty or other service obligations. In addition, quality issues can impair our
relationships with new or existing customers or result in product liability suits against us, which may be expensive to defend or
resolve 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 adversely
affect our reputation as a producer of high quality products, which 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. 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 untrained or 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.
Operating results could be unpredictable and may fluctuate significantly from quarter to quarter, which could adversely affect
our business, financial condition, results of operations and the trading price of our common stock.
17
Table of Contents
In addition to the impact of the COVID-19 pandemic, 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, commercialization of our new and existing products and the marketing of competitive products, results of clinical
research and trials, regulatory approvals and legislative changes affecting our products, variances in the sales terms, supply chain
and inventory management, timing or volume of customer orders and the length of our sales cycle, which varies and may be
unpredictable. As a result, you should not rely 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.
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 may create numerous challenges, including, among others, new and increased responsibilities for our
management team; increased competition; increased product demand which could strain our manufacturing capacity; 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 as well as certain 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, key employees and consultants and advisors,
and to attract and retain qualified personnel in the future. The loss of services of these personnel, which could occur without
notice and without cause or good reason, could prevent or delay our growth plans and the implementation and completion of our
strategic objectives, or divert management’s attention to seeking qualified replacements. Our employees, including members of
our senior management, are not subject to non-competition agreements. Accordingly, the adverse effect resulting from the loss of
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, alliances,
partnerships or undertake one or more of these transactions in order to retain our competitive position within the marketplace or
to expand into new markets. Examples include our acquisitions of DOSE and Avedro, as well as our licensing of Santen’s
Preserflo MicroShunt and the Intratus drug delivery platform. However, we cannot assure you that we will be able to successfully
complete any future acquisition we choose to 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, including challenges related to the
management and monitoring of new operations and associated 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. In addition, if we are unable to
integrate any acquired businesses, products or technologies effectively, our business will likely suffer. Additionally, some of
these collaborations, joint ventures, alliances and partnerships require us to invest a substantial amount of resources. These
arrangements may be terminated before we are able to realize net sales to sufficiently cover the costs associated
18
Table of Contents
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 technology infrastructure against cyber-based attacks, network security breaches, service
interruptions or data corruption could materially disrupt our operations and adversely affect our business and operating
results.
The efficient operation of our business depends on our information technology systems. We rely on our information
technology systems to effectively manage sales and marketing data, accounting and financial functions, inventory management,
product development tasks, clinical data, customer service and technical support functions. Our information technology 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, security breaches, data corruption and cyber-based attacks, including malicious
software programs, phishing attacks or other attacks, which we have experienced and continue to monitor. In addition, a variety
of our software systems are cloud-based data management 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 or result in decreased sales, increased overhead costs,
product shortages, loss or misuse of proprietary or confidential information, intellectual property or sensitive or personal
information, all of which could have a material adverse effect on our reputation, business, financial condition and operating
results.
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 (HIPAA), as amended by the
Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH), the European Union’s (EU) General
Data Protection Regulation (GDPR), and the California Consumer Privacy Act (CCPA). These laws affect how we collect and
use data of our employees, consultants, customers and other parties. Furthermore, these laws impose substantial requirements that
require the expenditure of significant funds and employee time to comply, and additional states and countries are enacting new
data privacy and security laws, which will require future expansion of our compliance efforts. We also rely on third parties to
host or otherwise process some of this data. In some instances, these third parties have experienced immaterial failures to protect
data privacy. Any failure by a third party to prevent security breaches could have adverse consequences for us. We will need to
expend additional resources and make significant investments to comply with data privacy and security laws. Our failure to
comply with these laws or prevent security breaches of such data could result in significant liability under applicable 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, 2020, we had approximately $439.4 million, $297.6 million and $13.4 million of net operating loss
(NOL) carryforwards for federal, state and foreign purposes, respectively, available to offset future taxable income. The federal
NOL carryforwards incurred prior to 2018 begin to expire in 2021, while a federal NOL carryforward of $186.6 million will not
expire. The state NOL carryforwards begin to expire in 2021. The foreign NOL carryforwards begin to expire in 2022. At
December 31, 2020, we had federal and state R&D credit carryforwards of approximately $32.3 million and $15.7 million,
respectively. Federal credits begin to expire in 2021, state credits of $3.4 million begin to expire in 2023, and state credits of
$12.2 million carry over indefinitely. 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, as well as with respect to the amount of the tax
attributes that will be available in future periods. Utilization of these tax attributes may be subject to annual limitations under the
Internal Revenue Code of 1986 (IRC) Section 382 and Section 383 if the Company experiences 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 carryforward
period to utilize the
19
Table of Contents
remaining tax attributes before they expire.
Risks Related to Indebtedness
The requirement that we service our 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.
As of December 31, 2020, we had $287.5 million in principal amount of indebtedness as a result of the issuance of the
Convertible Notes. We may also incur additional indebtedness to meet future financing needs. Interest payments, fees, covenants
and restrictions under agreements governing our current or future indebtedness, including the indenture governing the
Convertible Notes, could have important consequences, including the following: impairing our ability to successfully continue to
commercialize our current or 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; inhibiting our flexibility to plan for, or react to, changes in
our business; and diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon
conversion of the Convertible Notes. The occurrence of any one of these events could have an adverse effect on our business,
financial condition, operating results or cash flows and ability to satisfy our obligations under the indenture governing the
Convertible Notes and any other indebtedness.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance the amounts payable under
our current or future indebtedness, including the Convertible Notes, will depend on our operating and financial performance,
which may be subject to economic, financial, competitive and other factors beyond our control. Our business may not generate
cash flow from operations in the future sufficient to service our debt and make necessary investments in our business, and our
cash needs may increase in the future. If we are unable to generate such cash flow, we may be required to adopt one or more
alternatives, such as selling assets, restructuring debt or obtaining 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 engage in these activities on desirable terms,
which could result in a default on our debt obligations.
We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes in cash or to
repurchase the Convertible Notes upon a fundamental change, and our future debt may contain limitations on our ability to
pay cash upon conversion or repurchase of the Convertible Notes.
Noteholders may require us to repurchase their Convertible Notes upon the occurrence of a fundamental change at a
fundamental change repurchase price equal to 100% of the aggregate principal amount of the Convertible Notes to be
repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition,
upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to settle such conversion
(other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the
Convertible Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time
we are required to make repurchases of the Convertible Notes surrendered therefor or Convertible Notes being converted. In
addition, our ability to repurchase the Convertible Notes or to pay cash upon conversions of the Convertible Notes may be limited
by law, by regulatory authority and by agreements governing our future indebtedness. Our failure to repurchase Convertible
Notes at a time when the repurchase is required by the indenture governing the Convertible Notes or to pay any cash payable on
future conversions of the Convertible Notes as required by the indenture governing the Convertible Notes would constitute a
default under the indenture governing the Convertible Notes. A default under the indenture governing the Convertible Notes or
the occurrence of the fundamental change itself may lead to a default under any future credit facility or other agreements
governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice
or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Notes or make cash
payments upon conversions thereof.
20
Table of Contents
The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and
operating results.
In the event the conditional conversion feature of the Convertible Notes is triggered, holders of the Convertible Notes
will be entitled to convert the Convertible Notes at any time during specified periods at their option. If one or more holders elect
to convert their Convertible Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common
stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our
conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders of the
Convertible Notes do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to
reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which
would result in a material reduction of our net working capital.
The capped call transactions may affect the value of our common stock.
In connection with the issuance of the Convertible Notes, we entered into capped call transactions with certain option
counterparties. The capped call transactions cover, subject to customary adjustments, the number of shares of common stock
initially underlying the Convertible Notes. The capped call transactions are 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) and offset any
cash payments we are 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, in connection with establishing their initial hedges of the capped call transactions, the option
counterparties or their respective affiliates purchased shares of our common stock and/or entered into various derivative
transactions with respect to our common stock concurrently with or shortly after the pricing of the Convertible Notes. In addition,
the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various
derivatives 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 (and are likely to do so on each exercise date of the
capped call transactions, which are expected to occur during the 40 trading day period beginning on the 41st scheduled trading
day prior to the maturity date 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). This activity could
cause or avoid an increase or a decrease in the market price of our common stock.
We are subject to counterparty risk with respect to the capped call transactions.
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 subject to the cap and in the volatility of our common stock.
In addition, upon a default by an option counterparty, we may suffer more dilution than we currently anticipate with
respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.
21
Table of Contents
Risks Related to the Regulatory Environment
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 or other products are subject to extensive government
regulation in the U.S. by the U.S. Food and Drug Administration (FDA), state regulatory authorities and foreign regulatory
authorities in the countries in which we conduct business. These regulations relate to, among other things, research and
development, design, testing, clinical trials, manufacturing, clearance or approval, environmental controls, safety and efficacy,
labeling, advertising, promotion, pricing, recordkeeping, reporting, import and export, post-approval studies and the sale and
distribution of our products. See Item 1, Business, “Government Regulation -- Regulation & Reimbursement in the U.S.” and
“Regulation & Reimbursement outside the U.S.” for additional information.
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 approval for additional indications or that our future products will receive
clearance or approval on a timely basis, if at all. Before we can obtain regulatory approval for any product candidate, we may be
required to undertake extensive clinical testing in humans to demonstrate safety and efficacy to the satisfaction of the FDA and
other regulatory agencies, including outside the U.S. 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. Conducting clinical trials is a complex and expensive process, can take
many years, and outcomes are inherently uncertain. We incur substantial expense for, and devote significant time to, clinical
trials but cannot be certain that the trials will ever result in commercial sales, even if we believe the results from such trials are
positive. We may suffer significant setbacks in clinical trials, even after earlier clinical trials showed promising results, and
failure can occur at any time during the clinical trial process. Any of our medical device products may malfunction and any of our
products may produce undesirable adverse effects that could cause us or regulatory authorities to interrupt, delay or halt clinical
trials. We, the clinical trial investigators, the independent review board responsible for overseeing the trial, the FDA, or another
regulatory authority may suspend or terminate clinical trials at any time due to a number of factors, including failure to conduct
the clinical trial in accordance with applicable regulatory requirements or trial protocols, failure to demonstrate a benefit from
using the product, lack of sufficient funding, 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.
In some instances, we may pursue a regulatory clearance or approval pathway that proves unsuccessful, which would
substantially increase the time and financial resources required to obtain FDA or other regulatory approval or could result in new
competitive products reaching the market faster than our product candidate, which could materially adversely impact our
competitive position and prospects. We cannot assure you that we will receive the requisite or timely approvals for
commercialization of our product candidates.
Even after we have obtained the proper regulatory clearance or approval to market a product, we have ongoing
responsibilities under FDA regulations and applicable foreign laws and regulations. We may also be required to seek additional
regulatory approvals to modify our approved products or their manufacturing processes, 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 could subject us to enforcement actions, including 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 that may regulate our products include establishment registration and device listing,
quality system and good manufacturing requirements, reporting of adverse events and device malfunctions, reporting of
corrections and removals (recalls), labeling requirements, and promotional restrictions. Our products could malfunction, cause
unexpected adverse events, or experience performance problems that require review and possible corrective action by us or a
component supplier, including a recall or market withdrawal. Failure to conduct any required post-marketing studies for our
approved products in a timely manner could result in the revocation of the approval for the product that is subject to such a
requirement and could also result in the
22
Table of Contents
recall or withdrawal of the product. Any recall or product withdrawal, whether required by the FDA or another regulatory
authority or initiated by us, could harm our reputation with customers and negatively affect our sales.
The FDA, state and foreign regulatory authorities have broad enforcement powers. Our failure to comply with
applicable regulatory requirements could result in enforcement action by the FDA, 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.
In addition, our promotional materials and training methods must comply with FDA and other applicable laws and
regulations, including the prohibition of the promotion of a drug or medical device for a use that has not been cleared or approved
by the FDA, also known as an “off-label” use. Physicians may use our products off-label, 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
or training constitutes promotion of an off-label use, it could request that we modify our training or promotional materials or
subject us to regulatory or enforcement actions.
We are subject to healthcare fraud and abuse, anti-kickback, false claims and transparency laws and regulations, among
others, which are enforced by federal and state governments with respect to our marketing, training, customer arrangements,
financial arrangements with physicians, patient assistance programs, reimbursement support services, and other practices. See
Item 1, Business, “Government Regulation -- Regulation & Reimbursement in the U.S.” and “Regulation & Reimbursement
outside the U.S.” for additional information about the laws and regulations which apply to us. In the foreign markets in which we
operate, different pricing and reimbursement systems, which could result in lower reimbursement, could harm our ability to
operate our business.
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. If our operations are found to be in violation of any of the government
regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, disgorgement,
imprisonment, exclusion from participation in federal and state healthcare programs and the curtailment or restricting of our
operations, any of which could harm our ability to operate our business and our financial results. The U.S. Department of Justice
has increased its scrutiny of interactions between manufacturers and healthcare providers, as well as various patient and product
support programs, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare
industry. We have built and maintained a compliance program to adhere to the various compliance and reporting requirements in
multiple jurisdictions, but these laws and regulations are subject to evolving interpretation. Although we try to structure our
arrangements within available safe harbors whenever possible, we may nevertheless become subject to government scrutiny or
investigation. 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 foreign jurisdictions, there have been a number of legislative and regulatory proposals to
change the healthcare systems in ways that could impact our ability to sell our products profitably, if at all. In the U.S. in recent
years, new legislation has been proposed and adopted at the federal and state levels that is effecting major changes in the
healthcare system. 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.
23
Table of Contents
We may from time to time increase the prices of our products, as was recently done with our Photrexa therapies. Drug
pricing by pharmaceutical manufacturers 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 several recent congressional inquiries and proposed and enacted 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, we cannot be certain they would not be subject to such scrutiny.
In May 2017, the EU adopted Medical Devices Regulation 2017/745 (MDR), which will repeal and replace the Medical
Device Directive (MDD). MDR was set to take effect beginning May 26, 2020; however, the effective date of MDR has been
postponed a year and is now anticipated to take effect beginning May 26, 2021. Although MDR does not set out a substantially
different regulatory system, it provides for stricter controls of medical devices. Under provisions that govern the transition period
until MDR takes effect, medical devices with notified body certificates issued under the MDD prior to May 26, 2020 may
continue to be marketed and sold as long as those certificates are valid, until May 27, 2024 at the latest. After the expiration of
any applicable transitional period, only devices that have been CE marked under MDR may be placed on the market in the EU.
Broader legislative changes may also impact our operations. The United Kingdom (U.K.) held a referendum on June 23,
2016 in which voters approved withdrawal from the EU (commonly referred to as Brexit). On January 31, 2020, the U.K.
withdrew from the EU and the transition period ended on December 31, 2020. The U.K. and EU reached agreement regarding
their future relationship on December 24, 2020. As a result of Brexit, there may be greater restrictions on imports and exports
into and out of the U.K. and EU countries and regulatory complexities that could adversely impact the Company.
If, as a result of legislative or regulatory healthcare reform, 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, our business would be harmed. In addition, any change in the laws or regulations that govern the clearance and approval
processes 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.
Changes to the reimbursement rates for our products may adversely impact our business.
Our ability to successfully commercialize and achieve market acceptance of our products 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 -- Regulation & Reimbursement in the U.S.” and “Regulation & Reimbursement outside the U.S.” for additional
information. Payors continually review the clinical evidence for new technologies 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. In addition, payors continually review new technologies for possible
coverage and can, without notice, deny coverage for these products and procedures. 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 periodic changes to reimbursement levels. Without
sufficient reimbursement from governmental programs or third party commercial payors, patients may not be able to access our
products. 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, or provide reimbursement only
on unfavorable terms. Further, as we seek to transition the procedures associated with our iStent-related products from a
temporary Current Procedural Terminology (CPT) Category III code to a permanent CPT Category I code, the physician and
facility reimbursement levels associated with the procedures
24
Table of Contents
using our iStent products could be decreased. Further, even when a permanent billing code has been assigned to a product, there
is no guarantee that coverage will be provided. MACs have in the past, and may in the future, change coverage terms, which
could result in inadequate reimbursement and impact the use of our products. If we are unable to maintain our existing codes or
obtain new permanent codes for procedures using our products, or obtain new reimbursement codes for our other products in
development, we may be subject to significant pricing pressure, which could harm our business, results of operations, financial
condition and prospects.
We cannot predict to what extent the evolving effects of the COVID-19 pandemic may disrupt global healthcare
systems and access to our products or result in a widespread loss of individual health insurance coverage due to unemployment, a
shift from commercial payor coverage to government payor coverage, or an increase in demand for patient assistance and/or free
drug programs, any of which could adversely affect net revenue. In addition, payers consistently engage in cost containment
efforts, which could include efforts to decrease 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, or whether they will limit
the access and level of reimbursement for our products or refuse 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 that, if issued, they will
issue in a form that will be advantageous to us.
Despite our efforts to protect our proprietary rights, we cannot guarantee that we will be able to adequately protect these
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 a number of 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 product offerings 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 we are otherwise precluded from
effectively protecting our intellectual property rights in these jurisdictions, our business, financial condition and results of
operations could be substantially harmed.
25
Table of Contents
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 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. Intellectual property disputes often involve complex legal and factual questions, and could result in significant costs,
substantial damages and our inability to manufacture, market or sell our existing or future products that are found to infringe.
Even if we were to prevail in any such action, the litigation or administrative proceeding could result in substantial cost and
diversion of resources that could materially and adversely affect our business. Such claims could arise in situations where certain
employees, consultants or contractors were previous, or are currently, employed by other medical device, biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and
consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us,
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 former employers or competitors.
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 selling our
products or a court could order us to pay 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 Being a Public Company and Our Common Stock
Risks generally associated with a company-wide implementation of an enterprise resource planning (ERP) system may
adversely affect our business and results of operations or the effectiveness of our internal controls over financial reporting.
On May 6, 2020, we implemented a company-wide ERP system to upgrade certain existing business, operational, and
financial processes, and continue to refine the system on an ongoing basis, which has been a complex and time-consuming
project. This project has required and may continue to require investment of capital and human resources, the re-engineering of
processes of our business, and the attention of many employees who would otherwise be focused on other aspects of our
business. Any deficiencies in the design and implementation of the new ERP system could result in higher costs than we had
anticipated and could adversely affect our ability to develop and launch solutions, provide services, fulfill contractual obligations,
file reports with the SEC in a timely manner, operate our business or otherwise affect our controls environment. Any of these
consequences could have an adverse effect on our results of operations and financial condition. In addition, because the ERP is a
new system and we have no prior experience with it, there is an increased risk that one or more of our internal financial controls
may fail, which could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows.
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
26
Table of Contents
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. Failure to remedy any material weakness in our internal control over financial
reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future
access to the capital markets.
Anti-takeover provisions in our charter documents 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 and amended and restated bylaws may have the effect of delaying
or preventing a change of control or changes in our management. Our restated certificate of incorporation and amended and
restated bylaws include provisions that:
●
●
●
●
●
●
●
●
●
authorize our board of directors to issue, without further action by the stockholders, up to 5,000,000 shares of
undesignated preferred stock;
require that any action to be taken by our stockholders be affected at a duly called annual or special meeting and not
by written consent;
specify that special meetings of our stockholders may be called only by our board of directors, the chairman of the
board of directors, the chief executive officer or the president;
establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our
stockholders, including proposed nominations of persons for election to our board of directors;
establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class
serving staggered three year terms;
provide that our directors may be removed only for cause by a supermajority vote of our stockholders;
provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even
though less than a quorum;
specify that no stockholder is permitted to cumulate votes at any election of directors; and
require a supermajority vote of the stockholders and a majority vote of the board to amend certain of the above-
mentioned provisions and our bylaws.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current
management by making it more difficult for stockholders 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 Restated Certificate of Incorporation (the “Glaukos Charter”) and our Bylaws provide that, unless the Company
consents in writing to the selection of an alternative forum, 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 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, the Glaukos Charter or our bylaws, or (iv) any action or proceeding asserting a claim governed by the internal
affairs doctrine (the “Delaware Exclusive Forum Provision”). Further, in November 2020, we amended our Bylaws to provide
that the federal district courts of the United States of America 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.
27
Table of Contents
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. In addition, the Federal Forum Provision is intended to apply to claims arising under the Securities Act and
would not apply to claims brought pursuant to the Exchange Act. The exclusive forum provisions in the Glaukos Charter and our
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 the Glaukos Charter and our 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 lawsuits against the Company and its directors, officers and other employees. 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.
28
Table of Contents
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
29
Table of Contents
ITEM 2.
PROPERTIES
The Company leases two adjacent facilities located in San Clemente, California. Each of these leases expires on May
31, 2030, 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 facilities equals approximately 98,000. On November 14, 2018, the Company entered into an office
building lease pursuant to which the Company will lease one property containing three existing office buildings, comprising
approximately 160,000 rentable square feet of space, located in Aliso Viejo, California (Aliso Facility) which was accounted for
as a finance lease. The term of the Aliso Facility commenced on April 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. The
Company currently intends to relocate its corporate administrative headquarters, along with certain laboratory, research and
development and warehouse space, to the Aliso Facility. The Company’s San Clemente locations will continue to serve as its
main manufacturing locations for the foreseeable future.
Additionally, we lease approximately 27,000 square feet of office and laboratory space in Waltham, Massachusetts,
pursuant to a lease agreement that expires in 2023. We also currently occupy approximately 19,000 square feet of leased
manufacturing space in Burlington, Massachusetts pursuant to a lease agreement that expires in 2023. Our additional U.S.-based
and foreign subsidiaries’ leased office space, which includes small administrative offices in Germany, Australia, Canada, Brazil,
Ireland, Japan and the United Kingdom, totals less than 14,000 square feet.
We believe our existing properties are well maintained, in good operating condition and are adequate to support our
present level of operations.
30
Table of Contents
ITEM 3.
LEGAL PROCEEDINGS
For a description of our legal proceedings, see “Patent Litigation” and “Securities Litigation” in Note 13, Commitments
and Contingencies, of our notes to consolidated financial statements included in Part II, Item 8 of this Annual Report on Form
10-K, which is incorporated by reference in response to this item.
31
Table of Contents
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
32
Table of Contents
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 25, 2021, we had 65 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 2015 and all dividends were
reinvested. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.
Glaukos Corporation
S&P Small Cap 600
index
S&P Small Cap 600
Healthcare index
12/31/2015 12/31/2016 12/29/2017 12/31/2018 12/31/2019 12/31/2020
$ 100.00
$ 138.92
$ 103.89
$ 227.50
$ 220.62
$ 304.82
$ 100.00
$ 124.75
$ 139.38
$ 125.79
$ 152.02
$ 166.57
$ 100.00
$ 101.94
$ 137.10
$ 150.49
$ 180.79
$ 237.58
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.
33
Table of Contents
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.
34
Table of Contents
ITEM 6.
SELECTED FINANCIAL DATA
The selected consolidated financial information set forth below for each of the years ended December 31, 2020, December 31,
2019, December 31, 2018, December 31, 2017, and December 31, 2016 has been derived from our audited consolidated financial
statements. The information below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and the audited consolidated financial statements and notes thereto included in Items 7 and 8, respectively, of this
Annual Report on Form 10-K.
(in thousands, except per share amounts)
2020
2019
Year ended December 31,
2017
2018
2016
Statements of Operations Data:
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative (1)
Research and development
In-process research and development
Total operating expenses
(Loss) income from operations
Non-operating (expense) income, net
Income tax (benefit) provision
Net (loss) income (1)
Basic net (loss) income per share attributable to Glaukos
Corporation stockholders (1)
Diluted net (loss) income per share attributable to
Glaukos Corporation stockholders (1)
Weighted average shares used to compute basic net (loss)
income per share attributable to Glaukos Corporation
stockholders (1)
Weighted average shares used to compute diluted
net (loss) income per share attributable to Glaukos
Corporation stockholders (1)
$ 224,959
91,719
133,240
$ 236,984 $ 181,278
25,075
198,396 156,203
38,588
$ 159,254
21,050
138,204
$ 114,397
16,177
98,220
171,401
85,392
—
256,793
(123,553)
(8,761)
(11,966)
$ (120,348)
68,308
3,745
176,635 119,529
49,676
—
248,688 169,205
(13,002)
634
583
$ 15,424 $ (12,951)
(50,292)
256
(65,460)
$
$
(2.70)
(2.70)
$
$
0.41 $
(0.37)
0.37 $
(0.37)
96,260
38,905
5,320
140,485
(2,281)
2,282
93
(92)
$
$
$
(0.00)
(0.00)
$
$
$
64,756
29,223
—
93,979
4,241
324
43
4,522
0.14
0.12
44,497
37,355
35,317
34,381
32,928
44,497
41,145
35,317
34,381
36,459
(1) On November 21, 2019, we 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. Avedro developed 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 and
only available treatment approved by the FDA shown to halt the progression of keratoconus. Please see Note 2, Note 4, Note 6 and Note 7 to the consolidated financial statements in
Item 8 of this Annual Report on Form 10-K for additional information on our acquisition of Avedro.
(in thousands)
2020
2019
2018
As of December 31,
2016
2017
Balance Sheet Data:
Cash and cash equivalents
Short-term investments
Net working capital (3)
Total assets (1) (2)
Total liabilities (1) (2)
Additional paid in capital (2)
Total stockholders’ equity (2)
$
96,596
307,772
419,740
1,005,502
338,053
976,590
667,449
$ 62,430
111,553
205,178
818,400
145,128
861,740
673,272
29,821
110,667
146,202
206,970
33,110
378,352
173,860
$
24,508
94,506
122,672
165,836
27,634
331,073
138,202
$
6,494
89,268
103,085
134,371
17,097
308,815
117,274
35
Table of Contents
(1)
(2)
Effective January 1, 2019, we adopted Accounting Standards Codification (ASC) 842, Leases (ASC 842), and elected the transition package of three practical expedients permitted
within ASC 842, which eliminated the requirement to reassess prior conclusions about lease identification, lease classification, and initial direct costs. We also elected a short-term
lease exception policy, permitting the company to not apply the recognition requirements of ASC 842 to leases with terms of 12 months or less. We did not elect the hindsight
practical expedient. Upon adoption of ASC 842, we recorded an operating right-of-use asset of $12.8 million and a related operating lease liability of $13.4 million. Periods prior to
January 1, 2019 were not adjusted and continued to be reported in accordance with our historic accounting under ASC 840, Leases. Please see Note 2 and Note 5 to the consolidated
financial statements in Item 8 of this Annual Report on Form 10-K for additional information on our adoption of ASC 842.
On November 21, 2019, we 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. Avedro developed 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 and
only available treatment approved by the FDA shown to halt the progression of keratoconus. Please see Note 2, Note 4, Note 6 and Note 7 to the consolidated financial statements in
Item 8 of this Annual Report on Form 10-K for additional information on our acquisition of Avedro.
(3)
Net working capital consists of total current assets less total current liabilities.
36
Table of Contents
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
“Selected Financial Data” and our audited consolidated financial statements and related notes included in Items 6 and 8,
respectively, of 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 medical technology and pharmaceutical company focused on developing novel therapies for the
treatment of glaucoma, corneal disorders, and retinal disease. We developed Micro-Invasive Glaucoma Surgery (MIGS) to serve
as an alternative to the traditional glaucoma treatment paradigm and launched our first MIGS device commercially in 2012. We
have also developed 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 we are 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.
Impact of COVID-19 Pandemic and Current Economic Environment
In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. The World
Health Organization declared COVID-19 to be a “pandemic,” spreading across the globe and impacting worldwide economic
activity. In the U.S., certain federal, state and local governmental authorities issued stay-at-home and other orders, proclamations
and/or directives, including restrictions on elective procedures and therapies, aimed at minimizing the spread of COVID-19.
Although some of these governmental restrictions have since been lifted or scaled back, recent surges of COVID-19 have in some
cases led, and future surges could lead, to the reinstitution of stay-at-home or other orders and may further result in restrictions
being re-implemented in response to efforts to reduce the spread of COVID-19. Even if stay-at-home or other orders are
removed, potential patients may elect to stay at home voluntarily. The COVID-19 pandemic and subsequent economic slowdown
has materially impacted the global demand for our products, which are used in procedures and therapies that are considered
elective. This decrease in demand was most significantly felt in the latter part of the quarter ended March 31, 2020 and the earlier
part of the quarter ended June 30, 2020. Beginning in May 2020, we began to see an early recovery toward more normalized
levels for cataract and keratoconus procedures, a trend that continued through the quarter ended December 31, 2020. The ultimate
impact of the COVID-19 pandemic on our operations going forward is unknown and will depend on future developments which
are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 outbreak, the
status of health and safety actions taken to contain its spread, the severity and transmission rates of new variants of COVID-19,
the availability, distribution, and efficacy of vaccines for COVID-19, any additional preventative and protective actions that
governments, or we, may take, any future surges of COVID-19 that may occur, the dynamics associated with the rollout of the
COVID-19 vaccines, and how quickly and to what extent economic and operating conditions normalize within the markets in
which we operate. For additional information, see the section titled Risks Related to Our Business within Item 1A. Risk Factors
of this Annual Report on Form 10-K.
37
Table of Contents
We also continue to actively assess the impact of COVID-19 on our clinical trials and other pipeline products. The
closure of ophthalmic practices and deferral of elective procedures beginning in the first quarter of 2020 in response to COVID-
19 disrupted new patient enrollment in our ongoing clinical trials. This disruption has continued even as facilities have reopened
as doctors prioritize their standard procedures over clinical trial enrollment. In particular, patient enrollment for our iDose
clinical trials remains impacted, which has delayed our estimated iDose approval timeline, where we now expect a potential
FDA approval of this product in 2023.
We have taken a number of steps aimed at minimizing the spread of COVID-19 and protecting our employees,
including shifting the majority of our workforce to remote operations, which continues through the date hereof. We have
maintained streamlined manufacturing and assembly processes in order to consistently provide product to our customers who
depend on us. In addition to other health and safety protocols that follow applicable guidance and regulations, employees
involved in such operation-critical processes have been organized into a number of small shifts designed to minimize the time
any one individual is required to be onsite. Further, in an effort to identify, and avoid further infection from, asymptomatic cases,
we have offered periodic voluntary COVID-19 viral testing to on-site employees.
We have also sought to preserve our cash position by instituting a number of cost saving initiatives, including temporary
reductions in discretionary spending and capital expenditures. These actions were designed to preserve jobs and core research and
development programs. We also temporarily deferred a significant portion of our planned 2020 capital expenditures, particularly
those related to facilities expansion and consolidation plans, although we have started to reinstitute our plans to move forward
with the planned capital expenditures as state and local governments began to authorize re-openings. Further, in June 2020, we
issued an aggregate principal amount of $287.5 million of 2.75% convertible notes due 2027 (the Convertible Notes), the net
proceeds of which will be used for working capital and general corporate purposes. As of December 31, 2020, we had cash, cash
equivalents, short-term investments, and restricted cash of approximately $413.9 million, compared to $183.3 million as of
December 31, 2019.
On March 27, 2020, the United States enacted the Coronavirus Aid Relief, and Economic Security Act (CARES Act),
an emergency economic stimulus package that includes spending and tax relief measures to strengthen the U.S. economy and
help fund a nationwide effort to curtail the effects of the COVID-19 pandemic. Some of the more significant provisions which
impact the Company include the employee retention credit and payroll tax deferral. We do not expect recent IRS guidance or the
CARES Act to have a material impact on our results of operation. For additional information, see the section titled Notes to
Consolidated Financial Statements, Note 11, Income Taxes.
Financial Overview
Our net sales were $225.0 million for the year ended December 31, 2020, which was a decrease of $12.0 million from
the year ended December 31, 2019. Net sales for the years ended December 31, 2019 and December 31, 2018 were
$237.0 million and $181.3 million, respectively. We incurred net losses of $120.3 million for the year ended December 31, 2020,
achieved net income of $15.4 million for the year ended December 31, 2019 and we incurred a net loss of $13.0 million for the
year ended December 31, 2018. The COVID-19 pandemic and measures intended to reduce its spread had a material impact on
our net sales for the year ended December 31, 2020.
As of December 31, 2020, we had an accumulated deficit of $310.1 million.
Material Changes and Transactions
Convertible Senior Notes
In June 2020, we issued $287.5 million in aggregate principal amount of 2.75% Convertible Senior Notes due in 2027
(Convertible Notes) pursuant to an indenture, dated June 11, 2020, between us and Wells Fargo Bank, National Association, as
trustee, in a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as
amended. The Convertible Notes are senior unsecured obligations of ours and bear 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. The Convertible Notes will
mature on June 15, 2027, unless earlier converted, redeemed or
38
Table of Contents
repurchased in accordance with their terms. In connection with issuing the Convertible Notes, we received $242.2 million in
proceeds, after deducting fees and offering expenses and paying the cost of certain capped call transactions. These proceeds will
be used for working capital and general corporate purposes.
For additional information, see Note 9, Convertible Senior Notes to the consolidated financial statements in Item 8 of
this Annual Report on Form 10-K.
Acquisition of Avedro, Inc.
On November 21, 2019, we 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.
Total consideration for the Avedro Merger was $437.8 million. The consideration consisted of Glaukos common stock
valued at $406.8 million issued to replace Avedro common stock, Glaukos shares valued at $0.2 million to replace 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 unvested restricted stock units (Replacement Awards). See Note
2, Note 4, Note 6 and Note 7 to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional
information on our Avedro Merger.
Factors Affecting Our Performance
In addition to the disruption resulting from COVID-19 as discussed above, the full effects of which at this time are difficult to
predict, our operations to date have been, and we believe our future growth will be, impacted by the following:
●
●
●
●
●
●
the rate at which we expand our global sales and marketing infrastructure, and the speed at which we can continue
increasing awareness of our products to patients and physicians;
our industry is highly competitive and subject to rapid and profound technological, market and product-related changes.
Our success depends, in part, upon our ability to maintain a competitive position in the development of new products for
the treatment of chronic eye diseases;
publications of clinical results by us, our competitors and other third parties can have a significant influence on 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;
the physicians who use our products may not perform procedures during certain times of the year, due to seasonality
patterns typical for certain of our procedures, or when they are away from their practices for various reasons;
the coverage and reimbursement rates by third-party payors for the procedures using our products;
our ability to successfully integrate the Avedro business into our operations and expand our sales into the corneal health
market; and
● most of our sales outside of the U.S. are denominated in the local currency of the country in which we sell our products.
As a result, our revenue from international sales is impacted by fluctuations in foreign currency exchange rates.
Further, subject to our temporary costs saving initiatives and spending deferrals due to COVID-19, we have made and
expect 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 investigational device exemption (IDE)
or investigational new drug (IND) studies and new product development programs in our industry are expensive. We have
incurred a significant increase in administrative costs since we began operating as a public company. Our operating expenses
have increased significantly following our acquisition of Avedro, and we also expect to incur additional construction costs related
to our new facility in Aliso Viejo, California.
39
Table of Contents
We expect 2021 revenues and near-term performance to reflect competitive dynamics and the continuing disruption
resulting from COVID-19, the full effects of which at this time are difficult to predict.
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.
Components of Results of Operations
Net Sales
We currently operate in one reportable segment and net sales are generated primarily from sales of iStent products and,
following the Avedro Merger on November 21, 2019, sales of Photrexa and other associated drug formulations, as well as our
proprietary bioactivation systems, to customers. 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.
We sell our products through a direct sales organization in the United States, and outside the United States we sell our
products primarily through direct sales subsidiaries in sixteen countries 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.
While net sales may increase as we expand our global sales and marketing infrastructure and continue to increase
awareness of our products by expanding our sales base and increasing our marketing efforts, historically our net sales within a
fiscal year have been impacted seasonally, as demand for U.S. ophthalmic procedures is typically softer in the first quarter and
stronger in the fourth quarter of a given year. However, we have not experienced the same seasonality pattern in 2020 due to the
COVID-19 pandemic, and its effect on our commercial performance may continue into future reporting periods. Additionally, for
several years we had commercialized our products in the U.S. with few or no direct competitors. Other products have now
become available in the U.S. and globally, or are in development by third parties, that have entered or could enter the market and
which may affect adoption of or demand for our products. These other products could achieve greater commercial acceptance or
demonstrate better safety or effectiveness, clinical results, ease of use or lower costs than our products, which could adversely
impact our net sales.
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 products at our current headquarters in San Clemente, California using components
manufactured by third parties. We manufacture our KXL and Mosaic systems at our manufacturing facilities in Burlington,
Massachusetts, with some limited manufacturing operations in Dublin, Ireland, and we contract with third-party manufacturers in
the U.S. and Germany to produce our Photrexa and other associated drug formulations.
Due to the relatively low production volumes of our iStent products and our KXL and Mosaic 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.
Cost of sales includes a charge equal to a low single-digit percentage of worldwide net sales of certain current and future
products, including our 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 (the UC Agreement) related to a group of our U.S. patents (the Patent Rights). This ongoing product payment
obligation will change as patent coverage on certain products being to lapse, and will terminate entirely terminate on the date the
last of the Patent Rights expires, which is currently expected to be in 2022.
Under the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), the 2.3% federal medical device excise tax
on U.S. sales of medical devices manufactured by us was suspended from January 1, 2016 to December 31,
40
Table of Contents
2017, and, pursuant to HR 195 passed on January 22, 2018, was further suspended through December 31, 2019. The federal
medical device excise tax was permanently repealed in December 2019.
Beginning in the fourth quarter of 2019, cost of sales has included amortization of the $252.2 million developed
technology intangible asset recognized in connection with the Avedro Merger. For the years ended December 31, 2020 and
December 31, 2019, the amortization expense was $22.1 million and $2.3 million, respectively. Additionally, beginning in the
fourth quarter of 2019, cost of sales has included amortization of the fair market value inventory adjustment recorded in
connection with the Avedro Merger, which for the years ended December 31, 2020 and December 31, 2019 was $24.7 million
and $4.0 million, respectively.
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 product costs. Our gross
margin will also be affected by manufacturing inefficiencies that we may experience as we attempt to manufacture our products
on a larger scale, manufacture new products and change our manufacturing capacity or output. Additionally, our gross margin
will continue to be affected by the aforementioned expense related to the UC Agreement and the acquisition fair market value
inventory adjustment rollout related to the Avedro Merger. See Note 6, Business Combinations to the consolidated financial
statements in Item 8 of this Annual Report on Form 10-K for additional information on our Avedro Merger. The current COVID-
19 pandemic may impact our gross profit margins given the potential impact to net sales in future periods.
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, financial, marketing, sales,
and 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 to implement our global enterprise systems; and
allocated overhead expenses.
The Avedro Merger has resulted in additional integration expenses, restructuring expenses and personnel-related
expenses during the year ended December 31, 2019 and additional personnel-related expenses, primarily stock-based
compensation during the year ended December 31, 2020. Additionally, SG&A will continue to be impacted by the amortization
of certain finite-lived intangible assets acquired as a result of the Avedro Merger, along with Avedro’s normal and recurring
SG&A expenses.
We expect SG&A expenses to continue to grow as a result of the Avedro Merger as we increase our global sales and
marketing infrastructure and general administration infrastructure in the United States; however, as discussed above under
“Impact of COVID-19 Pandemic and Current Economic Environment,” we have sought to preserve our cash position by
instituting a number of cost saving initiatives, including temporary reductions in discretionary spending, including variable
expense associated with salesperson commissions and marketing, capital expenditures, as well as a temporary salary reduction for
many of our employees, which as of the date hereof, have all been reinstated. We have started to reinstitute our plans to move
forward with the planned capital expenditures as state and local governments begin to authorize re-openings. We also expect
other nonemployee-related costs, including sales and marketing program activities for new products, outside services and
accounting 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 R&D activities primarily consist of new product development projects, pre-clinical studies, IDE and IND studies,
and other 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; and the costs of conducting
clinical studies, which include payments to investigational sites and investigators, clinical research
41
Table of Contents
organizations, consultants, and other outside technical services and the costs of materials, supplies and travel. We expense R&D
costs as incurred. We expect our R&D expenses to continue to increase as we initiate and advance our development programs,
including our expanding surgical, pharmaceutical and IOP sensor development efforts and clinical trials across glaucoma, retinal
disease and corneal health. However as previously noted we have sought to preserve our cash position by instituting a number of
cost saving initiatives, including temporary reductions in discretionary spending associated with earlier stage development
programs many of which we have begun to allocate funding beginning in the third quarter and throughout the fourth quarter of
2020.
Completion dates and costs for our clinical development programs include seeking regulatory approvals and our
research programs vary significantly for each current and future product candidate and are difficult to predict. As a result, while
we expect our R&D costs to continue to increase for the foreseeable future, subject to our temporary COVID-19 costs saving
initiatives, we cannot estimate with any degree of certainty the 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, 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.
In-Process Research and Development
Our in-process research and development (IPR&D) expenses relate to the acquisition of DOSE Medical Corporation
(DOSE) in which DOSE became a wholly-owned subsidiary of the Company. DOSE is developing multiple micro-invasive,
sustained-released, bioerodible drug delivery platforms designed to be used in the treatment of various retinal diseases, including
age-related macular degeneration and diabetic macular edema. Certain DOSE assets were in the development-stage at the time of
purchase and were determined to have no alternative future use.
Non-Operating (Expense) Income, Net
Non-operating (expense) income, net primarily consists of interest expense associated with our finance lease for our
Aliso Viejo, California 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.
Income Taxes
Our tax benefit is comprised of U.S. federal and state income and franchise taxes as well as foreign income taxes. Our
current U.S. federal tax benefit results from the carryback of NOLs and R&D tax credits permitted by the CARES Act for the
year ended December 31, 2020. Our current state tax provision results from state minimum and franchise taxes for the year ended
December 31, 2020. Our current foreign tax provision results from foreign income taxes imposed on profitable operations in our
foreign subsidiaries for the year ended December 31, 2020. Our U.S. federal and state deferred tax benefit results from the
deferred tax liability recorded in connection with the Convertible Notes which may be used as a source of future taxable income
allowing us to record a tax benefit for a portion of our operating losses generated for the year ended December 31, 2020. Our net
deferred tax liability of $10.5 million at December 31, 2020 represents the excess of our indefinite-lived deferred tax liabilities
over our indefinite-lived deferred tax assets, as well as deferred tax liabilities recorded to additional paid-in capital within the
consolidated statement of stockholders’ equity which were not available to offset our deferred tax assets. We continue to provide
a 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 the
more likely than not threshold.
42
Table of Contents
Results of Operations
Comparison of Years Ended December 31, 2020 and December 31, 2019
(in thousands)
Statements of operations data:
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
In-process research and development
Total operating expenses
Loss from operations
Non-operating (loss) income, net
Income tax benefit
Net (loss) income
NM = Not Meaningful
Net Sales
Year ended
December 31,
2019
2020
% Increase
(decrease)
$ 224,959
91,719
133,240
$ 236,984
38,588
198,396
171,401
85,392
—
256,793
(123,553)
(8,761)
(11,966)
$ (120,348)
$
176,635
68,308
3,745
248,688
(50,292)
256
(65,460)
15,424
(5)%
138 %
(33)%
(3)%
25 %
NM
3 %
146 %
NM
(82)%
NM
Net sales for the years ended December 31, 2020 and December 31, 2019 were $225.0 million and $237.0 million,
respectively, reflecting a decrease of $12.0 million or 5%.
Net sales of glaucoma products in the United States were $133.7 million and $187.7 million for the years ended
December 31, 2020 and December 31, 2019, respectively, decreasing by approximately 28% primarily due to the disruption
resulting from COVID-19. We believe competition had also increased entering into 2020, the impact of which is difficult to
assess given the COVID-19 disruption. International sales of glaucoma products for the years ended December 31, 2020 and
December 31, 2019 were $45.6 million and $43.3 million, respectively, increasing by approximately 5%. The increase in net
sales internationally was due to sales expansion in certain of our existing international markets, partially offset by the disruption
resulting from COVID-19. Additionally, in the second half of 2020, we launched our next generation iStent inject product, the
iStent inject W. Pricing of our glaucoma products in the United States and internationally remained stable and did not provide a
significant contribution to the results in 2020. As such, changes in unit volumes were the primary driver of the year over year
change.
Net sales of corneal health products were $45.6 million and $6.0 million for the years ended December 31, 2020 and
December 31, 2019, respectively, as a result of the full year operations of Avedro during the year ended December 31, 2020 that
were not in our operating results for the majority of 2019. The $39.6 million increase in net sales generated from our corneal
health products was comprised of an increase of approximately $34.6 million in U.S. sales, including an increase of $31.3 million
of Photrexa net sales, using our direct sales operations and an increase of approximately $5.0 million in net sales with distributors
being used in certain international locations where we do not have a direct commercial presence. Sales of corneal health products
in 2020 were negatively impacted by disruption resulting from COVID-19.
Cost of Sales
Cost of sales for the years ended December 31, 2020 and December 31, 2019 were $91.7 million and $38.6 million,
respectively, reflecting an increase of approximately $53.1 million or 138%. The increase was primarily comprised of
approximately $24.7 million, net related to the acquisition fair market value inventory adjustment rollout, and $22.1 million
related to amortization of certain finite-lived intangible assets acquired, both of which are related to the Avedro Merger. Our
gross margin was approximately 59% for the year ended December 31, 2020 compared to
43
Table of Contents
approximately 84% for the year ended December 31, 2019. The decreased gross margin resulted primarily from the impact of the
aforementioned accounting adjustments related to the Avedro Merger and, to a lesser extent, changes in product mix, most
notably the inclusion of modestly lower margin products related to the Avedro Merger and international market sales.
Selling, General and Administrative Expenses
SG&A expenses for the years ended December 31, 2020 and December 31, 2019 were $171.4 million and
$176.6 million, respectively, reflecting a decrease of $5.2 million or 3%.
We incurred approximately $98.2 million of commercial personnel and discretionary spending in the year ending
December 31, 2020 related primarily to existing sales infrastructure in glaucoma, training samples and marketing associated with
our global launch of iStent Inject W and expansion of our sales infrastructure and commercial activities in Corneal Health. We
also incurred approximately $73.2 million of general and administrative personnel and discretionary spending associated with our
ongoing administrative functions, previously disclosed patent litigation and global enterprise systems implementation, and
amortization of our right-of-use asset related to our long-term lease in Aliso Viejo, California.
Our results for the year ending December 31, 2020 include approximately $24.6 million in additional SG&A expenses
as a result of the full year operations of Avedro that were not in our operating results for the majority of 2019. These expenses
were primarily comprised of commercial personnel and discretionary spending of $16.7 million and general and administrative
personnel and discretionary spending of $7.9 million.
The above increase in expenses associated with the full year operations of Avedro was offset by reductions in SG&A
expenses for the year ended December 31, 2020 primarily consisting of a decrease of approximately $9.4 million in professional
services and software systems costs related to our global enterprise systems implementation, decreases of $6.3 million and $3.2
million in transaction expenses and restructuring expenses, respectively, related to our acquisition of Avedro and a decrease of
approximately $3.1 million related to our previously disclosed patent litigation. The remaining decrease in expenses of
approximately $7.8 million primarily relates to decreased sales and marketing expenses and broader SG&A cost savings related
to the COVID-19 pandemic.
Research and Development Expenses
R&D expenses for the years ended December 31, 2020 and December 31, 2019 were $85.4 million and $68.3 million,
respectively, reflecting an increase of $17.1 million or 25%.
Our R&D expenses for the year ended December 31, 2020 primarily relate to compensation and related employee
expenses and project spending associated with our emerging pipeline of product candidates, including the clinical and
development costs associated with iDose TR, iStent Infinite, the continued development of a pharmaceutical therapeutic system
for the treatment of keratoconus without the removal of the epithelium (often referred to as iLink epi-on), as well as earlier stage
micro-surgical, pharmaceutical, and biosensor projects that span across glaucoma, dry eye, presbyopia, and common retina
conditions such as neovascular age-related macular degeneration, diabetic macular edema, and retinal vein occlusion.
Our results for the year ending December 31, 2020 include approximately $19.1 million in additional R&D expenses
that were not in our operating results for the majority of 2019. These expenses were primarily comprised of $8.3 million of
compensation and related employee expenses and approximately $10.8 million in other core R&D and clinical expenses spent on
the continued development of iLink epi-on and other earlier stage technology and therapeutic investments.
The above increase in expenses as a result of the full year operations of Avedro was primarily offset by reductions of
R&D spending related to the COVID-19 pandemic of approximately $1.3 million primarily related to decreased personnel and
discretionary spending on our earlier stage programs.
44
Table of Contents
In-Process Research and Development
There were no IPR&D expenses for the year ended December 31, 2020. IPR&D expenses for the year ended December
31, 2019 were $3.7 million, comprised of $2.2 million related to the purchase of certain DOSE assets and $1.5 million related to
the upfront payment for our exclusive global licensing agreement with Intratus.
Non-Operating (Expense) Income, Net
We had non-operating expense, net of $8.8 million and $0.3 million of non-operating income, net for the years ended
December 31, 2020 and December 31, 2019, respectively. The increase in non-operating expense, net primarily relates to interest
expense recognized related to the Convertible and recognition of unrealized foreign currency losses due to higher intercompany
loan balances denominated in, and impacted by, changes in foreign currency exchange rates.
Income Tax (Benefit) Provision
Our effective tax rate for the year ended 2020 was not meaningful due to the large deferred tax benefit recorded in
connection with the Convertible Notes relative to the amount of our net loss before taxes. For the year ended December 31, 2020
we recorded a (benefit) for income taxes of $(12.0) million which was primarily the result of the deferred tax liability recorded in
conjunction with the Convertible Notes as a source of taxable income to benefit the current year losses, partially offset by current
U.S. state and foreign income taxes. For the year ended December 31, 2019 we recorded a (benefit) for income taxes of $(65.5)
million that was primarily comprised of the U.S. federal and state deferred tax benefit recorded in connection with the Avedro
Merger relative to the amount of net loss before taxes, partially offset by current U.S. state and foreign income taxes.
Comparison of Years ended December 31, 2019 and December 31, 2018
(in thousands)
Statements of operations data:
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
In-process research and development
Total operating expenses
Loss from operations
Non-operating income, net
Income tax (benefit) provision
Net income (loss)
NM = Not Meaningful
Net Sales
Year ended
December 31, % Increase
2019
2018
(decrease)
$ 236,984
38,588
198,396
$ 181,278
25,075
156,203
176,635
68,308
3,745
248,688
(50,292)
256
(65,460)
15,424
$
119,529
49,676
—
169,205
(13,002)
634
583
$ (12,951)
31 %
54 %
27 %
48 %
38 %
NM
47 %
NM %
(60)%
NM
NM
Net sales for the years ended December 31, 2019 and December 31, 2018 were $237.0 million and $181.3 million,
respectively, reflecting an increase of $55.7 million or 31%.
The increase in net sales from our glaucoma products resulted primarily from expansion of U.S. sales of our iStent
inject, the withdrawal from the market of a competitive MIGS device in late August 2018, and direct sales operations in our
existing international markets. Net sales of glaucoma products in the United States were $187.7 million and $151.7 million for
the years ended December 31, 2019 and December 31, 2018, respectively, increasing by 24%. International sales for the years
ended December 31, 2019 and December 31, 2018 were $43.3 million and $29.6 million,
45
Table of Contents
respectively, increasing by 46%. Net sales at our subsidiaries in Australia, Germany, Japan, France and the United Kingdom
accounted for the majority of the increase internationally.
The remaining $6.0 million increase in net sales was generated from our corneal health products as a result of our
Avedro Merger on November 21, 2019.
Pricing for our products was not a significant contributing factor to the increase in net sales for the year ended
December 31, 2019.
Cost of Sales
Cost of sales for the years ended December 31, 2019 and December 31, 2018 were $38.6 million and $25.1 million,
respectively, reflecting an increase of approximately $13.5 million or 54%. The increase was driven by growing worldwide
volume, with approximately $4.0 million related to the acquisition fair market value inventory adjustment rollout and $2.3
million related to amortization of certain finite-lived intangible assets acquired, both of which are related to the Avedro Merger;
offset by a one-time federal medical device excise tax refund benefit of approximately $0.5 million. Our gross margin was
approximately 84% for the year ended December 31, 2019 compared to approximately 86% for the year ended December 31,
2018.
Selling, General and Administrative Expenses
SG&A expenses for the years ended December 31, 2019 and December 31, 2018 were $176.6 million and
$119.5 million, respectively, reflecting an increase of $57.1 million or 48%.
The acquisition of Avedro represented an increase in SG&A expenses of $19.1 million that were not in our 2018 results.
These expenses were primarily comprised of $7.6 million due to stock-based compensation resulting from post-combination
services associated with the Replacement Awards, $7.1 million related to legal, financial advisory and other transaction costs
associated with the acquisition, and amortization of finite-lived intangible assets acquired of approximately $0.3 million. In
connection with the Avedro acquisition, we implemented a restructuring plan in December 2019 that includes an estimated
headcount reduction of 40 employees and a reallocation of responsibilities primarily within the SG&A functions. As of
December 31, 2019 we have accrued $4.1 million of restructuring plan costs, and we expect to incur a total of approximately $5.6
million in restructuring charges upon completion of the plan, which we expect to be completed in 2021.
We incurred $3.5 million in normal and recurring Avedro SG&A expenses from acquisition date through December 31,
2019 that were not in our 2018 results.
Additionally, the increase in SG&A expenses for the year ended December 31, 2019 primarily consisted of
approximately $5.7 million related to our previously-disclosed patent litigation, approximately $10.1 million in professional
services and software systems costs related to our global enterprise systems implementation, and $8.3 million in additional
compensation and related employee expenses was associated with our growing number of domestic and international employees.
The remaining increase in SG&A expenses was primarily comprised of expenses incurred for training samples related to
our U.S. launch of iStent inject, amortization of our right-of-use asset related to our long-term lease in Aliso Viejo, California and
non-employee related expenses incurred by our foreign subsidiaries.
Research and Development Expenses
R&D expenses for the years ended December 31, 2019 and December 31, 2018 were $68.3 million and $49.7 million,
respectively, reflecting an increase of $18.6 million or 38%. The increase in R&D expenses was primarily the result of
approximately $4.8 million in additional compensation and related employee expenses as well as an overall increase of
approximately $12.3 million in other core R&D and clinical expenses, including expenses associated with our iDose Travoprost
Phase III clinical trials. The acquisition of Avedro also represented an increase of approximately $1.5 million in R&D expenses
that were not in our 2018 results.
46
Table of Contents
In-Process Research and Development
IPR&D expenses for the year ended December 31, 2019 were $3.7 million, comprised of $2.2 million related to the
purchase of certain DOSE assets and $1.5 million related to the upfront payment for our exclusive global licensing agreement
with Intratus. There were no IPR&D expenses for the year ended December 31, 2018.
Non-Operating Income, Net
We had non-operating income, net of $0.3 million and $0.6 million for the years ended December 31, 2019 and
December 31, 2018, respectively. These amounts primarily relate to interest expense associated with the financing lease for our
Aliso Viejo, California facility and recognition of unrealized foreign currency losses due to higher intercompany loan balances
denominated in, and impacted by, changes in foreign currency exchange rates offset by increases in interest income related to our
short-term investments.
Income Tax (Benefit) Provision
Our effective tax rate for the year ended 2019 was not meaningful due to the large deferred tax benefit recorded in
connection with the Avedro Merger relative to the amount of our net loss before taxes. For the year ended December 31, 2019 we
recorded a (benefit) for income taxes of $(65.5) million which was primarily comprised of the U.S. federal and state deferred tax
benefit related to the Avedro Merger. For the year ended December 31, 2018 we recorded a provision for income taxes of $0.6
million that was primarily comprised of current U.S. state and foreign income taxes.
Liquidity and Capital Resources
For the year ended December 31, 2020, we incurred a net loss of $120.3 million and used cash from operations of $23.0
million. As of December 31, 2020, we had an accumulated deficit of approximately $310.1 million. We fund our operations from
cash generated from commercial operations and proceeds from exercises of stock options, in addition to utilizing funds from the
June 2020 issuance of the Convertible Notes. We have made and expect 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.
However, due to the COVID-19 economic slowdown, as disclosed above under “Impact of COVID-19 Pandemic and Current
Economic Environment”, we have also sought to preserve our cash position by instituting a number of cost saving initiatives,
including substantial reductions in discretionary spending and capital expenditures, as well as a temporary salary reduction for
many of our employees, which were reinstated in the fourth quarter of 2020.
We have incurred a significant increase in administrative costs since we began operating as a public company. Our
operating expenses have increased significantly following our acquisition of Avedro, and we also expect to incur additional
construction costs related to our new facility in Aliso Viejo, California.
Our 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 9, Convertible Senior Notes. As of December 31, 2020, none of the conditions allowing holders
of the Convertible Notes to convert had been met. If our trading price remains above 130% of the conversion price for at least 20
trading days during the 30 consecutive trading-day period ending on, and including, March 31, 2021, holders of the Convertible
Notes would have the right to convert their Convertible Notes during the calendar quarter beginning April 1, 2021. Upon
conversion, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of
our common stock, at our election, in the manner and subject to the terms and conditions provided in the Indenture. Our current
intent is to settle the principal amount of the Convertible Notes in cash upon conversion, with any remaining conversion value
being delivered in shares of our common stock.
We plan to fund our operations, capital funding and other liquidity needs using existing cash and investments and, to the
extent available, cash generated from commercial operations. Our existing cash and investments includes the remaining net
proceeds from the Convertible Notes issued in June 2020 (after payment for the related capped call
47
Table of Contents
transactions), which we are using for working capital and general corporate purposes. 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. 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. We believe that our available cash, cash
equivalents, investment balances and interest we earn on these balances and any cash generated from commercial operations will
be sufficient to fund our operations and satisfy our liquidity requirements for at least the next 12 months from the date our
consolidated financial statements for the year ended December 31, 2020 are made publicly available.
The following table summarizes our cash and cash equivalents, short-term investments and selected working capital data
as of December 31, 2020 and December 31, 2019 (in thousands):
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventory, net
Accounts payable
Accrued liabilities
Working capital (1)
December 31, December 31,
$
2020
96,596
307,772
36,059
15,809
4,371
45,331
419,740
$
2019
62,430
111,553
38,417
42,578
5,781
51,919
205,178
(1)
Working capital consists of total current assets less total current liabilities
Cash Flows
Our historical cash outflows have primarily been associated with cash used for operating activities such as the expansion
of our sales, marketing 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, to
improve our manufacturing efficiency and for overall facility expansion.
The following table is a condensed summary of our cash flows for the periods indicated:
(in thousands)
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Exchange rate changes
Net increase in cash, cash equivalents and restricted cash
2020
2019
Year ended
December 31,
2018
$
$
(22,988)
(205,060)
262,542
(88)
34,406
$
(369)
43,426
(9,645)
(252)
$ 33,160
$ 18,864
(26,400)
21,576
48
$ 14,088
At December 31, 2020, 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 year ended December 31, 2020 and December 31, 2019, our operating activities used $23.0 million and $0.4
million of net cash, respectively. In the year ended December 31, 2018 our operating activities generated $18.9 million of net
cash.
48
Table of Contents
For the year ended December 31, 2020, included in net cash used in operating activities reflected our net loss of $120.3
million, adjusted for non-cash items of $100.6 million, primarily consisting of stock-based compensation expense of
$46.5 million, depreciation and amortization of $29.4 million, amortization of the inventory fair value adjustment as a result of
the Avedro Merger of $24.7 million, amortization of lease right-of-use assets of $5.2 million, the fair value of cash-settled stock
options of $3.2 million and a deferred income tax benefit of $12.2 million. This was offset by changes in operating assets and
liabilities of $3.2 million, which resulted from decreases in accounts receivable, inventory, and other assets partially offset by
decreases in accounts payable and accrued liabilities and increases in prepaid expenses and other assets.
For the year ended December 31, 2019, included in net cash used in operating activities reflected our net income of
$15.4 million, adjusted for non-cash items of $7.3 million, primarily consisting of stock-based compensation expense of
$36.3 million, depreciation and amortization of $6.3 million, amortization of the inventory fair value adjustment as a result of the
Avedro Merger of $4.0 million, amortization of lease right-of-use assets of $3.6 million, the fair value of cash-settled stock
options of $3.1 million and a deferred income tax benefit of $66.3 million. This was offset by changes in operating assets and
liabilities of $8.5 million, which resulted from increases in accounts receivable, prepaid expenses and other current assets and
other assets totaling $9.3 million, offset by increases in accounts payable and accrued liabilities and inventory of $0.8 million.
For the year ended December 31, 2018, included in net cash provided by operating activities reflected our net loss of
$13.0 million, adjusted for non-cash items of $35.4 million, primarily consisting of stock-based compensation expense of $25.7
million and depreciation and amortization of $6.3 million. This was partially offset by changes in operating assets and liabilities
of $3.6 million, which resulted from increases in accounts receivable, inventory and prepaid expenses and other current assets
totaling $6.3 million, offset by increases in accounts payable and accrued liabilities and other assets of $2.7 million.
Investing Activities
In the year ended December 31, 2020 net cash from investing activities used approximately $205.1 million. In the year
ended December 31, 2019, net cash from investing activities generated $43.4 million, and in the year ended December 31, 2018,
we used approximately $26.4 million.
In the year ended December 31, 2020, we used approximately $301.0 million for purchases of short-term investments,
received proceeds from sales and maturities of short-term investments of $104.7 million and used approximately $1.8 million
related to investments in company-owned life insurance.
In the year ended December 31, 2019, we used approximately $80.4 million for purchases of short-term investments,
received proceeds from sales and maturities of short-term investments of $80.5 million and used approximately $1.6 million
related to investments in company-owned life insurance. Additionally, the Avedro Merger resulted in an increase in cash from
investing activities of $49.7 million.
In the year ended December 31, 2018, we used approximately $93.7 million for purchases of short-term investments,
received proceeds from sales and maturities of short-term investments of $78.9 million and used approximately $1.2 million
related to investments in company-owned life insurance.
Cash used for purchases of property and equipment was approximately $6.9 million, $4.7 million and $10.3 million for
the years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.
Subject to our near-term deferral of certain capital expenditures due to the COVID-19 pandemic, we expect to increase
our investment in property and equipment in the future as we expand our manufacturing capacity for current and new products,
improve our manufacturing efficiency and for overall facility expansion, as discussed above.
49
Table of Contents
Financing Activities
In the year ended December 31, 2020 and December 31, 2018 our financing activities provided $262.5 million and
$21.6 million of net cash, respectively, whereas in the year ended December 31, 2019, our financing activities used $9.6 million
of net cash.
In the year ended December 31, 2020, we received net cash proceeds of approximately $287.5 million related to our
Convertible Notes, used $9.6 million for transaction costs related to the Convertible Notes and used $35.7 million on payment of
the capped call transaction related to the Convertible Notes. We received net cash proceeds of approximately $24.2 million from
the exercises of stock options and purchases of our common stock by employees pursuant to our Employee Stock Purchase Plan
and used $3.9 million for payment of employee taxes related to restricted stock unit vestings.
In the year ended December 31, 2019, we used approximately $22.5 million for payment of debt assumed related to the
Avedro Merger, we received net cash proceeds of approximately $18.5 million from the exercises of stock options and purchases
of our common stock by employees pursuant to our Employee Stock Purchase Plan and used $5.6 million for payment of
employee taxes related to restricted stock unit vestings.
In the year ended December 31, 2018, we received net cash proceeds of approximately $22.2 million from the exercises
of stock options and purchases of our common stock by employees pursuant to our Employee Stock Purchase Plan and used $0.6
million for payment of employee taxes related to restricted stock unit vestings.
Contractual Obligations
The following table summarizes our known contractual obligations as of December 31, 2020 and the effect those
obligations are expected to have on our liquidity and cash flows in future periods.
Contractual obligations
(in thousands)
Operating and finance lease obligations
Firm purchase commitments (i)
Total contractual obligations
Total
Less than
1 year
1 - 3 years
Payments due by period
More than
5 years
3 - 5 years
$ 161,571 $ 2,788 $
20,292
$ 181,863
20,097
$ 22,885
$
7,394 $ 15,372 $ 136,017
—
67
$ 136,017
$ 15,439
128
7,522
(i) Of the above disclosed amounts, we had $2.5 million and $1.7 million in commitments for our implementation of global enterprise systems and
capital expenditures, respectively, as of December 31, 2020.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in the rules and regulations of the Securities and
Exchange Commission. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities
often referred to as structured finance or special purpose entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or for any other contractually narrow or limited purpose. However, from time to time
we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims including in
connection with certain real estate leases, and supply purchase agreements, and with directors and officers. The terms of such
obligations vary by contract and in most instances a maximum dollar amount is not explicitly stated therein. Generally, amounts
under these contracts cannot by reasonably estimated until a specific claim is asserted, thus no liabilities have been recorded for
these obligations on our balance sheets for any of the periods presented.
50
Table of Contents
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 in the Notes to our consolidated financial statements
appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies 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 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, which includes estimates of variable consideration for
certain product returns.
We offer volume-based rebate agreements to certain customers and, in these instances, we provide a rebate (in the form
of a credit memo) at the contract’s conclusion, if earned by the customer. 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. We periodically monitor our customer rebate programs to
ensure the rebate allowance is fairly stated. Our rebate allowance is included in accrued liabilities in the consolidated balance
sheets and estimated rebates accrued were not material during the periods presented.
Additionally, we have a performance obligation related to certain customers’ right to a future discount on single dose
pharmaceutical purchases in the U.S., and that performance obligation is expected to be recognized when the customer elects to
utilize the discount, which is generally within one year. Additionally, we have a performance obligation related to extended
warranty agreements with customers related to our KXL systems.
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.
51
Table of Contents
Clinical Trial Expense Accruals
As part of our R&D expenses, we accrue at each balance sheet date the estimated costs of clinical study activities
performed by third-party clinical sites with whom we have agreements providing for fees based upon the quantities of subjects
enrolled and clinical evaluation visits that occur over the life of the study. The estimates are determined based upon a review of
the agreements and data collected by internal and external clinical personnel as to the status of enrollment and subject visits, and
are based upon the facts and circumstances known to us at each financial reporting date. If the actual timing of performance of
activities varies from the assumptions used in the estimates, we adjust the accruals accordingly. There have been no material
adjustments to our prior period accrued estimates for clinical trial activities through December 31, 2020. If we underestimate or
overestimate the activity or fees associated with a study or service at a given point in time, adjustments to R&D expenses may be
necessary in future periods. Subsequent changes in estimates may result in a material change in our accruals. Material
nonrefundable advance payments for goods and services, including fees for process development or manufacturing and
distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as
expense in the period that the related goods are consumed or services are performed.
Intangible Assets
Intangible assets primarily consist of developed technology, customer relationships, and IPR&D assets related to the
Avedro Merger, as well as the buyout of a royalty payment obligation.
Intangible assets with finite-lives include developed technology, customer relationships and the buyout of a royalty
payment obligation, which are amortized on a straight-line basis over their estimated useful lives, which range
from five to eleven years. We review finite-lived intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets or asset group may not be recoverable. When such an event occurs, management
determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related
asset group’s carrying value.
Indefinite-lived intangible assets are comprised of IPR&D assets associated with other applications of Avedro’s corneal
remodeling platform, which will not be amortized until technological feasibility is met, but will be assessed for impairment
annually.
Please see Note 7, Intangible Assets and Goodwill to the consolidated financial statements in Item 8 of this Annual
Report on Form 10-K for additional information on our intangible assets.
Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets
acquired and liabilities assumed. Goodwill is not amortized, but is tested for impairment annually in the fourth quarter, or more
frequently if events or circumstances indicate the carrying value may no longer be recoverable and that an impairment loss may
have occurred. The Company operates as one segment, which is considered to be the sole reporting unit, and therefore goodwill is
tested for impairment at the consolidated level. Please see Note 6, Business Combinations and Note 7, Intangible Assets and
Goodwill to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional information on our
goodwill.
Inventory Valuation
Except for inventory acquired in connection with the Avedro Merger, further described in Note 6, Business
Combinations to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K, we value inventory at the
lower of cost and net realizable value. Cost is determined by the first-in, first-out method. This policy requires us to make
estimates regarding the market value of our inventory, including an assessment of excess or obsolete inventory. We evaluate
inventory for excess quantities and obsolescence based on an estimate of the future demand for
52
Table of Contents
our product within a specified time horizon, and record an allowance to reduce the carrying value of inventory as
determined necessary. The estimates we use for demand are also used for near-term capacity planning and inventory purchasing
and are consistent with our revenue forecasts. If our actual demand is less than our forecast demand, we may be required to take
additional excess inventory charges, which would decrease gross margin and adversely impact net operating results in the future.
Stock-Based Compensation Expense
Stock-based compensation expense for stock options is measured at the date of grant, based on the estimated fair value
of the award using the Black-Scholes option pricing model.
Stock-based compensation expense for restricted stock units is also measured at the date of grant, based on the closing
price of our common stock.
For awards subject to time-based vesting conditions, we recognize stock-based compensation expense over the requisite
service period on a straight-line basis, net of estimated forfeitures.
The estimation of the fair value of each stock-based option grant or issuance on the date of grant involves numerous
assumptions by management. Although we calculate the fair value under the Black-Scholes option pricing model, which is a
standard option pricing model, this model still requires the use of numerous assumptions, including, among others, the expected
life (turnover), volatility of the underlying equity security, a risk free interest rate and expected dividends. Because we have a
limited operating history as a public company, there is a lack of company-specific historical and implied volatility data, and
therefore we have estimated stock price volatility based upon an index of the historical volatilities of a group of comparable
publicly-traded medical device peer companies. We will continue to apply this process until a sufficient amount of historical
information regarding the volatility of our own stock price becomes available. We have estimated the expected term of our stock
options using the “simplified” method, whereby the expected life equals the average of the vesting term and the original
contractual term of the option. The use of different values by management in connection with these assumptions in the Black-
Scholes option pricing model could produce substantially different results.
Convertible Senior Notes
We evaluate embedded conversion features within convertible debt under ASC 815, Derivatives and Hedging to
determine whether the embedded conversion features should be bifurcated from the host instrument and accounted for as a
derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative
treatment under ASC 815, the instrument is evaluated under ASC 470-20, Debt with Conversion and Other Options.
The carrying amount of the liability component is calculated by measuring the fair value of a similar debt instrument that
does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option
is determined by deducting the fair value of the liability component from the par value of the convertible notes. The equity
component is not re-measured as long as it continues to meet the conditions for equity classification. The excess of the principal
amount of the liability component over its carrying amount (i.e., debt discount) will be amortized to interest expense over the
term of the convertible notes.
We may record debt issuance costs and/or debt discounts in connection with raising funds through the issuance of
convertible debt. These costs may be paid in the form of cash or equity (such as warrants). These costs are allocated between debt
and equity, with the portion allocated to debt amortized to interest expense. If a conversion of the underlying debt occurs, a
proportionate share of the unamortized amounts is immediately expensed.
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.
53
Table of Contents
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 a certificate 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.
In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in
excess of federally insured limits.
Foreign Currency Exchange Risk
The financial statements of our foreign subsidiaries and their sales to customers are denominated in the foreign
subsidiaries’ respective functional currencies, and therefore we have exposure to foreign currency exchange rates. The remainder
of our business is primarily denominated in U.S. dollars. The effect of a 10% adverse change in exchange rates on foreign
denominated cash, receivables and payables would not have been material for the periods presented. As our operations in
countries outside of the United States grow, our results of operations and cash flows will be subject to fluctuations due to changes
in foreign currency exchange rates, which could harm our business in the future. To date, we have not entered into any material
foreign currency hedging contracts although we may do so in the future.
54
Table of Contents
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive (Loss) Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
55
56
58
59
60
61
62
63
Table of Contents
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, 2020
and 2019, the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2019, 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, 2020, 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 March 1, 2021 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 consolidated 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 consolidated 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.
56
Table of Contents
Description of the
Matter
Revenue from contracts with customers
As discussed in Note 2 of the consolidated financial statements, the Company derives its revenue from
sales of its products in the United States and internationally. Customers are primarily comprised of
ambulatory surgery centers, hospitals and physician private practices. The Company concluded that one
performance obligation exists for the majority of its contracts with customers which is to deliver products
in accordance with the Company’s normal delivery times. Revenue is recognized when this performance
obligation is satisfied at a point in time when the Company considers control of a product to have
transferred to the customer. Revenue recognized reflects the consideration to which the Company expects
to be entitled in exchange for those products or services.
Auditing the Company’s revenue was complex due to the subjectivity in determining the collectability of
sales to the Company’s customers. For those contracts that otherwise meet the revenue recognition criteria,
the Company only recognizes revenue when it is probable that the entity will collect the consideration it is
entitled to in exchange for the goods it transfers to the 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 the Company.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over
the Company’s process of recording revenue from sales of its products, including controls over the review
and approval of customer credit terms. We also tested management’s controls related to the completeness
and accuracy of data, including calculations, utilized in the controls.
To test product revenue, our audit procedures included, among others, inspecting the application of the
Company’s credit policy to ensure consistency in how the Company evaluated whether a customer is
creditworthy and to ensure that this evaluation was based on objective and verifiable criteria. To this end,
we obtained a sample of credit reports, recent financial information, historical payment information, or
other relevant information as applicable. We also confirmed on a sample basis that the customers’ payment
history does not demonstrate significant bad debt expense or significant increases in the allowance for
doubtful accounts. To test management’s assessment related to the probability of collection we
investigated a sample of customers to obtain evidence of financial condition.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2006.
Irvine, California
March 1, 2021
57
Table of Contents
Glaukos Corporation
Consolidated Balance Sheets
(in thousands, except par values)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Inventory, net
Prepaid expenses and other current assets
Total current assets
Restricted cash
Property and equipment, net
Operating lease right-of-use asset
Finance lease right-of-use asset
Intangible assets, net
Goodwill
Deposits and other assets
Total assets
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
Accrued liabilities
Total current liabilities
Convertible senior notes
Operating lease liability
Finance lease liability
Deferred tax liability, net
Other liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ equity:
2020
December 31,
2019
$
$
$
$
$
$
96,596
307,772
36,059
15,809
13,206
469,442
9,566
24,008
20,009
51,443
357,693
66,134
7,207
1,005,502
4,371
45,331
49,702
189,416
20,704
60,690
10,512
7,029
338,053
62,430
111,553
38,417
42,578
7,900
262,878
9,326
22,056
15,704
54,048
382,605
66,134
5,649
818,400
5,781
51,919
57,700
—
14,195
58,435
9,632
5,166
145,128
Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued and
outstanding as of December 31, 2020 and December 31, 2019
Common stock, $0.001 par value; 150,000 shares authorized; 45,275 and 43,530 shares
issued and 45,247 and 43,502 shares outstanding at December 31, 2020 and December
31, 2019, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Less treasury stock (28 shares as of December 31, 2020 and December 31, 2019)
Total stockholders’ equity
Total liabilities and stockholders' equity
—
—
45
976,590
1,004
(310,058)
(132)
667,449
1,005,502
$
44
861,740
1,330
(189,710)
(132)
673,272
818,400
$
See accompanying notes to consolidated financial statements.
58
Table of Contents
Glaukos Corporation
Consolidated Statements of Operations
(in thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
In-process research and development
Total operating expenses
Loss from operations
Non-operating (expense) income:
Interest income
Interest expense
Other income (expense), net
Total non-operating (expense) income
Loss before taxes
Income tax (benefit) provision
Net (loss) income
Basic net (loss) income per share
Diluted net (loss) income per share
Weighted-average shares used to compute basic net (loss) income per share
Weighted-average shares used to compute diluted net (loss) income
per share
$
$
$
$
224,959 $
2020
2019
Year ended
December 31,
2018
91,719
133,240
171,401
85,392
—
256,793
(123,553)
2,379
(14,115)
2,975
(8,761)
(132,314)
(11,966)
(120,348)
(2.70)
(2.70)
44,497
$
$
$
236,984 $
38,588
198,396
176,635
68,308
3,745
248,688
(50,292)
3,169
(2,565)
(348)
256
(50,036)
(65,460)
15,424
0.41
0.37
37,355
$
$
$
181,278
25,075
156,203
119,529
49,676
—
169,205
(13,002)
2,252
—
(1,618)
634
(12,368)
583
(12,951)
(0.37)
(0.37)
35,317
44,497
41,145
35,317
See accompanying notes to consolidated financial statements.
59
Table of Contents
Glaukos Corporation
Consolidated Statements of Comprehensive (Loss) Income
(in thousands)
Net (loss) income
Other comprehensive (loss) income:
Foreign currency translation (loss) gain
Unrealized gain (loss) on short-term investments
Other comprehensive (loss) income
Total comprehensive (loss) income
2020
2019
Year ended
December 31,
2018
$
(120,348) $
15,424 $
(12,951)
(691)
365
(326)
(120,674)
$
$
(65)
657
592
16,016
$
1,377
(48)
1,329
(11,622)
See accompanying notes to consolidated financial statements.
60
Table of Contents
Glaukos Corporation
Consolidated Statements of Stockholders’ Equity
(in thousands)
Balance at December 31, 2017
Common stock issued under stock
plans
Stock-based compensation
Other comprehensive loss
Net loss
Balance at December 31, 2018
Common stock issued under stock
plans
Issuance of common stock in
connection with the Avedro
Merger
Value of Replacement Awards
issued in the Avedro Merger
attributable to pre-combination
services
Stock-based compensation
Other comprehensive income
Net loss
Balance at December 31, 2019
Common stock issued under stock
plans
Equity component of convertible
senior notes, net of transaction
costs of $3,267 and taxes of
$12,891
Purchase of capped calls related to
issuance of convertible senior notes
Stock-based compensation
Other comprehensive loss
Net loss
Balance at December 31, 2020
Common stock
Shares Amount
$
34,647
35
Additional
paid-in
capital
income (loss)
deficit Shares Amount
$331,073
$
(591) $ (192,183)
Treasury stock
Total
equity
(28) $ (132) $ 138,202
Accumulated
other
comprehensive Accumulated
1,488
—
—
—
$
36,135
21,575
1
— 25,704
—
—
36
$378,352
—
—
$
—
—
1,329
—
738
—
—
—
(12,951)
$ (205,134)
21,576
— —
25,704
— —
1,329
— —
(12,951)
— —
(28) $ (132) $ 173,860
942
1
12,850
—
—
— —
12,851
6,453
7
406,956
—
406,963
—
—
—
—
$
43,530
—
27,189
— 36,393
—
—
44
$861,740
—
—
$
—
—
592
—
1,330
—
—
15,424
$ (189,710)
27,189
36,393
— —
592
— —
15,424
— —
(28) $ (132) $ 673,272
1,745
1
20,334
—
—
— —
20,335
—
—
81,554
—
—
—
—
81,554
—
—
—
—
$
45,275
— (35,679)
— 48,641
—
—
45
$976,590
—
—
$
—
—
(326)
—
—
—
—
(120,348)
$ (310,058)
1,004
—
(35,679)
—
48,641
— —
— —
(326)
— — (120,348)
(28) $ (132) $ 667,449
See accompanying notes to consolidated financial statements.
61
Table of Contents
Glaukos Corporation
Consolidated Statements of Cash Flows
(in thousands)
Operating Activities
Net (loss) income
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
activities:
Depreciation and amortization
Amortization of the fair market value inventory adjustment as a result of the Avedro
Merger
Amortization of right-of-use lease assets
Deferred income tax benefit
Loss on disposal of fixed assets
Stock-based compensation
Change in fair value of cash-settled stock options
Unrealized foreign currency (gains) losses
Amortization of premium (discount) on short-term investments
Amortization of debt discount and deferred financing costs
Deferred rent and other liabilities
Changes in operating assets and liabilities:
Accounts receivable, net
Inventory, net
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Other assets
Net cash (used in) provided by operating activities
Investing activities
Cash acquired due to acquisition
Purchases of property and equipment
Purchases of short-term investments
Proceeds from sales and maturities of short-term investments
Investment in company-owned life insurance
Net cash (used) provided by investing activities
Financing activities
Proceeds from convertible senior notes
Payment of convertible senior notes transaction costs
Purchase of capped calls related to issuance of convertible senior notes
Proceeds from exercise of stock options
Share purchases under Employee Stock Purchase Plan
Payments of employee taxes related to vested restricted stock units
Payment of debt assumed in the Avedro Merger
Principal paid on finance lease
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental schedule of noncash investing and financing activities
Shares issued, and Replacement Awards assumed, in connection with Avedro Merger
Debt assumed in the Avedro Merger
Purchases of property and equipment included in accounts payable and accrued liabilities
Supplemental disclosures of cash flow information
Taxes paid, net of refunds
Interest paid on convertible senior notes
Other interest paid
2020
2019
Year ended
December 31,
2018
$
(120,348)
$
15,424
$
(12,951)
29,381
24,712
5,232
(12,176)
367
46,477
(3,172)
(1,202)
453
5,974
4,538
2,243
1,962
(5,033)
(2,683)
287
(22,988)
—
(6,935)
(301,002)
104,697
(1,820)
(205,060)
287,500
(9,614)
(35,679)
20,196
4,025
(3,886)
—
-
262,542
(88)
34,406
71,756
106,162
$
— $
— $
$
641
484
4,041
1,334
$
$
$
$
$
$
$
$
$
$
6,306
4,026
3,557
(66,306)
430
36,393
3,088
194
(338)
—
5,352
(6,632)
52
(917)
779
(1,777)
(369)
49,652
(4,724)
(80,388)
80,494
(1,608)
43,426
—
—
—
15,064
3,388
(5,601)
(22,496)
—
(9,645)
(252)
33,160
38,596
71,756
437,751
22,496
995
$
$
$
$
171
2
$
$
— $
6,264
—
—
—
156
25,704
—
1,647
(295)
—
1,919
(2,252)
(2,303)
(1,756)
2,527
204
18,864
—
(10,315)
(93,696)
78,851
(1,240)
(26,400)
—
—
—
18,654
3,509
(587)
—
—
21,576
48
14,088
24,508
38,596
—
—
152
401
—
—
See accompanying notes to consolidated financial statements.
62
Table of Contents
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 in 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 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,
diabetic macular edema and retinal vein occlusion.
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, 2020, the Company incurred net losses of $120.3 million and used $23.0 million of
cash from operations and as of December 31, 2020 had an accumulated deficit of $310.1 million. For the year ended December
31, 2019, the Company achieved net income of $15.4 million, and $0.4 million of cash was used by operating activities. The
Company funds its operations from cash generated from commercial operations and proceeds from exercises of stock options, in
addition to using the funds from the June 2020 issuance of the Convertible Notes, described more fully in Recent Developments
below. Although the Company has been profitable for certain periods in its operating history, there can be no assurance that the
Company will be profitable or generate cash from operations.
The Company plans to fund its operations and capital funding needs using existing cash, cash equivalents and
investments, and to the extent available, cash generated from commercial operations. The net proceeds from the Convertible
Notes issued in June 2020 (after payment for the related capped call transactions) will be used for working capital and general
corporate purposes. 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 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, 2020, the Company had cash, cash equivalents, restricted cash and short-term investments
totaling $413.9 million and net working capital of $419.7 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, 2020.
Recent Developments
Convertible Senior Notes
In June 2020 the Company issued $287.5 million in aggregate principal amount of 2.75% Convertible Senior Notes due
in 2027 (Convertible Notes) pursuant to an indenture dated June 11, 2020. The Convertible Notes are senior unsecured
obligations and bear interest at a rate of 2.75% per year, payable semiannually in arrears on June 15 and December 15 of each
year, beginning on December 15, 2020. The Convertible Notes will mature on June 15, 2027, unless earlier converted, redeemed
or repurchased. The Convertible Notes are convertible into cash, shares of the
63
Table of Contents
Company’s common stock, or a combination of cash and shares, at the Company’s election. In connection with issuing the
Convertible Notes, the Company received $242.2 million in proceeds, after deducting fees and offering expenses and paying the
cost of certain capped call transactions. The Company may not redeem the Convertible Notes prior to June 20, 2024 and no
sinking fund is provided for the Convertible Notes.
See Note 9, Convertible Senior Notes for additional details of the Convertible Notes.
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, Inc. (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.
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 Merger Consideration consisted of Glaukos shares worth $406.8 million issued
to replace Avedro common stock, Glaukos shares worth $0.2 million to replace 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 4, Fair Value Measurements, Note 6, Business Combinations, Note 7, Intangible Assets and Goodwill and Note
10, Stock-Based Compensation and Note 11, Income Taxes for additional details regarding the impact of the Avedro Merger on
the Company’s consolidated financial statements.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP).
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes.
Actual results could differ materially from those estimates and assumptions. Management considers many factors in selecting
appropriate financial accounting policies and controls and in developing the estimates and assumptions that are used in the
preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition,
other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with
the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends.
The estimation process often may yield a range of reasonable estimates of the ultimate future outcomes, and management must
select an amount that falls within that range of reasonable estimates. The most significant estimates in the accompanying
consolidated financial statements relate to revenue recognition, the fair value of the liability component of the Convertible Notes,
the incremental borrowing rate related to the Company’s leased assets, stock-based compensation expense and the valuation of
certain intangible assets related to the Company’s acquisition of Avedro. Although these estimates are based on the Company’s
knowledge of current events and actions it may undertake in the future, this process may result in actual results differing
materially from those estimated amounts used in the preparation of the consolidated financial statements.
In March 2020, the World Health Organization declared the outbreak caused by the novel strain of coronavirus
(COVID-19) to be a global pandemic. While COVID-19 continues to evolve daily and its ultimate outcome is uncertain, it has
caused significant disruption to individuals, governments, businesses, and financial markets. The Company’s
64
Table of Contents
consolidated financial statements as of and for the year ended December 31, 2020 reflect the Company’s estimates of the impact
of the COVID-19 outbreak. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s
business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical
trials, research and development costs and employee-related amounts, will depend on future developments that are uncertain,
including the duration and severity of the COVID-19 outbreak, the severity and transmission rates of new variants of COVID-19,
and the actions taken to contain it or treat COVID-19, including the availability, distribution and efficacy of vaccines for COVID-
19, as well as the economic impact on local, regional, national and international customers and markets. As a result, there may be
changes to the Company’s estimates regarding the impact of COVID-19 in future periods.
Segments
The Company has one business activity: the development and commercialization of therapies designed to treat glaucoma,
corneal disorders and retinal diseases, and operates as one operating segment. The Company determined its operating segment on
the same basis that it uses to evaluate its performance internally. The Company’s chief operating decision-maker (CODM), its
Chief Executive Officer, reviews its consolidated operating results for the purpose of allocating resources and evaluating
financial performance.
Cash, Cash Equivalents, Restricted Cash and Short-term Investments
The Company invests its excess cash in marketable securities, including money market funds, money market securities,
bank certificates of deposits, corporate bonds, corporate commercial paper, municipal bonds, U.S. government bonds and U.S.
government agency bonds. For financial reporting purposes, liquid investment instruments purchased with an original maturity of
three months or less are considered to be cash equivalents. Cash and cash equivalents are recorded at face value or cost, which
approximates fair market value. The Company maintains cash balances in excess of amounts insured by the Federal Deposit
Insurance Commission. Investments are stated at fair value as determined by quoted market prices. Investments are considered
available for sale and, accordingly, unrealized gains and losses are included in accumulated other comprehensive (loss) income
within stockholders’ equity.
The Company’s entire investment portfolio, except for restricted cash, is considered to be available for use in current
operations and, accordingly, all such investments are stated at fair value using quoted market prices and classified as current
assets, although the stated maturity of individual investments may be one year or more beyond the balance sheet date. The
Company did not have any trading securities or restricted investments at December 31, 2020 or December 31, 2019.
Realized gains and losses and declines in value, if any, judged to be other-than-temporary on available for sale
securities, are reported in other income (expense), net. When securities are sold, any associated unrealized gain or loss previously
reported as a separate component of stockholders’ equity is reclassified out of stockholders’ equity and recorded in the statements
of operations in the period sold using the specific identification method. Accrued interest and dividends from investments are
included in other income (expense), net. The Company periodically reviews its available for sale securities for other than
temporary declines in fair value below the cost basis, and whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the
consolidated balance sheets that equate to the amount reported in the consolidated statement of cash flows as of December 31,
2020, December 31, 2019 and December 31, 2018 (in thousands):
Cash and cash equivalents
Restricted cash
Cash, cash equivalents and restricted cash in the consolidated statement of cash flows
$
$
2020
96,596
9,566
106,162
$
$
2019
62,430
9,326
71,756
$
$
Year ended
December 31,
2018
29,821
8,775
38,596
65
Table of Contents
Concentration of Credit Risk and Significant Customers
Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist
primarily of cash, cash equivalents, short-term investments and accounts receivable. The Company maintains deposits in
federally insured financial institutions in excess of federally insured limits and management believes that the Company is not
exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Additionally, the Company has established guidelines regarding investment instruments and their maturities which are designed
to maintain preservation of principal and liquidity. The Company believes that the concentration of credit risk in its accounts
receivable is mitigated by its credit evaluation process, relatively short collection terms and the level of credit worthiness of its
customers. During the years ended 2020, 2019 and 2018, none of the Company’s customers accounted for more than 10% of
revenues.
Accounts Receivable
The Company sells its products directly to ambulatory surgery centers, hospitals, and physician private practices, with
distributors being used in certain international locations where the Company does not have a direct commercial presence and the
Company is exposed to credit losses primarily through sales of its products.
The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection
experience, current and future economic and market conditions and periodic evaluation of customers’ receivables balances.
Management estimates the adequacy of the allowance by using relevant available information, from internal and external sources,
relating to past events, current conditions and forecasts. Historical credit loss experience provides the basis for estimation of
expected credit losses and are adjusted as necessary using the relevant information available. The allowance for credit losses is
measured on a collective basis when similar risk characteristic exists. The Company has identified one portfolio segment based
on evaluation of the following risk characteristics: geographic regions, product lines, default rates and customer specific factors.
Additionally, specific allowance amounts may be established to record the appropriate provision for customers that have
a higher probability of non-payment. The Company charges off uncollectible receivables against the allowance when all attempts
to collect the receivable have failed. The Company’s allowance for credit losses represents management’s estimate of current
expected credit losses and totaled approximately $1.7 million and $1.2 million as of December 31, 2020 and December 31, 2019,
respectively, and there were immaterial bad-debt write offs charged during the years ended December 31, 2020 and December
31, 2019.
As of December 31, 2020 the Company evaluated the current and expected future economic and market conditions
surrounding the COVID-19 pandemic as it relates to collectability of its accounts receivable and determined the estimate of
expected credit losses was not materially impacted. The Company will continue to re-evaluate the estimate of credit losses related
to COVID-19 in conjunction with its assessment of expected credit losses in subsequent quarters.
Additionally, no customers accounted for more than 10% of net accounts receivable as of any such date.
Inventory
Except for inventory acquired in connection with the Avedro Merger, further described in Note 6, Business
Combinations, inventory is valued at the lower of cost and net realizable value with cost being determined by the first-in, first-out
method.
Management evaluates inventory for excess quantities and obsolescence and records an allowance to reduce the carrying
value of inventory as determined necessary. During the year ended December 31, 2020, the Company recorded inventory write-
off charges and COVID-19 related excess and obsolete reserves.
66
Table of Contents
Property and Equipment, Net
Property and equipment is recorded at cost. Depreciation of property and equipment is generally provided using the
straight-line method over the estimated useful lives of the assets, which range from three to five years. Leasehold improvements
are amortized over their estimated useful life or the related lease term, whichever is shorter. Maintenance and repairs are
expensed as incurred.
All long lived assets are reviewed for impairment in value when changes in circumstances dictate, based upon
undiscounted future operating cash flows, and appropriate losses are recognized and reflected in current earnings to the extent the
carrying amount of an asset exceeds its estimated fair value, determined by the use of appraisals, discounted cash flow analyses
or comparable fair values of similar assets. The Company did not record any impairment charges for the year ended December
31, 2020, however recorded impairment charges of $0.4 million during the year ended December 31, 2019. The Company did not
record any impairment charges during the year ended December 31, 2018.
Intangible Assets
Intangible assets primarily consist of developed technology, customer relationships, and IPR&D assets related to the
Avedro Merger, as well as the buyout of a royalty payment obligation.
Intangible assets with finite-lives include developed technology, customer relationships and the buyout of a royalty
payment obligation, which are amortized on a straight-line basis over their estimated useful lives, which range
from five to eleven years. The Company reviews finite-lived intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets or asset group may not be recoverable. When such an event occurs,
management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to
the related asset group’s carrying value. If the affected intangible assets are not recoverable, management estimates the fair value
of the assets and would record an impairment loss if the carrying value of the assets exceeds the fair value.
Indefinite-lived intangible assets are comprised of IPR&D assets and are not amortized, but instead tested for
impairment until the successful completion and commercialization, or abandonment, of the associated research and development
efforts, at which point the IPR&D assets are either amortized over their estimated useful lives, or written-off immediately, as the
case may be.
Refer to Note 7, Intangible Assets and Goodwill for more information on the Company’s intangible assets.
Goodwill
Goodwill totaled $66.1 million at December 31, 2020 and December 31, 2019. Goodwill is recorded as a result of
business combinations. When the Company determines the carrying value of a reporting unit exceeds its fair value an impairment
charge would be recognized and should not exceed the total amount of goodwill allocated to that reporting unit. The Company
tests for impairment annually, on October 1 and in addition to that test, regularly assesses if an event has occurred which would
require interim impairment testing. The Company considered the current and expected future economic and market conditions
surrounding COVID-19 pandemic and during the year did not identify an indication of goodwill impairment due that event. The
Company’s annual impairment test did not result in any impairment, and the Company has not identified any indicators of
impairment through December 31, 2020.
Refer to Note 6, Business Combinations and Note 7, Intangible Assets and Goodwill for more information on the
Company’s goodwill.
Fair Value of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable, accounts payable, and accrued liabilities are considered
to be representative of their respective fair values because of the short-term nature of those instruments.
67
Table of Contents
The valuation of assets and liabilities is subject to fair value measurements using a three-tiered approach and fair value
measurements are classified and disclosed by the Company in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities;
Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or
inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and
unobservable (i.e., supported by little or no market activity).
Leases
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (Topic 842),
which amends the existing accounting standards for leases. In September 2017, the FASB issued ASU No. 2017-13, which
provides additional clarification and implementation guidance on the previously issued ASU No. 2016-02 (collectively,
Accounting Standards Codification (ASC) 842). Under the new guidance, a lessee is required to recognize a lease liability and a
right-of-use asset for all leases with terms in excess of 12 months.
The Company determines if an arrangement is a lease at inception. As a lessee, right-of-use assets represent the
Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments
arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the
present value of lease payments over the lease term. The Company estimates the incremental borrowing rate based on its debt,
prevailing financial market conditions, peer company credit analyses, and management judgment. Operating lease right-of-use
assets also include any lease payments made at or before lease commencement and exclude any lease incentives received. The
lease terms used to calculate the right-of-use asset and related lease liability include options to extend or terminate the lease when
it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-
line basis over the lease term as an operating expense while the expense for finance leases is recognized as amortization expense
on right-of-use lease assets and interest expense using the accelerated interest method of recognition.
Revenue Recognition
The Company derives its revenue from sales of its 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 the Company does not have a direct commercial presence.
The Company concluded that one performance obligation exists for the majority of its contracts with customers which is
to deliver products in accordance with the Company’s normal delivery times. Revenue is recognized when this performance
obligation is satisfied, which is the point in time when the Company considers control of a product to have transferred to the
customer. Revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for those
products or services. The Company has determined the transaction price to be the invoice price, net of adjustments, which
includes estimates of variable consideration for product returns.
The Company offers volume-based rebate agreements to certain customers and, in these instances, the Company
provides a rebate (in the form of a credit memo) at the contract’s conclusion, if earned by the customer. In such cases, the
transaction price is allocated between the Company’s 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 the Company’s 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. The
Company periodically monitors its customer rebate
68
Table of Contents
programs to ensure the rebate allowance is fairly stated. The Company’s rebate allowance is included in accrued liabilities in the
consolidated balance sheets and estimated rebates accrued were not material during the periods presented.
Additionally, the Company has a performance obligation related to certain customers’ right to a future discount on
single dose pharmaceutical purchases in the U.S., and that performance obligation is expected to be recognized when the
customer elects to utilize the discount, which is generally within one year. Additionally, the Company has a performance
obligation related to its extended warranty agreements with customers related to its KXL systems.
Customers are not granted specific rights of return; however, the Company may permit returns of certain products from
customers if such product is returned in a timely manner and in good condition. The Company generally provides a warranty on
its products for one year from the date of shipment, and offers an extended warranty for its 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 the Company’s estimates, the Company will adjust these estimates which
would affect net product revenue and earnings in the period such variances become known.
Convertible Senior Notes
The Company evaluates embedded conversion features within convertible debt under ASC 815, Derivatives and Hedging
to determine whether the embedded conversion features should be bifurcated from the host instrument and accounted for as a
derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative
treatment under ASC 815, the instrument is evaluated under ASC 470-20, Debt with Conversion and Other Options.
The carrying amount of the liability component is calculated by measuring the fair value of a similar debt instrument that
does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option
is determined by deducting the fair value of the liability component from the par value of the convertible notes. The equity
component is not re-measured as long as it continues to meet the conditions for equity classification. The excess of the principal
amount of the liability component over its carrying amount (i.e., debt discount) will be amortized to interest expense over the
term of the convertible notes.
Shipping and Handling Costs
All shipping and handling costs are expensed as incurred and are charged to general and administrative expense.
Charges to customers for shipping and handling are credited to general and administrative expense.
Advertising Costs
All advertising costs are expensed as incurred. Advertising costs incurred during the years ended December 31, 2020,
December 31, 2019 and December 31, 2018 were approximately $1.6 million, $2.5 million and $1.8 million, respectively.
Income Taxes
Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and the tax
basis of the Company’s assets and liabilities at the applicable tax rates, along with NOL and tax credit carryovers. The Company
records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more
likely than not to be realized. Management has considered estimated taxable income
69
Table of Contents
and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. Based upon the
weight of available evidence, which includes the Company’s historical operating performance and limited potential to utilize tax
credit carryforwards, the Company has determined that a portion of its deferred tax assets should be offset by a valuation
allowance. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for
income taxes increases or decreases, respectively, in the period such determination is made.
The Company is required to file federal and state income tax returns in the United States and various other state
jurisdictions. The Company also files income tax returns in the foreign countries in which its subsidiaries operate. The
preparation of these income tax returns requires the Company to interpret the applicable tax laws and regulations in effect in such
jurisdictions, which could affect the amount of tax paid.
Additionally, the Company follows an accounting standard addressing the accounting for uncertainty in income taxes
that prescribes rules for recognition, measurement, and classification in the consolidated financial statements of tax positions
taken or expected to be taken in a tax return.
Research and Development Expenses
Major components of research and development expense include personnel costs, preclinical studies, clinical trials and
related clinical product manufacturing, materials and supplies, and fees paid to consultants. Research and development costs are
expensed as goods are received or services are rendered. Costs to acquire technologies to be used in research and development
that have not reached technological feasibility and have no alternative future use are also expensed as incurred.
At each financial reporting date, the Company accrues the estimated unpaid costs of clinical study activities performed
during a period by third party clinical sites with whom the Company has agreements that provide for fees based upon the
quantities of subjects enrolled and clinical evaluation visits that occur over the life of the study. The cost estimates are
determined based upon a review of the agreements and data collected by internal and external clinical personnel as to the status of
enrollment and subject visits, and are based upon the facts and circumstances known to the Company at each financial reporting
date. If the actual performance of activities varies from the assumptions used in the cost estimates, the accruals are adjusted
accordingly. There have been no material adjustments to the Company’s prior period accrued estimates for clinical trial activities
through December 31, 2020.
Stock-Based Compensation
The Company recognizes compensation expense for all stock-based awards granted to employees and nonemployees,
including members of its board of directors.
The fair value of stock option awards is estimated at the grant date using the Black-Scholes option pricing model, and
the portion that is ultimately expected to vest is recognized as compensation cost over the requisite service period using the
straight-line method. The determination of the fair value-based measurement of stock options on the date of grant using an option
pricing model is affected by the determination of the fair value of the underlying stock as well as assumptions regarding a number
of highly complex and subjective variables. These variables include, but are not limited to, the Company’s stock price volatility
over the expected term of the grants, and actual and projected stock option exercise behaviors. In the future, as additional
empirical evidence regarding these estimates becomes available, the Company may change or refine its approach of deriving
them, and these changes could impact the fair value-based measurement of stock options granted in the future. Changes in the fair
value-based measurement of stock awards could materially impact the Company’s operating results.
The fair value of restricted stock unit (RSU) awards made to employees and nonemployees is equal to the closing
market price of the Company’s common stock on the grant date.
70
Table of Contents
Software Costs
The Company capitalizes certain costs when it is determined that it is probable that the project will be completed, the software
will be used to perform the function intended, and the preliminary project stage is completed. These capitalized costs are included
in property and equipment, net within the consolidated balance sheets.
Comprehensive (Loss) Income
All components of comprehensive (loss) income, including net (loss) income, are reported in the consolidated financial
statements in the period in which they are recognized. Comprehensive (loss) income is defined as the change in equity during a
period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on
marketable securities and foreign currency translation adjustments.
Net (Loss) Income per Share
Basic net (loss) income per share is calculated by dividing the net (loss) income by the weighted average number of
common shares that were outstanding for the period, without consideration for common stock equivalents.
For periods when the Company realizes a net loss, no common stock equivalents are included in the calculation of
weighted average number of dilutive common stock equivalents as the effect of applying the treasury stock method is considered
anti-dilutive.
For periods when the Company realizes net income, diluted net income per share is calculated by dividing the net
income by the weighted average number of common shares plus the sum of the weighted average number of dilutive common
stock equivalents outstanding for the period determined using the treasury stock method. Common stock equivalents are
comprised of stock options, outstanding and unvested RSUs under the Company’s incentive compensation plans and shares
issuable under the Company’s Employee Stock Purchase Plan (ESPP).
The Company’s computation of net (loss) income per share is as follows (in thousands, except per share amounts):
Numerator:
Net income (loss) - basic
Denominator:
Weighted average number of common shares outstanding - basic
Common stock equivalents from outstanding common stock options
Common stock equivalents for ESPP
Common stock equivalents from unvested restricted stock units
Weighted average number of common shares outstanding - diluted
Basic net income (loss) per share
Diluted net income (loss) per share
71
As of
December 31,
2019
2018
2020
$ (120,348) $
15,424
$
(12,951)
44,497
-
-
-
44,497
37,355
3,495
25
270
41,145
35,317
-
-
-
35,317
$
$
(2.70) $
0.41
(2.70) $
0.37
$
$
(0.37)
(0.37)
Table of Contents
Potentially dilutive securities not included in the calculation of diluted net (loss) income per share because to do so
would be anti-dilutive were as follows (in common stock equivalent shares, in thousands):
Stock options outstanding
Unvested restricted stock units
Employee stock purchase plan
Recently Adopted Accounting Pronouncements
2020
2019
As of
December 31,
2018
4,399
526
15
4,940
3,616
365
26
4,007
5,614
244
3
5,861
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments (ASU 2016-13), which amends the impairment model by requiring entities to use a
forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of
financial instruments, including trade receivables that may result in the earlier recognition of allowances for losses. In November
2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which
provided additional implementation guidance on the previously issued guidance. The Company adopted ASU 2016-13 as of
January 1, 2020 using the modified retrospective approach, which replaces the incurred loss impairment model with an expected
credit loss impairment model for financial instruments, including trade receivables. Upon adoption, there were no adjustments
made to opening retained earnings as of January 1, 2020. As a result of implementing ASU 2016-13, the Company did not
recognize any material changes to its allowance for credit losses during the year ended December 31, 2020.
Additionally, for available-for-sale debt securities with unrealized losses, ASU 2016-13 now requires allowances to be
recorded instead of reducing the amortized cost of the investment. ASU 2016-13 limits the amount of credit losses to be
recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the
reversal of previously recognized credit losses if fair value increases. Given the composition of the Company’s available-for-sale
securities, adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements as of December 31,
2020.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment (ASU 2017-04), which removes the second step of the impairment test. An entity will apply a one-
step quantitative test and record the amount of goodwill impairment as the excess of the reporting unit’s carrying amount over its
fair value, not to exceed the total amount of goodwill allocated to the reporting unit. This updated guidance does not amend the
optional qualitative assessment of goodwill impairment. The Company adopted ASU 2017-04 as of January 1, 2020 and the
adoption did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) (ASU 2018-13), which
modifies the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for
transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The guidance
expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and
losses included in other comprehensive income. The Company adopted ASU 2018-13 as of January 1, 2020. Upon adoption and
for the year ended December 31, 2020, given the Company does not currently have, and has not historically had transfers
between Level 1 and Level 2 instruments, and the Company does not have any Level 3 fair value measurements, the adoption did
not have a material impact on the Company’s consolidated financial statement disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-
40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
(ASU 2018-15), which clarifies the accounting for implementation costs in cloud computing
72
Table of Contents
arrangements, and requires a customer in a cloud computing arrangement to determine which implementation costs to capitalize
as fixed assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract
are amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is
ready for its intended use. The Company adopted ASU 2018-15 on a prospective basis as of January 1, 2020 and as a result,
capitalized certain costs related to its global enterprise systems implementation of approximately $2.3 million, of which $0.4
million was amortized during the year ended December 31, 2020 with a remaining unamortized amount of $1.9 million in prepaid
expenses and other current assets on the consolidated balance sheets as of December 31, 2020.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the
Interaction Between Topic 808 and Topic 606 (ASU 2018-18). ASU 2018-18 clarifies that certain transactions between
participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer and
precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts
with customers if the counterparty is not a customer for that transaction. The Company adopted ASU 2018-18 as of January 1,
2020 and the adoption did not have a material impact on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC
740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and
the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective in 2021 and interim periods
within that year and permits for early adoption. The Company elected to early adopt ASU 2019-12 effective December 31, 2019
and the adoption did not have a material impact to the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-
20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies accounting for convertible instruments. The
embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features
that are not required to be accounted for as derivatives under ASU 2020-06, or that do not result in substantial premiums
accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured
at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also
requires the if-converted method to be applied for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning
after December 15, 2021, with early adoption permitted. Adoption of the standard requires using either a modified retrospective
or a full retrospective approach. Effective January 1, 2021, the Company early adopted ASU 2020-06. The Company is finalizing
its analysis of certain assumptions that will be utilized at the transition and expects the effect of adopting ASU 2020-06 will result
in a decrease to accumulated deficit, a decrease to additional paid-in capital, and an increase to convertible senior notes. The
Company expects that interest expense recognized in future periods will be reduced as a result of accounting for the convertible
debt instrument as a single liability measured at its amortized cost.
73
Table of Contents
Note 3. Balance Sheet Details
Short-term Investments
Short-term investments consisted of the following (in thousands):
U.S. government agency bonds
Bank certificates of deposit
Commercial paper
Corporate notes
Asset-backed securities
Municipal bonds
Total
Bank certificates of deposit
Commercial paper
Corporate notes
Asset-backed securities
Total
Accounts Receivable, Net
Maturity
(in years)
less than 3
less than 1
less than 1
less than 3
less than 2
less than 3
Amortized cost
Unrealized
or cost
206,704
20,700
1,500
54,866
13,290
9,954
307,014
$
$
gains
223
8
—
308
205
21
765
Unrealized
At December 31, 2020
Estimated
fair value
206,924
20,708
1,500
55,173
13,495
9,972
307,772
losses
(3) $
—
—
(1)
—
(3)
(7)
Maturity
(in years)
less than 1
less than 1
less than 3
less than 3
Amortized cost
Unrealized
or cost
12,999
$
7,475
65,354
25,333
111,161
$
$
$
gains
7
8
295
99
409
$
$
Unrealized
At December 31, 2019
Estimated
fair value
13,006
7,483
65,639
25,425
111,553
losses
— $
—
(10)
(7)
(17) $
Accounts receivable consisted of the following (in thousands):
Accounts receivable
Allowance for credit losses
Inventory, Net
Inventory consisted of the following (in thousands):
Finished goods
Work in process
Raw material
December 31,
2019
2020
$
$
37,729
(1,670)
36,059
$
$
39,657
(1,240)
38,417
December 31,
2019
2020
$
$
5,346
3,584
6,879
15,809
$
$
32,108
3,884
6,586
42,578
Included in the finished goods amount is the applicable remaining portion of the original fair market value inventory adjustment
that was recorded as part of the Avedro Merger, which totaled $25.0 million as of December 31, 2019 and was fully amortized as
of December 31, 2020. The fair market value of inventory was amortized to cost of sales over the inventory’s expected turnover
period. See also Note 6, Business Combinations.
74
Table of Contents
Property and Equipment, Net
Property and equipment consisted of the following (in thousands):
Buildings
Equipment
Furniture and fixtures
Leasehold improvements
Computer equipment and software
Land
Construction in progress
Less accumulated depreciation and amortization
December 31,
2019
2020
$
$
874
15,737
1,820
5,851
2,754
7,068
5,825
39,929
(15,921)
24,008
$
$
874
13,782
1,643
6,384
2,808
7,068
1,627
34,186
(12,130)
22,056
Depreciation and amortization expense related to property and equipment was $6.1 million, $3.7 million and $3.1 million for the
years ended December 31, 2020, December 31, 2019 and December 31, 2018, respectively.
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
Accrued bonuses
Accrued commissions
Accrued vacation benefits
Accrued payroll taxes
Accrued contract payments (See Note 13)
Other accrued liabilities
Note 4. Fair Value Measurements
December 31,
2019
2020
$
$
10,815
3,256
3,728
3,198
2,793
21,541
45,331
$
$
13,525
1,448
2,784
842
1,448
31,872
51,919
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants. As such, fair value is a market based measurement that should be determined
based on assumptions that market participants would use in pricing an asset or liability.
The carrying amounts of cash equivalents, accounts receivable, accounts payable, and accrued liabilities are considered
to be representative of their respective fair values because of the short-term nature of those instruments.
The valuation of assets and liabilities is subject to fair value measurements using a three-tiered approach and fair value
measurements are classified and disclosed by the Company in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities;
Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or
inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
75
Table of Contents
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and
unobservable (i.e., supported by little or no market activity).
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a
recurring basis as of December 31, 2020 and December 31, 2019, and indicate the fair value hierarchy of the valuation techniques
utilized by the Company to determine such fair value (in thousands).
Quoted prices in
active markets for
identical assets
(Level 1)
December 31,
2020
At December 31, 2020
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$
$
$
5,169
5,169
Assets
Cash equivalents:
Money market funds (i)
Available for sale securities:
U.S. government agency bonds (ii)
Bank certificates of deposit (ii)(iii)
Commercial paper (ii)
Corporate notes (ii)
Asset-backed securities (ii)
Municipal bonds (ii)
Investments held for deferred compensation plans
Total Assets
Liabilities
Deferred compensation plans
$
$
Total Liabilities
(i) Included in cash and cash equivalents with a maturity of three months or less from date of purchase on the consolidated balance sheets.
206,924
25,708
1,500
55,173
13,495
9,972
5,331
323,273
206,924
25,708
1,500
55,173
13,495
9,972
5,331
318,104
—
—
—
—
—
—
—
5,169
—
— $
5,232
5,232
5,232
5,232
— $
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
(ii) Included in short-term investments on the consolidated balance sheets.
(iii) Two bank certificates of deposit investment totaling $5,000 (in thousands) is included in cash and cash equivalents on the consolidated balance
sheets, as the investment has a maturity of three months or less from the date of purchase on the consolidated balance sheets.
Quoted prices in
active markets for
identical assets
(Level 1)
December 31,
2019
At December 31, 2019
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
$
$
2,530
2,530
Assets
Cash equivalents:
Money market funds (i)
Available for sale securities:
Bank certificates of deposit (ii)(iii)
Commercial paper (ii)
Corporate notes (ii)
Asset-backed securities (ii)
Investments held for deferred compensation plans
Total Assets
Liabilities
Cash-settled stock options
Deferred compensation plans
Total Liabilities
$
(i) Included in cash and cash equivalents with a maturity of three months or less from date of purchase on the consolidated balance sheets.
14,208
7,484
65,638
25,424
3,511
116,265
14,208
7,484
65,638
25,424
3,511
118,795
—
—
—
—
—
2,530
—
—
— $
6,685
3,669
10,354
6,685
3,669
10,354
— $
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
76
Table of Contents
(ii) Included in short-term investments on the consolidated balance sheets.
(iii) One corporate note investment totaling $1,201 (in thousands) is included in cash and cash equivalents on the consolidated balance sheets, as the
investment has a maturity of three months or less from the date of purchase on the consolidated balance sheets.
Money market funds and currency are highly liquid investments and are actively traded. The pricing information on
these investment instruments is readily available and can be independently validated as of the measurement date. This approach
results in the classification of these securities as Level 1 of the fair value hierarchy.
U.S. government agency bonds, U.S. government bonds, bank certificates of deposit, commercial paper, municipal
bonds, corporate notes and asset-backed securities are measured at fair value using Level 2 inputs. The Company reviews trading
activity and pricing for these investments as of each measurement date. Pursuant to the Company’s deferred compensation plan
(the Deferred Compensation Plan), the Company has also established a rabbi trust that serves as an investment to shadow the
Deferred Compensation Plan liability. The investments of the rabbi trust and Deferred Compensation Plan liability consist of
company-owned life insurance policies (COLIs) and the pricing on these investments can be independently evaluated. When
sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market
inputs for similar securities obtained from third party data providers. These inputs represent quoted prices for similar assets in
active markets or these inputs have been derived from observable market data. This approach results in the classification of these
securities as Level 2 of the fair value hierarchy.
The fair value of cash-settled stock options is based on the Black-Scholes option valuation model utilizing the
Company’s stock price, the cash-settled options’ remaining term, expected stock price volatility, and the risk-free interest rate as
of the measurement date. The changes in the fair value are reflected in compensation expense within selling, general and
administrative expense on the consolidated income statement. See Note 10, Stock-Based Compensation for further details
regarding these cash-settled stock options, as these were modified to be equity-settled during the year ended December 31, 2020.
There were no transfers between levels within the fair value hierarchy during the periods presented.
The Company did not have any assets or liabilities measured at fair value on a recurring basis within Level 3 fair value
measurements as of December 31, 2020 and December 31, 2019.
As of December 31, 2020, the fair value of the Convertible Notes was $442.2 million. The fair value was determined on
the basis of the market prices observable for similar instruments and is considered Level 2 in the fair value hierarchy. See Note
9, Convertible Senior Notes for additional information.
Note 5. Leases
The Company has operating and finance leases for facilities and certain equipment. Leases with an initial term of 12
months or less are not recorded on the consolidated balance sheet. Lease expense for operating leases is recognized on a straight-
line basis over the lease term. For lease agreements entered into or reassessed after the adoption of ASC 842, the Company
combines lease and non-lease components. See Note 2, Summary of Significant Accounting Policies for additional information.
The Company's leases have remaining non-cancelable lease terms of approximately one year to thirteen years, some of
which include options to extend the leases for up to ten years, and some of which include options to terminate the lease within
one year. The exercise of lease renewal options is at the Company's sole discretion. In certain of the Company’s lease
agreements, the rental payments are adjusted periodically to reflect actual charges incurred for common area maintenance,
landlord incentives and/or inflation.
On November 14, 2018, the Company entered into an office building lease pursuant to which the Company will lease
one property containing three existing office buildings, comprising approximately 160,000 rentable square feet of space, located
in Aliso Viejo, California (Aliso Facility) which was accounted for as a finance lease. The term of the Aliso Facility commenced
on April 1, 2019 and continues for thirteen years. The agreement contains an option to extend
77
Table of Contents
the lease for two additional five year periods at market rates. The Company intends to relocate its corporate administrative
headquarters, along with certain laboratory, research and development and warehouse space, to the Aliso Facility. The lease
landlord agreed to provide the Company with a tenant improvement allowance in the amount of the cost of any leasehold
improvements, not to exceed approximately $12.7 million upon the Company providing the necessary documentation evidencing
the costs of the allowable leasehold improvements.
The Company leases two adjacent facilities located in San Clemente, California. The total leased square footage of these
facilities equals approximately 98,000. On July 2, 2020, the Company extended the term of these facilities by five years both of
which now expire on May 31, 2030. Each agreement contains an option to extend the lease for one additional five year period at
market rates. In conjunction with these extensions, the lease landlord agreed to provide the Company with a tenant improvement
allowance in the amount of the cost of any leasehold improvements, not to exceed approximately $0.5 million upon the Company
providing the necessary documentation evidencing the costs of the allowable leasehold improvements.
The Company currently intends to maintain its manufacturing facilities at its San Clemente location for the foreseeable
future.
The Company leases approximately 27,000 square feet of office and laboratory space in Waltham, Massachusetts,
pursuant to a lease agreement that expires in 2023. The Company also currently occupies approximately 19,000 square feet of
leased manufacturing space in Burlington, Massachusetts pursuant to a lease agreement that expires in 2031.
The Company’s remaining U.S.-based and foreign subsidiaries’ leased office space totals less than 14,000 square feet.
The following table presents the lease balances within the consolidated balance sheets:
Leases
(in thousands)
Assets
Operating
Finance
Total lease assets
Liabilities
Current
Operating
Noncurrent
Operating
Finance
Total lease liabilities
Classification
December 31,
2020
December 31,
2019
Operating lease right-of-use asset
Finance lease right-of-use asset
Accrued liabilities
Operating lease liability
Finance lease liability
$
$
$
$
20,009
51,443
71,452
$
$
15,704
54,048
69,752
1,185
$
2,401
20,704
60,690
82,579
$
14,195
58,435
75,031
Note: As the implicit rates in the Company’s leases are not readily available, the incremental borrowing rate was determined based on the information
available at commencement date in determining the present value of lease payments.
78
Table of Contents
For the year ended December 31, 2020 and December 31, 2019, the components of operating and finance lease expenses
were as follows:
Lease Cost
(in thousands)
Fixed operating lease cost
Finance lease cost
Finance lease cost
Classification
Cost of sales
Research and development
Selling, general and administrative
expenses
Amortization of right-of-use asset
included in Selling, general and
administrative expenses
Interest expense on lease liability
$
$
$
Year Ended
December 31,
2020
757
950
$
Year Ended
December 31,
2019
277
532
2,132 (a)
1,664 (a)
2,424
3,596
$
$
1,822
2,565
(a)
Includes short-term leases, which are immaterial.
The following table presents the maturity of the Company’s operating and finance lease liabilities as of December 31,
2020:
Maturity of Lease Liabilities
(in thousands)
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: imputed interest
Total lease liabilities
Operating
Leases (a)
2,788
2,869
2,529
2,404
2,444
22,995
36,029
14,140
21,889
$
$
$
$
$
$
Finance
Leases (b)
—
—
1,996
5,184
5,340
113,022
125,542
64,852
60,690
(a) Operating lease payments include $11.9 million related to options to extend lease terms that are reasonably certain of being exercised.
(b)
Finance lease payments include $75.8 million related to options to extend lease terms that are reasonably certain of being exercised.
The weighted-average remaining lease term and weighted-average discount rate related to the Company’s operating and
finance leases as of December 31, 2020 and December 31, 2019 were:
Lease Term and Discount Rate
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
79
December 31,
2020
December 31,
2019
12.2
21.3
7.7 %
6.0 %
6.5
22.3
5.5 %
6.0 %
Table of Contents
Supplemental cash flow information related to the Company’s operating and finance leases was as follows:
Other Information
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use asset obtained in exchange for lease obligations:
Operating lease
Finance lease
Interest paid for finance lease
Note 6. Business Combinations
Year Ended
December 31,
2020
Year Ended
December 31,
2019
$
$
$
$
2,859
6,916
181
1,160
2,134
17,474
55,870
—
As a result of the Avedro Merger previously 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 expanded the Company’s portfolio of
pipeline products beyond the treatment of glaucoma to include pharmaceutical therapies for the treatment of corneal disorders.
This expansion dovetails with 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 The Merger Consideration transferred at closing was $437.8 million and consisted of Glaukos common
stock valued at $406.8 million issued to replace Avedro common stock, Glaukos common stock valued at $0.2 million to replace
certain vested Avedro warrants, and $30.8 million of value attributable to the pre-combination services associated with
Replacement Awards. See Note 10, 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
Exchange Ratio
Right to receive shares of Glaukos
Glaukos closing stock price on November 21, 2019
17,670,003
0.365
6,449,551
63.07
$
Fair value of Glaukos common stock issued in the Merger, plus an immaterial amount
of cash paid for fractional shares
$
Fair value of Glaukos common stock issued to replace certain vested Avedro warrants $
$
Fair value of Replacement Awards attributable to pre-combination services
$
Total Merger Consideration
406,776
189
30,786
437,751
80
Table of Contents
The Company performed a valuation analysis of the fair market value of Avedro’s assets and liabilities as of closing of
the Avedro Merger. The following table sets forth the final allocation of the Merger Consideration to the identifiable tangible and
intangible assets acquired and liabilities assumed, with the excess recorded to goodwill (in thousands):
Assets Acquired:
Cash
Accounts receivable
Inventory
Prepaid expenses and other current assets
Restricted cash
Property and equipment
Intangible assets
Goodwill
Liabilities Assumed:
Accounts payable
Accrued liabilities
Deferred revenue
Debt
Deferred revenue, non-current
Deferred tax liability
Fair value of net assets acquired
$
$
49,101
13,113
33,339
2,522
551
1,489
385,200
66,134
7,056
6,776
1,389
22,496
43
75,938
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.
The fair value and estimated useful lives of the Avedro intangible assets are as follows (in thousands, except where
noted):
Intangible assets subject to amortization:
Developed technology
Customer relationships
Total
Intangible assets not subject to amortization:
In-process research and development (IPR&D)
Total intangible assets
Supplemental Pro Forma Information (unaudited):
Fair
Value
Estimated
Useful Life
(in years)
$
$
$
$
252,200
14,100
266,300
118,900
385,200
11.4
5
Indefinite
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):
Pro forma revenue
Pro forma net loss
2019
$
$
273,823
(103,275)
$
$
2018
211,447 (a)
(27,200)
(a)
Includes a positive pro forma adjustment of $2,497 to modify Avedro’s revenues to reflect the adoption of ASC 606 which Avedro had not done yet in 2018.
81
Table of Contents
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.
Note 7. Intangible Assets and Goodwill
Avedro intangible assets
As part of the Avedro Merger on November 21, 2019, the Company acquired identifiable intangible assets for (1)
developed technology related to Photrexa, a bio-activated pharmaceutical therapy for the corneal cross-linking treatment of
keratoconus, which is being amortized to cost of sales over a weighted-average estimated useful life of approximately 11 years,
and (2) customer relationships, which will be amortized to selling, general and administrative expense over an estimated useful
life of five years. The Company also acquired IPR&D related to other applications of Avedro’s corneal remodeling platform,
which will not be amortized until technological feasibility is met, but will be assessed for impairment annually, or more
frequently if indicators of impairment become present.
The fair value of developed technology and IPR&D assets were determined using an excess earnings methodology.
Significant assumptions used in the valuation include: (i) the period in which material net cash inflows are expected to
commence, which was estimated to be 2021 for developed technology and 2023 for IPR&D assets, and (ii) the risk-adjusted
discount rate of 11.5% for developed technology and 13% for IPR&D assets.
For the year ended December 31, 2020, amortization expense related to the above finite-lived intangible assets was
approximately $22.1 million recorded in cost of sales and $2.8 million recorded in selling, general and administrative expenses
and for the year ended December 31, 2019 amortization expense related to the above finite-lived intangible assets was
approximately $2.3 million recorded in cost of sales and $0.3 million, recorded selling, general and administrative expenses in
the consolidated statements of operations. There was not amortization expense related to these intangible assets for the year
ended December 31, 2018.
The Company evaluated its indefinite-lived intangible assets for impairment, including any considerations specific to
the COVID-19 pandemic, utilizing the methodology pursuant to the adoption of ASU 2017-04 and concluded these intangible
assets were not impaired as of December 31, 2020.
82
Table of Contents
Goodwill
As a result of the Avedro Merger, $66.1 million in goodwill was recorded as of December 31, 2020 and December 31,
2019. For additional details, refer to Note 6, Business Combinations. The annual assessment of goodwill by reporting unit is
performed annually or more frequently if events or circumstances indicate the carrying value may no longer be recoverable and
that an impairment loss may have occurred. The first annual assessment of goodwill by reporting unit was performed in the fourth
quarter of the year ending December 31, 2020. The Company concluded there was no goodwill impairment as of December 31,
2020, and during this annual assessment the Company considered the current and expected future economic and market
conditions surrounding the COVID-19 pandemic and its impact on the Company’s reporting unit.
The following table presents the composition of our intangible assets and goodwill (in thousands):
Developed technology
Customer relationships
Intangible assets subject to
amortization
In-process research and
development
Goodwill
Total
Estimated
Useful
Life
(in years)
11.4
5.0
As of December 31, 2020
As of December 31, 2019
Gross
Carrying
Amount Amortization
Accumulated
Net
Amount
Gross
Carrying
Amount Amortization
Accumulated
$ 252,200
14,100
$ (24,393) $ 227,807
10,986
(3,114)
$ 252,200
14,100
$
Net
Amount
(2,301) $ 249,899
13,806
(294)
266,300
(27,507)
238,793
266,300
(2,595)
263,705
Indefinite
$ 118,900
Indefinite
$ 66,134
—
—
118,900
118,900
66,134
66,134
—
—
118,900
66,134
$ 451,334
$ (27,507) $ 423,827
$ 451,334
$
(2,595) $ 448,739
As of December 31, 2020, expected amortization expense for unamortized finite-lived intangible assets for the next five
years and thereafter is as follows (in thousands):
2021
2022
2023
2024
2025
Thereafter
Total amortization
Amortization Expense
24,912
24,912
24,912
24,619
22,092
117,346
238,793
$
$
Actual amortization expense to be reported in future periods could differ from these estimates as a result of asset
impairments, acquisitions, or other facts and circumstances.
Note 8. Revenue from Contracts with Customers
The Company’s net sales are generated primarily from sales of iStent products to customers, and following the Avedro
Merger on November 21, 2019, sales of Photrexa and associated drug formulations as well as KXL and Mosaic systems.
Customers are primarily comprised of ambulatory surgery centers, hospitals and physician private practices, with distributors
being used in certain international locations where the Company currently does not have a direct commercial presence.
Revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to in exchange
for goods or services, and all of the Company’s net sales are considered revenue from contracts with customers.
83
Table of Contents
Disaggregation of Revenue
The Company’s revenues disaggregated by product category and geography, for the years ended December 31, 2020,
December 31, 2019 and December 31, 2018 was as follows (in thousands):
United States
International
2020
2019
2018
2020
2019
2018
2020
Year ended
December 31,
Total
2019
2018
Glaucoma
Corneal Health
Total
$ 133,719
39,367
$ 173,086
$ 187,650 $ 151,677
—
$ 151,677
4,806
$ 192,456
$ 45,644
6,229
$ 51,873
$ 43,317 $ 29,601
—
$ 29,601
1,211
$ 44,528
$ 179,363
45,596
$ 224,959
$ 230,967 $ 181,278
—
$ 181,278
6,017
$ 236,984
Contract Balances
Contract Assets
Amounts are recorded as accounts receivable when the Company’s right to consideration becomes unconditional.
Payment terms on invoiced amounts are typically 30 days for glaucoma and corneal health products, though extended payment
terms on corneal health products may be offered. However, the Company does not consider any significant financing components
in customer contracts given the expected time between transfer of the promised products and the payment of the associated
consideration is less than one year. As of December 31, 2020 and December 31, 2019, all amounts included in accounts
receivable, net on the consolidated balance sheets are related to contracts with customers.
Sales commissions earned on U.S. sales of KXL systems are capitalized as the commissions represent costs to obtain a
contract and the amortization period is deemed greater than one year. These costs are deferred in other assets on the Company’s
consolidated balance sheet, net of the short term portion included in prepaid assets and other current assets, and are amortized as
a sales and marketing expense on a straight-line basis over the expected period of benefit. Capitalized sales commissions and the
related amortization expense included in the consolidated financial statements were immaterial as of December 31, 2020 and
December 31, 2019.
Aside from the aforementioned contract assets, the Company does not have any contract assets given that the Company
does not have any unbilled receivables and sales commissions on other products are expensed within selling, general and
administrative expenses within the consolidated statement of operations when incurred as any incremental cost of obtaining
contracts with customers would have an amortization period of less than one year.
Contract Liabilities
Contract liabilities reflect consideration received from customers’ purchases allocated to the Company’s future
performance obligations.
The Company has a performance obligation to issue a rebate to customers who may be eligible for a rebate at the
conclusion of their contract term. This performance obligation is transferred over time and the Company’s 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 Company’s rebate allowance is included in accrued liabilities in the
consolidated balance sheets and estimated rebates accrued were not material during the periods presented.
Additionally, in the U.S. the Company has a performance obligation related to its customers’ right to a future discount
on single dose pharmaceutical purchases, and, to a lesser extent, extended warranty service contracts. The amount allocated to the
customers’ right to a future discount is expected to be recognized when the customer elects to
84
Table of Contents
utilize the discount, which is generally within one year. As of December 31, 2020 and December 31, 2019, this amount was
immaterial as was the amount allocated to extended warranty service contracts.
During the year ended December 31, 2020 and December 31, 2019, the Company did not recognize any revenue related
to material changes in transaction prices regarding its contracts with customers and did not recognize any material changes in
revenue related to amounts included in contract liabilities at the beginning of the period.
The Company’s net sales within a fiscal year may be impacted seasonally, as demand for U.S. ophthalmic procedures is
typically softer in the first quarter and stronger in the fourth quarter of a given year.
Note 9. Convertible Senior Notes
In June 2020, the Company issued $287.5 million in aggregate principal amount of Convertible Notes pursuant to an
indenture dated June 11, 2020, between the Company 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 are senior unsecured obligations of the Company and bear 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. The Convertible Notes will
mature on June 15, 2027, unless earlier converted, redeemed or repurchased in accordance with their terms. In connection with
issuing the Convertible Notes, the Company received $242.2 million in proceeds, after deducting fees and offering expenses and
paying the cost of the capped call transactions described below.
The Convertible Notes may be converted at the option of the holders at any time prior to the close of business on the
business day immediately preceding March 15, 2027, only under the following circumstances: (1) during any calendar quarter
commencing after the calendar quarter ended on September 30, 2020 (and only during such calendar quarter), if the last reported
sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period
of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is
greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period
immediately after any ten consecutive trading day period (the Measurement Period) in which the trading price (as defined in the
Indenture) per $1,000 principal amount of the Convertible Notes for each trading day of the Measurement Period was less
than 98% of the product of (i) the last reported sale price of the Company’s common stock and (ii) the conversion rate in effect
on each such trading day; (3) with respect to any Convertible Notes the Company calls for redemption, at any time prior to the
close of business on the business day immediately preceding the redemption date, even if the Convertible Notes are not otherwise
convertible at such time; or (4) upon the occurrence of specified corporate events. On or after March 15, 2027 until the close of
business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of
their Convertible Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing
circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common
stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, in the manner and subject
to the terms and conditions provided in the Indenture. The Company’s current intent is to settle the principal amount of the
Convertible Notes in cash upon conversion, with any remaining conversion value being delivered in shares of our common stock.
As of December 31, 2020, none of the conditions allowing holders of the Convertible Notes to convert had been met.
The conversion rate for the Convertible Notes is initially 17.8269 shares of the Company’s common stock
per $1,000 principal amount of the Convertible Notes (equivalent to an initial conversion price of approximately $56.10 per share
of the Company’s common stock). The conversion rate is subject to adjustment in some events in accordance with the terms of
the Indenture but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that
occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances,
increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event or
notice of redemption, as the case may be.
85
Table of Contents
The Company may not redeem the Convertible Notes prior to June 20, 2024. The Company may redeem for cash all or
any portion of the Convertible Notes, at its option, on or after June 20, 2024 but before the 45th scheduled trading day
immediately preceding the maturity date, if the last reported sale price of the Company’s common stock has been at
least 130% of the conversion price then in effect on (i) each of at least 20 trading days (whether or not consecutive) during
the 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the
Company provides notice of redemption and (ii) the trading day immediately preceding the date the Company sends such notice,
at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid
interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Notes.
If the Company undergoes a fundamental change (as defined in the Indenture), holders may require the Company to
repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the
principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental
change repurchase date.
In accounting for the issuance of the Convertible Notes, the Company separated the Convertible Notes into liability and
equity components. The initial carrying amount of the liability component was $189.8 million, which was calculated by using a
discount rate of 9.5%, which was estimated to be the Company’s borrowing rate on the issuance date for a similar debt instrument
without the conversion feature. The carrying amount of the equity component was $97.7 million, which represents the conversion
option, and was determined by deducting the fair value of the liability component from the par value of the Convertible Notes.
The equity component of the Convertible Notes is included in additional paid-in capital in the consolidated balance sheets and
will not be subsequently remeasured as long as it continues to meet the conditions for equity classification. The difference
between the principal amount of the Convertible Notes and the liability component (the debt discount) is amortized to interest
expense in the consolidated statements of operations using the effective interest method over the term of the Convertible Notes.
Total transaction costs for the issuance of the Convertible Notes were $9.6 million, consisting of the initial purchasers’
discount, commissions, and other issuance costs. The Company allocated the total transaction costs proportionally to the liability
and equity components. The transaction costs attributed to the liability component were $6.3 million, which were recorded as
debt issuance costs (presented as contra debt in the Company’s consolidated balance sheets) and are amortized to interest expense
in the consolidated statements of operations over the term of the Convertible Notes. The transaction costs attributed to the equity
component were $3.3 million, which were included in additional paid-in capital.
Interest expense relating to the Convertible Notes in the consolidated statements of operations for the year ended
December 31, 2020 are summarized as follows (in thousands):
Contractual interest expense
Amortization of debt discount (i)
Amortization of debt issuance costs (ii)
Total interest expense
Year ended
December 31,
2020
$
$
4,370
5,610
364
10,344
(i)
(ii)
The effective interest rate on the liability component of the 2027 Notes was 9.5% for the year ended December 31, 2020. As of December 31,
2020, the unamortized debt discount was $92.1 million and will be amortized over 6.4 years.
As of December 31, 2020, the unamortized debt issuance cost for the Convertible Notes was $6.0 million.
86
Table of Contents
As of December 31, 2020, the convertible senior notes on the consolidated balance sheets represented the carrying
amount of the liability component of the Convertible Notes, net of unamortized debt discounts and debt issuance costs, which are
summarized as follows (in thousands):
Convertible Notes
Less: Unamortized debt discount and debt issuance costs
Carrying amount of Convertible Notes
Capped Call Transactions
Year ended
December 31,
2020
$
$
287,500
(98,084)
189,416
In connection with the offering of the Convertible Notes, in June 2020 the Company entered into privately negotiated
capped call transactions with certain financial institutions (the Option Counterparties) and used an aggregate $35.7 million of the
net proceeds from the Convertible Notes to pay the cost of the capped call transactions. The capped call transactions are expected
generally to reduce potential dilution to the Company’s common stock upon any conversion of the Convertible Notes or at the
Company’s election (subject to certain conditions) offset any cash payments the Company is 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
based on the cap price. The cap price of the capped call transactions is initially $86.30 per share, which represents a premium
of 100% over the last reported sale price of the Company’s common stock on June 8, 2020, and is subject to certain adjustments
under the terms of the capped call transactions. The capped calls have an initial strike price of approximately $56.10 per share,
subject to certain adjustments, which corresponds to the conversion option strike price in the Convertible Notes. The capped call
transactions cover, subject to customary adjustments, the number of shares of common stock initially underlying the Convertible
Notes (or approximately 5.1 million shares of the Company’s common stock).
The capped call transactions are separate transactions that the Company entered into with the Option Counterparties, are
not part of the terms of the Convertible Notes and will not change the holders’ rights under the Convertible Notes. As the capped
call transactions meet certain accounting criteria, the cost of the capped call transactions of $35.7 million was recorded as a
reduction in additional paid-in capital in the consolidated balance sheets and will not be remeasured to fair value as long as the
accounting criteria continue to be met. As of December 31, 2020, the Company had not purchased any shares under the capped
call transactions.
Note 10. Stock-Based Compensation
The Company has 5,000,000 of authorized preferred stock issuable, and there is no preferred stock outstanding as of
December 31, 2020 and December 31, 2019. Each share of common stock is entitled to one vote.
The Company has four stock-based compensation plans (collectively, the Stock Plans)—the 2001 Stock Option Plan
(the 2001 Stock Plan), the 2011 Stock Plan (the 2011 Stock Plan), the 2015 Omnibus Incentive Compensation Plan (the 2015
Stock Plan) and the ESPP. The 2015 Stock Plan permits grants of RSU awards.
The purpose of these Stock Plans is to provide incentives to employees, directors and nonemployee consultants. The
Company no longer grants any awards under the 2001 Stock Plan and the 2011 Stock Plan. The maximum term of any stock
options granted under the Stock Plans is 10 years. For employees and nonemployees, stock options generally vest 25% on the
first anniversary of the original vesting date, with the balance vesting monthly or annually over the remaining three years. Stock
options are granted at exercise prices at least equal to the fair value of the underlying stock at the date of the grant. For employees
and nonemployees, generally, RSU awards vest 25% on each of the first, second, third and fourth anniversaries of the grant date
and in certain cases, vest one year after grant date.
The Compensation Committee has approved the grant of performance-based equity awards (PBEAs) to the Company’s
named executive officers and certain other employees pursuant to the 2015 Stock Plan. These PBEAs will only vest upon the
Compensation Committee’s determination that pre-defined Company operational goals were satisfied.
87
Table of Contents
The ESPP permits eligible employees to purchase shares of the Company’s common stock, using contributions via
payroll deductions of up to 15% of their earnings, at a price per share equal to 85% of the lower of the stock’s fair market value
on the offering date or purchase date. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of
the Internal Revenue Code.
On November 21, 2019, in connection with the Avedro Merger, the Company granted the following Replacement
Awards to employees of Avedro: (i) approximately 0.2 million cash-settled stock options to certain executives, which became
fully vested on December 31, 2019, (ii) approximately 0.1 million stock options and approximately 5,500 RSUs to members of
Avedro’s board of directors, which were granted with no post-combination vesting requirements, and (iii) approximately 0.7
million stock options and approximately 0.1 million RSUs, which are subject to time-based vesting requirements. Approximately
$30.8 million of the fair value of the Replacement Awards was attributable to pre-combination service and was included in the
purchase price of Avedro (see Note 6, Business Combinations). The remaining value of the Replacement Awards of $26.0 million
will be recognized as post-combination expense over the remaining requisite service period for the time-vesting awards ($3.1
million and $1.5 million related to the cash-settled stock options granted to certain executives and awards granted to the Avedro
board of directors, respectively, was recognized in post-combination expense during the period from November 21, 2019 to
December 31, 2019). For the year ended December 31, 2020, $10.1 million was expensed related to the Replacement Awards.
During the second quarter of 2020, the cash-settled options granted to certain former Avedro executives were modified
to be equity-settled and to extend the expiration date of certain tranches to December 31, 2020. A liability of $2.2 million related
to the cash-settled options that was previously included in accrued liabilities was, as a result of the modification, reclassified to
additional paid-in capital. No further stock-based compensation expense was incurred, given the awards were fully vested as of
December 31, 2019.
Valuation and Expense Recognition of Stock-Based Awards
The Company accounts for the measurement and recognition of compensation expense for all share-based awards made
to the Company’s employees and nonemployees based on the estimated fair value of the awards.
The fair value of RSU awards made to employees and nonemployees is equal to the closing market price of the
Company’s common stock price on the grant date.
The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options and look back
options included as part of the ESPP. The determination of fair value using the Black-Scholes option-pricing model is affected by
the estimated fair market value per share of the Company’s common stock as well as assumptions regarding a number of highly
complex and subjective variables, including expected stock price volatility, risk-free interest rate, expected dividends and
expected option life and generally requires significant management judgment to determine.
Risk-free interest rate. The risk-free interest rate is equal to the U.S. Treasury Note interest rate for the comparable term
for the expected option life as of the valuation date. If the expected option life is between the U.S. Treasury Note rates of two
published terms, then the risk-free interest rate is based on the straight-line interpolation between the U.S. Treasury Note rates of
the two published terms as of the valuation date.
Expected dividend yield. The expected dividend yield is based on the Company’s history and expectation of dividend
payouts. The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the
foreseeable future.
Expected volatility. The Company only recently began to have publicly traded equity and has a limited operating history
and a lack of Company-specific historical and implied volatility data, and therefore has estimated its stock price volatility based
upon an index of the historical volatilities of a group of comparable publicly-traded medical device peer companies. The
historical volatility data was computed using the historical daily closing prices for the selected peer companies’ shares during the
equivalent period of the calculated expected term of the Company’s stock
88
Table of Contents
options. The Company will continue to apply this process until a sufficient amount of historical information regarding the
volatility of its own stock price becomes available.
Expected term. The Company has concluded that its stock option exercise history does not provide a reasonable basis
upon which to estimate expected term, and therefore it uses the simplified method for estimating the expected term of stock
option grants. Under this approach, the weighted-average expected term is presumed to be the average of the vesting term and the
contractual term of the option.
Fair value of common stock. The Company has used the daily market prices in the determination of the fair value of its
common stock.
Forfeiture rate. The Company reduces share-based compensation expense for estimated forfeitures. Forfeitures are
estimated at the time of grant based on historical experience, and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates.
Stock Options
The following table summarizes stock option activity under the 2001 Stock Plan, 2011 Stock Plan and 2015 Stock Plan:
Outstanding at December 31, 2017
Granted
Exercised
Canceled/forfeited/expired
Outstanding at December 31, 2018
Granted
Replacement Awards
Exercised
Canceled/forfeited/expired
Outstanding at December 31, 2019
Granted
Exercised
Canceled/forfeited/expired
Outstanding at December 31, 2020
Vested and expected to vest at December 31, 2020
Exercisable at December 31, 2020
Weighted-
average
exercise price
Weighted-
average
remaining
contractual
per share life (in years)
7.3
$
$
Aggregate
intrinsic
value (in
thousands)
69,555
46,639
Number of
shares
underlying
options
(in thousands)
7,026
896
(1,304)
(311)
6,307
186
803
(696)
(17)
6,583
880
(1,403)
(76)
5,984
5,678
4,780
$
$
$
$
$
21.36
30.83
14.27
31.14
21.36
68.10
13.64
21.53
42.75
23.91
38.15
14.42
42.13
27.59
27.06
24.59
7.3
$
69,555
33,132
6.1
$ 204,062
50,093
5.7
5.5
5.0
$ 285,366
$ 273,784
$ 242,306
Intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of
the common stock for the options that had exercise prices that were lower than the fair value per share of the common stock on
the date of exercise.
The weighted average estimated grant date fair value per share of stock options granted during the years ended
December 31, 2020, December 31, 2019 and December 31, 2018 was $12.85, $32.07 and $14.98, respectively.
The total fair value of stock options that vested during the years ended December 31, 2020, December 31, 2019 and
December 31, 2018 was $20.3 million, $33.9 million and $24.2 million, respectively.
89
Table of Contents
The fair value of each option award is estimated on the date of grant using a Black-Sholes option pricing model
applying the assumptions noted in the following table. The weighted average assumptions used to estimate the fair value of
options granted to employees and non-employees were as follows:
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected term (in years)
2020
0.71 %
0.0 %
48.8 %
6.01
2019
2.17 %
0.0 %
46.8 %
6.01
Year ended
December 31,
2018
2.67 %
0.0 %
44.9 %
6.10
As of January 1, 2021, the Company has reserved an aggregate of 15.8 million shares of common stock for issuance
under the 2015 Stock Plan, and 2.7 million shares of common stock for issuance under the ESPP.
Restricted Stock Units
The following table summarizes the activity of unvested RSUs under the Stock Plans during the years ended December
31, 2020 and December 31, 2019:
Unvested at December 31, 2018
Granted
Replacement Awards
Vested
Canceled/forfeited
Unvested at December 31, 2019
Granted
Vested
Canceled/forfeited
Unvested at December 31, 2020
Number of
shares
(in thousands)
532
323
102
(237)
(25)
695
674
(310)
(71)
988
$
$
$
Weighted-
average
grant date
fair value
35.17
69.76
63.07
36.54
44.59
54.40
33.69
55.96
39.03
40.82
The total fair value of RSUs made to employees and nonemployees is equal to the closing market price of the
Company’s common stock on the grant date. The total fair value of RSUs that vested during the years ended December 31, 2020,
December 31, 2019 and December 31, 2018 was $17.3 million, $8.6 million and $1.6 million, respectively.
90
Table of Contents
Cash-Settled Stock Options
The following table summarizes the activity of cash-settled stock options during the years ended December 31, 2020
and December 31, 2019:
Outstanding at December 31, 2019
Exercised
Transferred to equity-settled NQSO awards
Canceled/forfeited/expired
Outstanding at December 31, 2020
Exercisable at December 31, 2020
Number of
shares
underlying
options
(in thousands)
230
(37)
(193)
—
— $
— $
$
Weighted-
average
exercise price
Weighted-
average
remaining
contractual
per share life (in years)
0.5
25.89
27.46
Aggregate
intrinsic
value (in
thousands)
6,572
$
1,349
—
—
—
— $
— $
—
—
During the second quarter of 2020, the cash-settled options granted to certain former Avedro executives were modified
to be equity-settled and to extend the expiration date of certain tranches to December 31, 2020. A liability of $2.2 million related
to the cash-settled options that was previously included in accrued liabilities was, as a result of the modification, reclassified to
additional paid-in capital.
All Share-Based Compensation Arrangements
The following table summarizes the allocation of stock-based compensation related to stock options and RSUs and
includes Replacement Awards, as well as cash-settled stock options in the accompanying consolidated statements of operations
(in thousands):
Cost of sales
Selling, general & administrative
Research and development
Total
2020
2019
Year ended
December 31,
2018
$
$
2,440
32,072
8,793
43,305
$
$
1,127 $
31,801
6,553
39,481
$
703
19,816
5,185
25,704
(i) Of the total stock-based compensation amount of $43.3 million as of December 31, 2020 above, $13.0 million related to the value attributable to the
pre-combination services associated with Replacement Awards (see also Note 6, Business Combinations) and a $(3.2) million fair value adjustment
was recorded related to cash-settled stock options, and the remainder of the liability of $2.2 million related to the cash-settled options that was
previously included in accrued liabilities was, as a result of the modification, reclassified to additional paid-in capital.
(ii) Of the total stock-based compensation amount of $39.5 million as of December 31, 2019 above, $4.5 million related to the value attributable to the
pre-combination services associated with Replacement Awards (see also Note 6, Business Combinations) and $3.1 million relates to cash-settled
stock options included in accrued liabilities within the consolidated balance sheet.
In the years ended December 31, 2020, December 31, 2019, and December 31, 2018, the related tax benefits were $3.5
million, $4.6 million and $10.5 million, respectively, relating to stock-based compensation.
At December 31, 2020, the total unamortized stock-based compensation expense was approximately $46.3 million. Of
the approximately $46.3 million in unamortized stock-based compensation expense, $17.0 million was attributable to stock
options and is to be recognized over the stock options’ remaining vesting terms of approximately
91
Table of Contents
4.0 years (1.9 years on a weighted average basis). The remaining $29.3 million was attributable to RSUs and is to be recognized
over the RSUs’ vesting terms of approximately 4.0 years (1.3 years on a weighted-average basis).
The total stock-based compensation cost capitalized in inventory was not material for the years ended December 31,
2020, December 31, 2019 and December 31, 2018, respectively.
Note 11. Income Taxes
United States and foreign (loss) income before income taxes was as follows (in thousands):
United States
Foreign
Total
The income tax (benefit) provision was as follows (in thousands):
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
Income tax (benefit) provision
2020
(134,096) $
1,782
(132,314)
$
$
$
Year ended December 31,
2018
2019
(14,776)
(50,339) $
2,408
303
(12,368)
(50,036)
$
2020
(949)
275
715
41
(10,098)
(1,952)
43
(12,007)
(11,966)
$
$
$
$
$
2019
237
122
487
846
(58,368)
(7,938)
—
(66,306)
(65,460)
$
December 31,
2018
—
274
309
583
—
—
—
—
583
The reconciliations of the U.S. federal statutory tax expense to the combined effective tax (benefit) provision are as
follows:
(amounts in thousands)
Statutory rate of tax benefit
State income taxes, net of federal benefit
Permanent and other items
Stock-based compensation
Research credits
Uncertain tax positions
Change in tax rate
NOL Carryback Claim
ASU 2016-09 Implementation & ASC 842 Adoption in 2019
Valuation allowance
Income tax (benefit) provision
92
2020
(27,713) $
(4,674)
263
(3,537)
(5,082)
3,835
1,303
(447)
-
24,086
(11,966) $
2019
(10,508) $
(2,418)
4,371
(5,006)
(3,594)
1,780
419
-
(104)
(50,400)
(65,460) $
$
$
Year ended
December 31,
2018
(2,597)
(1,518)
1,349
(6,007)
(2,556)
6,143
(250)
-
-
6,019
583
Table of Contents
Significant components of the Company’s net deferred tax assets at December 31, 2020 and December 31, 2019 are as
follows (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Tax credits
Stock-based compensation
Reserves and accruals
Lease liability
Other, net
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
ROU Lease Asset
Convertible Notes
Other, net
Inventory
Total deferred tax liabilities
Valuation allowance
Net deferred tax liability
2020
87,684
14,293
19,972
9,013
20,434
—
151,396
(76,034)
(17,471)
(22,252)
(542)
(59)
(116,358)
(45,551)
(10,513)
$
$
$
$
December 31,
2019
69,571
11,590
19,268
7,996
18,422
147
126,994
(81,174)
(17,333)
—
—
(6,030)
(104,537)
(32,089)
(9,632)
$
$
$
$
Based on the weight of available evidence, management has established a valuation allowance for a portion of its
deferred tax assets which it expects will not be realized on a more likely than not basis. In connection with the offering of
Convertible Notes, the Company recorded a deferred tax liability of $23.6 million to additional paid-in capital within the
statement of stockholders’ equity and a valuation allowance reduction of $10.7 million to additional paid-in capital within the
statement of stockholders’ equity. Primarily as a result of the Convertible Notes deferred tax liability, the Company recorded a
U.S. federal and state deferred tax benefit of $12.1 million for a portion of its operating losses generated in the year ended
December 31, 2020. Additionally, in connection with the Avedro Merger on November 21, 2019, the Company recorded $75.9
million of net deferred tax liabilities and $10.7 million of valuation allowance in purchase accounting. These deferred tax
liabilities related to the Convertible Notes and Avedro Merger provide a source of future taxable income to realize the
Company’s deferred tax assets.
As of December 31, 2020, the Company had indefinite-lived deferred tax assets for federal and certain state NOL
carryforwards generated after 2017 and California R&D credit carryforwards. The Company also had indefinite-lived deferred
tax liabilities for certain identified intellectual property of Avedro. In determining the amount of valuation allowance to record as
of December 31, 2020, the Company has elected to offset its indefinite-lived deferred tax assets and liabilities. The net change in
the valuation allowance was $13.5 million in 2020.
At December 31, 2020, the Company had approximately $439.4 million, $297.6 million and $13.4 million of NOL
carryforwards for federal, state and foreign purposes, respectively, available to offset future taxable income. The federal NOL
carryforwards incurred prior to 2018 begin to expire in 2021. A federal NOL carryforward of $186.6 million will not expire but
can only be used to offset 80 percent of future taxable income. The state NOL carryforwards will begin to expire in 2021. The
foreign NOL carryforwards begin to expire in 2022.
At December 31, 2020, the Company had federal and state R&D credit carryforwards of $32.3 million and
$15.7 million, respectively. Federal credits begin to expire in 2021, state credits of $3.4 million begin to expire in 2023, and state
credits of $12.2 million carry forward indefinitely.
Utilization of the NOL and tax credit carryforwards will be subject to annual limitations under IRC Section 382 and
Section 383 and similar state provisions due to several ownership changes that have occurred previously or that could occur in
the future. These ownership changes may limit the amount of NOL and tax credit carryforwards and other deferred tax assets that
can be utilized to offset future taxable income and tax. In general, all ownership changes as
93
Table of Contents
defined by IRC Section 382 result from transactions increasing ownership of certain stockholders in the stock of the Company by
more than 50 percentage points over a three-year period.
The Company completed its Section 382 and Section 383 analysis through December 31, 2019. Approximately $10.5
million of the Glaukos federal NOL carryforwards and $0.4 million of federal R&D tax credits are expected to expire unutilized
due to the limitations provided by Section 382 and Section 383. State NOL and R&D credit carryforwards for the jurisdictions
which conform to IRC Section 382 and Section 383, or have similar provisions, have been reduced for attributes which are
expected to expire unutilized. As noted below, certain NOL and credit carryforwards of the Company's subsidiaries are also
expected to expire unutilized.
As previously discussed in Note 1, Organization and Basis of Presentation, Avedro became a subsidiary of the
Company on November 21, 2019. As of November 21, 2019, Avedro's federal NOL carryforward was $178.6 million and its
federal R&D credit carryforward was $17.3 million. These attributes are subject to limitation under Section 382 and Section 383,
and approximately $80.2 million of federal NOLs and $14.7 million of federal R&D tax credit carryforwards are expected to
expire unutilized.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for the years ended December
31, 2020, December 31, 2019 and December 31, 2018, excluding interest and penalties, is as follows (in thousands):
Balance at beginning of the year
Net addition for tax positions - prior years
Net additions for tax positions - current year
Subtractions from tax positions - prior years
Subtractions from tax positions - current year
Balance at end of the year
$
$
2020
15,076 $
4,987
3,355
(74)
(541)
22,803
$
2019
13,486 $
230
2,339
(537)
(442)
15,076
$
December 31,
2018
7,227
4,558
1,701
—
—
13,486
As of December 31, 2020, approximately $0.5 million of unrecognized tax benefits would reduce the Company’s annual
effective tax rate if recognized.
The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of
its income tax (benefit) provision. There was no accrued interest and penalties associated with uncertain tax positions as of
December 31, 2020, December 31, 2019 and December 31, 2018. It is not anticipated that there will be a significant change in the
unrecognized tax benefits over the next 12 months.
Due to the Company’s NOL carryforwards, its federal, state and foreign income tax returns are open to examination by
the Internal Revenue Service (IRS) and other taxing jurisdictions for all years since inception. In November 2019, the IRS
commenced an examination of the Company’s 2017 federal income tax return. The examination concluded during the three
months ended December 31, 2020 with no proposed adjustments by the IRS.
On March 27, 2020, the United States enacted the CARES Act which provides certain income tax benefits including
the ability to carryback federal NOLs generated in 2018 through 2020 for an extended five year period, and increased the
limitation for the deduction of interest expense from 30 percent to 50 percent of modified taxable income. The CARES Act also
provides other economic benefits such as allowing employers to defer payment of the employer’s portion of payroll taxes for
2020 and a refundable employee retention credit of up to $5,000 per eligible employee wages. The Company realized benefits
from the provisions of the CARES Act including the extended NOL carryback period, the payroll tax deferral, and the employee
retention credit.
On December 27, 2020, the United States enacted the Consolidated Appropriations Act which extended many of the
benefits of the CARES Act that were scheduled to expire. The Company is evaluating the impact of the Consolidated
Appropriations Act on its consolidated financial statements and related disclosures.
94
Table of Contents
Note 12. Employee Benefits
Defined Contribution Plan
The Company sponsors a defined contribution plan pursuant to section 401(k) of the U.S. Internal Revenue Code that
allows participating employees to contribute up to 100% of their salary, to an annual maximum of $19,500 in 2020 and $19,000
in 2019 ($26,000 in 2020 and $25,000 in 2019 for employees over the age of 50). Through December 31, 2020, the Company has
only made “qualified nonelective contributions” to maintain compliance with IRS regulations.
During the first quarter of 2020, the Company contributed a $0.50 match for every $1.00 contributed by a participating
employee up to 6% of plan-eligible earnings for a portion of the year. As a result of the COVID-19 pandemic, the Company
instituted a number of cost saving initiatives, including temporarily ceasing Company contributions to participating employees’
401(k) plans, which as of the date hereof, has been reinstated. For the year ended December 31, 2020, Company contributions
totaled approximately $0.5 million.
During the years ended December 31, 2019 and December 31, 2018, the Company contributed a $0.50 match for every
$1.00 contributed by a participating employee up to 6% of plan-eligible earnings, with such Company contributions becoming
fully vested when participating employees reach the 3-year anniversary from their date of hire, giving credit for past service. For
the years ended December 31, 2019 and December 31, 2018, Company contributions totaled approximately $1.6 million and $1.4
million, respectively.
Deferred Compensation Plan
Pursuant to the Company’s deferred compensation plan (the Deferred Compensation Plan), eligible senior level
employees are permitted to make elective deferrals of compensation to which they will become entitled in the future. The
Company has also established a rabbi trust that serves as an investment to shadow the Deferred Compensation Plan liability. The
investments of the rabbi trust consist of COLIs. The fair value of the Deferred Compensation Plan liability, included in other
liabilities on the consolidated balance sheets, was approximately $5.2 million and $3.7 million as of December 31, 2020 and
December, 31, 2019, respectively, and the cash surrender value of the COLIs, included in deposits and other assets on the
consolidated balance sheets, which reflects the underlying assets at fair value, was approximately $5.3 million and $3.5 million as
of December 31, 2020 and December 31, 2019, respectively.
Note 13. Commitments and Contingencies
Patent Litigation
On April 14, 2018, the Company filed a patent infringement lawsuit against Ivantis, Inc. (Ivantis) in the U.S. District
Court for the Central District of California, Southern Division (the Court), alleging that Ivantis’ Hydrus© Microstent device
infringes the Company’s U.S. Patent Nos. 6,626,858 and 9,827,143. Discovery closed in early 2020, after which, the parties filed
and the Court ruled on a series of motions seeking to limit the issues for trial. For example, Ivantis agreed not to contest
infringement of several claims of the ‘143 patent under the Court’s claim constructions and the Court granted the Company’s
motion for summary judgment regarding the validity of one such claim (claim 30). Although positive for the Company, Ivantis
can appeal the Court’s decisions following trial, which has been delayed due to COVID-19 and is scheduled to begin on or
around September 28, 2021. With respect to the matter described above, the Company is currently unable to predict the ultimate
outcome of the matters or reasonably estimate a possible loss or range of loss, and thus, no amounts have been accrued in the
consolidated financial statements.
Securities Litigation
Four alleged Avedro stockholders filed lawsuits challenging the Avedro Merger. Two of those lawsuits, Kent v. Avedro,
Inc., et. al, 1:19-cv-01845-MN filed in the United States District Court for the District of Delaware and Thompson v. Avedro,
Inc., et. al, 1:19-cv-02075-UNA filed in the United States District Court for the Southern
95
Table of Contents
District of Delaware, named as defendants Avedro and each member of the Avedro board of directors, including former directors
Dr. Gilbert H. Kliman and Thomas W. Burns, as well as Glaukos and Merger Sub. The other two lawsuits, Payne v. Avedro, Inc.
et. al, 1:19-cv-02019-CFC in the United States District Court for the District of Delaware and Bushansky v. Avedro, Inc. et.
al, 1:19-cv-10015-LAP in the United States District Court for the Southern District of New York, named as defendants Avedro
and each member of the Avedro board of directors but did not name former Avedro directors, Glaukos or Merger Sub as
defendants. The plaintiffs in these actions generally alleged that the Registration Statement filed in connection with the Avedro
Merger omitted material information with respect to the Avedro Merger, which rendered such Registration Statement false and
misleading. The complaints sought a preliminary and permanent injunction of the Avedro Merger and, if the Avedro Merger was
consummated, rescission or rescissory damages. The complaints also sought the dissemination of a registration statement that
disclosed certain information requested by the plaintiffs as well as attorneys' and experts' fees.
On January 8, 2020, following Avedro’s filing of additional disclosures which rendered the plaintiffs’ disclosure claims
moot, Glaukos entered into a Confidential Fee Agreement (Confidential Fee Agreement) with each of the plaintiffs listed above,
and the Confidential Fee Agreement settlement amounts were immaterial. Pursuant to the terms of the Confidential Fee
Agreement, the plaintiffs agreed to dismiss the respective actions with prejudice as to each of the named plaintiffs and without
prejudice as to the claims of the putative class of Avedro stockholders. Avedro and the other named defendants maintain that they
committed no breach of fiduciary duty and that there is no merit with respect to any allegation asserted in connection with the
Avedro Merger or any public disclosures, but wished to settle the actions to eliminate the burden, expense, and uncertainties of
further litigation.
Secured Letters of Credit
The Company had a bank issue a letter of credit in the amount of $8.8 million that is related to its Aliso Facility. The
letter of credit is secured with an amount of cash held in a restricted account of approximately $8.8 million as of December 31,
2020 and December 31, 2019. Beginning as of the first day of the thirty-seventh month of the lease term, and on each twelve
month anniversary thereafter, the letter of credit will be reduced by 20% until the letter of credit amount has been reduced to $2.0
million.
As of December 31, 2020 and December 31, 2019, as a result of the Avedro Merger, the Company has two other
irrevocable standby letters of credit secured with $0.6 million of cash in a restricted account related to its office lease agreements.
Lastly, the Company maintains $0.2 million in restricted cash which is held to collateralize a credit card program.
Global Enterprise Systems Implementation
In the first quarter of 2019, the Company began implementing new enterprise systems and other technology
optimizations and facilities infrastructure globally. The first phase of the Company’s new enterprise system went live in May
2020; therefore, software services along with any associated implementation costs for this first phase incurred after May 1, 2020
are being capitalized in accordance with the Company’s policy. As of December 31, 2020, the Company has firm purchase
commitments related to software costs and systems implementations for future phases of approximately $2.5 million, which the
Company expects to primarily incur during 2021.
96
Table of Contents
Corporate Restructuring Costs
Following the Avedro Merger, the Company initiated a restructuring plan that includes an estimated headcount
reduction of 40 employees and a reallocation of responsibilities primarily within the selling, general and administrative functions.
The Company measured and accrued the liabilities associated with employee separation costs at fair value as of the date the plan
was announced and terminations were communicated to employees, which primarily includes severance pay and other separation
costs such as benefit continuation.
The Company expects to incur a total of approximately $5.0 million in restructuring charges upon completion of the
plan, which is expected to be completed in 2021. As of December 31, 2020, the Company has paid approximately $4.9 million in
separation costs and has accrued $0.1 million of restructuring plan costs. The recognition of restructuring charges requires that
the Company make certain judgments and estimates regarding the nature, timing and amount of costs associated with the planned
reductions of workforce. At the end of each reporting period, the Company will evaluate the remaining accrued balance to ensure
appropriateness with the Company’s restructuring plans.
Purchase Commitment
As of December 31, 2020, the Company had noncancelable, firm purchase commitments of $0.1 million due beyond
one year.
Regents of the University of California
On December 30, 2014, the Company executed an agreement (the UC Agreement) with the Regents of the University of
California (the University) to correct inventorship in connection with a group of the Company’s U.S. patents (the Patent Rights)
and to obtain from the University a covenant that it did not and would not claim any right or title to the Patent Rights and will not
challenge or assist any others in challenging the Patent Rights. In connection with the UC Agreement, Glaukos agreed to pay to
the University a low single-digit percentage of worldwide net sales of certain current and future products, including the
Company’s iStent products, with a required minimum annual payment of $0.5 million. This ongoing product payment obligation
will change as patent coverage on certain products begins to lapse, and will terminate entirely on the date the last of the Patent
Rights expires, which is currently expected to be in 2022. For the years ended December 31, 2020, December 31, 2019 and
December 31, 2018, the Company recorded approximately $4.5 million, $5.7 million and $4.5 million, respectively, in cost of
sales in connection with the product payment obligation.
Indemnification
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions.
Pursuant to such agreements, the Company may indemnify, hold harmless and defend the indemnified parties for losses suffered
or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some
cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future
payments the Company could be required to make under these provisions is not determinable. To date, the Company has not
incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also
entered into indemnification agreements with its directors and officers that may require it to indemnify its directors and officers
against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by
corporate law. The Company also has directors’ and officers’ insurance.
Note 14. Business Segment Information
The Company has one business activity: the development and commercialization of therapies designed to treat glaucoma,
corneal disorders and retinal diseases, and operates as one operating segment. The Company determined its operating segment on
the same basis that it uses to evaluate its performance internally. The Company’s revenues disaggregated by revenue and product
category are included in Note 8, Revenue from Contracts with Customers. The
97
Table of Contents
Company’s CODM) its Chief Executive Officer, reviews its consolidated operating results for the purpose of allocating resources
and evaluating financial performance.
Property and equipment, net
As of December 31,
2018
2019
2020
Depreciation and amortization
Year ended December 31,
2018
2020
2019
Capital expenditures
Year ended December 31,
2019
2020
2018
United States
International
Total
$ 23,896 $ 21,932 $ 19,040 $ 29,306 $ 6,273 $ 6,234 $ 6,907 $ 4,681 $ 10,288
27
$ 10,315
112
$ 24,008
113
$ 19,153
75
$ 29,381
124
$ 22,056
44
$ 4,725
28
$ 6,935
30
$ 6,264
33
$ 6,306
Note 15. Selected Quarterly Financial Information (Unaudited)
(in thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
Total operating expenses
Loss from operations
Non-operating expense
Income tax benefit
Net loss
Net loss per share (1):
Basic
Diluted
(in thousands, except per share amounts)
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
In-process research and development
Total operating expenses
Loss from operations
Non-operating income (expense)
Income tax provision (benefit)
Net (loss) income
Net (loss) income per share (1):
Basic
Diluted
$
March 31,
2020
55,336 $
32,529
22,807
June 30,
2020
31,558 $
21,668
9,890
September 30,
2020
64,831 $
17,932
46,899
Three months ended
December 31,
2020
73,234
19,590
53,644
50,546
24,873
75,419
(52,612)
(1,896)
(450)
(54,058)
(1.24)
(1.24)
$
$
$
38,116
18,971
57,087
(47,197)
(81)
(7,384)
(39,894)
(0.90)
(0.90)
$
$
$
$
$
$
38,947
20,304
59,251
(12,352)
(4,285)
(889)
(15,748)
(0.35)
(0.35)
$
$
$
43,792
21,244
65,036
(11,392)
(2,499)
(3,243)
(10,648)
(0.24)
(0.24)
$
March 31,
2019
54,026 $
7,111
46,915
June 30,
2019
58,600 $
7,870
50,730
34,925
13,930
—
48,855
(1,940)
720
122
(1,342)
(0.04)
(0.04)
$
$
$
37,656
17,069
2,245
56,970
(6,240)
3
72
(6,309)
(0.17)
(0.17)
$
$
$
$
$
$
Three months ended
December 31,
2019
September 30,
2019
58,509 $
7,703
50,806
44,443
17,278
1,500
63,221
(12,415)
(904)
187
(13,506)
(0.37)
(0.37)
$
$
$
65,849
15,904
49,945
59,611
20,031
—
79,642
(29,697)
437
(65,841)
36,581
0.92
0.84
(1) Net income or loss per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per-share amounts
will not necessarily equal the annual per share amount.
98
Table of Contents
Note 16. Subsequent Events
None.
99
Table of Contents
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
100
Table of Contents
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Our management, with the participation of our chief executive officer and our chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual
Report on Form 10-K. Based on that evaluation, our chief executive officer and our chief financial officer concluded that our
disclosure controls and procedures were effective, at the reasonable assurance level, as of December 31, 2020.
Management’s Annual Report on Internal Control Over Financial Reporting and Attestation Report of the Registered
Public Accounting Firm
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii)
provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and our directors; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial
statements.
Our management, with the participation of our chief executive officer and our chief financial officer, conducted an
evaluation of the effectiveness of our internal control over financial reporting as of the end of the period covered by this Annual
Report on Form 10-K based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s
internal control over financial reporting was effective as of December 31, 2020.
Ernst & Young LLP, our independent registered public accounting firm, which audited the consolidated financial
statements included in this Annual Report on Form 10-K, has issued an attestation report on our internal control over financial
reporting. See Report of Independent Registered Public Accounting Firm below.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act, during our fourth fiscal quarter of 2020 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
101
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Glaukos Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Glaukos Corporation’s internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Glaukos Corporation (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated
statements of operations, comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Irvine, California
March 1, 2021
102
Table of Contents
ITEM 9B. OTHER INFORMATION
None.
103
Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We have adopted a written code of business conduct and ethics that applies to our directors, executive officers and
employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or
persons performing similar functions. A current copy of the code is posted on the investor section of our web site,
www.glaukos.com. To the extent required by rules adopted by the SEC and NYSE, we intend to promptly disclose future
amendments to certain provisions of the code, or waivers of such provisions granted to executive officers and directors, in the
Corporate Governance section of our Investor Relations web site at investors.glaukos.com.
The remaining information required by this Item 10 will be included in our Proxy Statement for the 2021 Annual
Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended
December 31, 2020, and is incorporated herein by reference.
104
Table of Contents
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item 11 will be included in our Proxy Statement for the 2021 Annual Meeting of
Stockholders, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2020,
and is incorporated herein by reference.
105
Table of Contents
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item 12 will be included in our Proxy Statement for the 2020 Annual Meeting of
Stockholders, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2020,
and is incorporated herein by reference.
106
Table of Contents
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 will be included in our Proxy Statement for the 2021 Annual Meeting of
Stockholders, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2020,
and is incorporated herein by reference.
107
Table of Contents
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 will be included in our Proxy Statement for the 2021 Annual Meeting of
Stockholders, which will be filed with the SEC no later than 120 days after the close of the fiscal year ended December 31, 2020,
and is incorporated herein by reference.
108
Table of Contents
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of documents filed as part of this Annual Report on Form 10-K:
(1)
Financial Statements
The financial statements included in Part II, Item 8 of this document are filed as part of this Annual Report on
Form 10-K.
(2)
Financial Statement Schedules
Schedules have been omitted because they are not applicable or the amounts are immaterial or the required
information is presented in the financial statements or notes thereto.
(b) Exhibits
The exhibits listed in the Exhibit Index below are filed, furnished or incorporated by reference as part of this
Annual Report on Form 10-K.
109
Table of Contents
Exhibit
Number
INDEX TO EXHIBITS
Description
2.1
3.1
3.2
4.1
4.2
4.3*
10.1
10.2
10.3
10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
Agreement and Plan of Merger, dated as of August 7, 2019, among Glaukos Corporation, Atlantic Merger
Sub Inc., and Avedro, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File
No. 001-37463) filed on August 8, 2019).
Restated Certificate of Incorporation of the Registrant (incorporated by referenced to Exhibit 3.1 to the
Current Report on Form 8-K (File No. 001-37463) filed on June 30, 2015).
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K (File No. 001-37463) filed on November 20, 2020).
Indenture, dated as of June 11, 2020, between Glaukos Corporation and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No.
001-37463) filed on June 12, 2020).
Form of 2.75% Convertible Senior Notes due 2027 (included in Exhibit 4.1) (incorporated by reference to
Exhibit 4.1 to the Current Report on Form 8-K (File No. 001-37463) filed on June 12, 2020).
Description of Capital Stock of Glaukos Corporation
Fourth Amended and Restated Investors’ Rights Agreement, dated as of January 25, 2011, by and among the
Registrant and the stockholders named therein (incorporated by reference to Exhibit 10.1 to the Registration
Statement on Form S-1 (File No. 333-204091) filed on May 12, 2015).
Amendment No. 1 to the Fourth Amended and Restated Investors’ Rights Agreement, dated as of January 22,
2013, by and among the Registrant and the stockholders named therein (incorporated by reference to
Exhibit 10.2 to the Registration Statement on Form S-1 (File No. 333-204091) filed on May 12, 2015).
Amendment No. 2 to the Fourth Amended and Restated Investors’ Rights Agreement, dated as of July 10,
2014, by and among the Registrant and the stockholders named therein (incorporated by reference to
Exhibit 10.3 to the Registration Statement on Form S-1 (File No. 333-204091) filed on May 12, 2015).
Form of Director and Executive Officer Indemnification Agreement (incorporated by reference to Exhibit 10.8
to the Registration Statement on Form S-1 (File No. 333-204091) filed on May 12, 2015).
2001 Stock Option Plan (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1
(File No. 333-204091) filed on May 12, 2015).
Notice of Incentive Stock Option Grant and Stock Option Agreement under the 2001 Stock Option Plan
(incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 (File No. 333-204091)
filed on May 12, 2015).
Notice of Non-Statutory Stock Option Grant and Stock Option Agreement under the 2001 Stock Option Plan
(incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 (File No. 333-204091)
filed on May 12, 2015).
2011 Stock Plan (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 (File
No. 333-204091) filed on May 12, 2015).
Form of Notice of Incentive Stock Option Grant and Stock Option Agreement under the 2011 Stock Plan
(incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 (File No. 333-204091)
filed on May 12, 2015).
Form of Notice of Non-Statutory Stock Option Grant and Stock Option Agreement under the 2011 Stock Plan
(incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 (File No. 333-204091)
filed on May 12, 2015).
Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement under the 2015
Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q (File No. 001-37463) filed on August 7, 2017).
110
Table of Contents
Exhibit
Number
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26
10.27
10.28
Description
Form of Notice of Grant of Option and Option Award Agreement under the 2015 Omnibus Incentive
Compensation Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q (File
No. 001-37463) filed on May 9, 2018).
Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement under the 2015
Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on
Form 10-Q (File No. 001-37463) filed on August 6, 2018).
Form of Director Notice of Grant of Restricted Stock Units and Restricted Stock Unit Agreement under the
2015 Omnibus Incentive Compensation Plan. (incorporated by reference to Exhibit 10.22 to the Annual
Report on Form 10-K (File No. 001-37463) filed on February 28, 2018).
Form of Notice of Grant of Performance-Based Equity Award under the 2015 Omnibus Incentive
Compensation Plan (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K (File No.
001-37463) filed on March 2, 2020).
2015 Omnibus Incentive Compensation Plan (incorporated by reference to Exhibit 10.15 to Amendment No. 2
to the Registration Statement on Form S-1 (File No. 333-204091) filed on June 15, 2015).
2015 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.16 to Amendment No. 2 to the
Registration Statement on Form S-1 (File No. 333-204091) filed on June 15, 2015).
Thomas W. Burns Offer Letter dated July 10, 2014 (incorporated by reference to Exhibit 10.17 to the
Registration Statement on Form S-1 (File No. 333-204091) filed on May 12, 2015).
Thomas W. Burns Amended and Restated Executive Severance and Change in Control Agreement dated
November 3, 2017 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No
001-37463) filed on November 7, 2017).
Chris M. Calcaterra Offer Letter dated July 10, 2014 (incorporated by reference to Exhibit 10.19 to the
Registration Statement on Form S-1 (File No. 333-204091) filed on May 12, 2015).
Chris M. Calcaterra Amended and Restated Executive Severance and Change in Control Agreement dated
November 3, 2017 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File
No. 001-37463) filed on November 7, 2017).
Joseph E. Gilliam Offer Letter dated February 3, 2017 (incorporated by reference to Exhibit 99.2 to the to the
Company’s Current Report on Form 8-K (File No. 001-37463) filed on February 6, 2017).
Joseph E. Gilliam Amended and Restated Executive Severance and Change in Control Agreement dated
November 3, 2017 (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K (File
No. 001-37463) filed on November 7, 2017).
The Executive Nonqualified Excess Plan and the Executive Nonqualified Excess Plan Adoption Agreement
(incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K (File No. 001-37463) filed on
March 15, 2017).
Directors’ Compensation Policy (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q (File No. 001-37463) filed on May 7, 2020).
Standard Industrial/Commercial Single-Tenant Lease—Net, dated as of June 8, 2015, by and between the
Registrant and 229 Fabricante, LLC (incorporated by reference to Exhibit 10.35 to Amendment No. 2 to the
Registration Statement on Form S-1 (File No. 333-204091) filed on June 15, 2015).
First Amendment to Lease dated as of December 31, 2018 between the Registrant and 229 Avenida
Fabricante, LLC (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No.
001-37463) filed on August 7, 2020).
Second Amendment to Lease dated as of July 2, 2020 between the Registrant and 229 Avenida Fabricante,
LLC (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q (File No. 001-37463)
filed on August 7, 2020).
111
Table of Contents
Exhibit
Number
10.29
10.30
10.31
10.32
10.33
10.34
10.35
21*
23.1*
31.1*
31.2*
32.1**
32.2**
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104
Description
Office Building Lease dated as of November 14, 2018, by and between the Registrant and CIP 2014/SG, Aliso
Owner LLC. (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K (File No. 001-
37463) filed on February 28, 2019).
First Amendment to Office Building Lease dated as of December 12, 2018 between the Registrant and CIP
2014/SG Aliso Owner, LLC (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q
(File No. 001-37463) filed on August 7, 2020).
Second Amendment to Office Building Lease dated as of May 20, 2020 between the Registrant and CIP
2014/SG Aliso Owner, LLC (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q
(File No. 001-37463) filed on August 7, 2020).
Amended and Restated Patent License Agreement, by and between the Registrant and DOSE Medical
Corporation, dated as of June 30, 2015 (incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K (File No. 001-37463) filed on June 30, 2015).
First Amendment to Amended and Restated Patent License Agreement dated as of April 12, 2017 by and
between Glaukos Corporation and DOSE Medical Corporation (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K (File No. 001-37463) filed on April 12, 2017).
Agreement and Plan of Merger, dated as of June 19, 2019, by and between Glaukos Corporation, GKOS
Merger Sub, Inc., DOSE Medical Corporation and Fortis Advisors LLC, solely in its capacity as the
Stockholders’ Representative (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K
(File No. 001-37463) filed on June 19, 2019).
Form of Capped Call Confirmation (incorporated by reference to Exhibit 10.1 to the Current Report on Form
8-K (File No. 001-37463) filed on June 12, 2020).
Subsidiaries of Glaukos Corporation as of December 31, 2020
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document
XBRL Taxonomy Schema Linkbase Document
XBRL Taxonomy Calculation Linkbase Document
XBRL Taxonomy Definition Linkbase Document
XBRL Taxonomy Labels Linkbase Document
XBRL Taxonomy Presentation Linkbase Document
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data
File because its XBRL tags are embedded within the Inline XBRL document
+ Indicates a management contract or compensatory plan or arrangement.
* Filed Herewith.
** Furnished Herewith.
112
Table of Contents
ITEM 16.
FORM 10-K SUMMARY
None.
113
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Clemente, State of California, on March 1,
2021.
SIGNATURES
GLAUKOS CORPORATION
By:
/s/ THOMAS W. BURNS
Thomas W. Burns
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons in the capacities and on the dates indicated.
Signature
Title
/s/ THOMAS W. BURNS
Thomas W. Burns
/s/ JOSEPH E. GILLIAM
Joseph E. Gilliam
/s/ WILLIAM J. LINK
William J. Link, Ph.D.
/s/ MARK J. FOLEY
Mark J. Foley
/s/ DAVID F. HOFFMEISTER
David F. Hoffmeister
/s/ MARC A. STAPLEY
Marc A. Stapley
/s/ AIMEE S. WEISNER
Aimee S. Weisner
/s/ GILBERT H. KLIMAN
Gilbert H. Kliman, M.D.
Chief Executive Officer, President and
Director (Principal Executive Officer)
Chief Financial Officer & SVP, Corporate Development
(Principal Accounting and Financial Officer)
Chairman of the Board
Director
Director
Director
Director
Director
114
Date
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
March 1, 2021
DESCRIPTION OF CAPITAL STOCK OF GLAUKOS CORPORATION
References to “we,” “us” and “our” in this section refer to Glaukos Corporation.
General
The following is a summary of the rights of our common stock and preferred stock, and of certain provisions of our restated certificate
of incorporation (our “certificate of incorporation”), our amended and restated bylaws (our “bylaws”), and certain provisions of applicable law.
The following description is only a summary and is qualified by reference to our certificate of incorporation and our bylaws, copies of which
are filed as exhibits to our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange
Commission.
Exhibit 4.3
Authorized Capitalization
Our authorized capital stock consists of shares, all with a par value of $0.001 per share, of which:
· 150,000,000 shares are designated as common stock; and
· 5,000,000 shares are designated as preferred stock.
As of February 25, 2021, 45,814,180 shares of our common stock were issued and 45,786,180 shares of our common stock were
outstanding, and no shares of our preferred stock were issued or outstanding.
Common Stock
Voting
The holders of our common stock are entitled to one vote per share on all matters to be voted on by our stockholders. Our certificate of
incorporation prohibits cumulative voting in the election of directors. Our bylaws provide for a plurality voting standard for the election of
directors. Our certificate of incorporation includes certain supermajority voting provisions relating to the removal of directors, certain
amendments to our certificate of incorporation and certain amendments to our bylaws.
Dividends
Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive
dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.
Liquidation
In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets
legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation
preference granted to the holders of any then outstanding shares of preferred stock.
Rights and Preferences
Holders of common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund
provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to and may be
adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate in the future.
Fully Paid and Nonassessable
All of our outstanding shares of common stock are fully paid and nonassessable.
Preferred Stock
Our board of directors has the authority, without further action by our stockholders, to designate and issue up to 5,000,000 shares of
preferred stock in one or more series. Our board of directors may also designate the rights, preferences and privileges of each such series of
preferred stock, any or all of which may be greater than or senior to those of our common stock. Though the actual effect of any issuance of
preferred stock on the rights of the holders of common stock will not be known until our board of directors determines the specific rights of the
holders of preferred stock, the potential effects of such an issuance include:
· diluting the voting power of the holders of common stock;
· reducing the likelihood that holders of common stock will receive dividend payments;
· reducing the likelihood that holders of common stock will receive payments in the event of our sale, liquidation, dissolution, or
winding up; and
· delaying, deterring or preventing a change-in-control or other corporate takeover.
Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws
Delaware Law
Certain provisions of Delaware law and our certificate of incorporation and bylaws contain provisions that could have the effect of
delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, are expected to
discourage certain types of coercive takeover practices and inadequate takeover bids. These provisions are also designed in part to encourage
anyone seeking to acquire control of us to negotiate with our board of directors. We believe that the advantages gained by protecting our ability
to negotiate with any unsolicited and potentially unfriendly acquirer outweigh the disadvantages of discouraging such proposals, including those
priced above the then-current market value of our common stock, because, among other reasons, the negotiation of such proposals could
improve their terms.
Certificate of Incorporation and Bylaws
Our certificate of incorporation and/or bylaws include provisions that:
· authorize our board of directors to issue, without further action by our stockholders, up to 5,000,000 shares of undesignated
preferred stock;
· require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written
consent;
· specify that special meetings of our stockholders can be called only by our chairperson of the board of directors, our chief
executive officer, our president or our board of directors acting pursuant to a resolution adopted by a majority of our board of
directors;
· establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders,
including proposed nominations of persons for election to our board of directors;
· provide that directors may be removed only for cause by a supermajority vote of the stockholders;
· provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than
a quorum;
· establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered
terms;
· specify that no stockholder is permitted to cumulate votes at any election of our board of directors; and
· require a supermajority vote of the stockholders and a majority of our board of directors to amend certain of the above-mentioned
provisions and our bylaws.
Exclusive Forum
Under the provisions of our certificate of incorporation and our bylaws, unless we consent in writing to the selection of an alternative
forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: (i) any derivative action or proceeding brought
on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or
our stockholders; (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Delaware General Corporation Law
(the “DGCL”), or our certificate of incorporation or bylaws; or (iv) any action asserting a claim governed by the internal affairs doctrine (the
“Delaware Exclusive Forum Provision”). In addition, under the provisions of our bylaws, unless we consent in writing to the selection of an
alternative forum, the federal district courts of the United States of America 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 of 1933, as amended (the “Federal 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 Securities Exchange Act of 1934, as amended (“Exchange Act”), or Securities Act of 1933, as amended
(“Securities Act”), or any other claim for which the federal courts have exclusive jurisdiction. In addition, the Federal Forum Provision is
intended to apply to claims arising under the Securities Act and would not apply to claims brought pursuant to the Exchange Act. The exclusive
forum provisions in our certificate of incorporation and our 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.
Delaware Anti-Takeover Statute
We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a
period of three years following the date the person became an interested stockholder, unless:
· prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
· upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the voting stock outstanding, but not for determining the outstanding voting stock owned by the
interested stockholder, (1) shares owned by persons who are directors and also officers, and (2) shares owned by employee stock
plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or
· at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation
and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least
662/3% of the outstanding voting stock that is not owned by the interested stockholder.
Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the
interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the
determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. We expect the existence of this
provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that
Section 203 may discourage business combinations or other attempts that might result in the payment of a premium over the market price for
the shares of common stock held by our stockholders.
The provisions of Delaware law and our certificate of incorporation and bylaws could have the effect of discouraging others from
attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that
often result from actual or rumored takeover attempts. These provisions may also have the effect of preventing changes in our management. It is
possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best
interests.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC.
Listing
Our common stock is listed on the New York Stock Exchange under the symbol “GKOS.”
Subsidiary Name
State of Incorporation / Formation
Subsidiaries
Glaukos Germany GmbH
Glaukos Japan GK
Glaukos Australia Pty Ltd
Glaukos Canada Inc.
Glaukos France SAS
Glaukos Ireland Limited
Glaukos Netherlands B.V.
Glaukos Produtos Médicos Ltda.
Glaukos Sweden AB
Glaukos UK Limited
Glaukos Singapore PTE. LTD.
Glaukos Medical Spain, S.L.
Glaukos (Switzerland) AG
Glaukos Norway AS
GKOS Medical, Unipessoal LDA
Glaukos Belgium
DOSE Medical Corporation
Avedro, Inc.
Delaware
Delaware
Exhibit 21
Country of Incorporation / Formation
Germany
Japan
Australia
Canada
France
Ireland
Netherlands
Brazil
Sweden
England and Wales
Singapore
Spain
Switzerland
Norway
Portugal
Belgium
United States
United States
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-237030) pertaining to the Glaukos Corporation 2015 Omnibus Incentive
Compensation Plan and 2015 Employee Stock Purchase Plan;
Exhibit 23.1
(2) Registration Statement (Form S-8 No. 333-233807) pertaining to the Avedro, Inc. 2019 Equity Incentive Plan, the
Avedro, Inc. 2012 Equity Incentive Plan, as amended, and the Avedro, Inc. (f/k/a ThermalVision, Inc.) 2003 Stock Plan,
as amended;
(3) Registration Statement (Form S-8 No. 333-230017) pertaining to the Glaukos Corporation 2015 Omnibus Incentive
Compensation Plan and 2015 Employee Stock Purchase Plan;
(4) Registration Statement (Form S-8 No. 333-224822) pertaining to the Glaukos Corporation 2015 Omnibus Incentive
Compensation Plan and 2015 Employee Stock Purchase Plan;
(5) Registration Statement (Form S-8 No. 333-212106) pertaining to Glaukos Corporation 2015 Omnibus Incentive
Compensation Plan and 2015 Employee Stock Purchase Plan; and
(6) Registration Statement (Form S-8 No. 333-205372) pertaining to the Glaukos Corporation 2015 Omnibus Incentive
Compensation Plan, 2015 Employee Stock Purchase Plan, 2011 Stock Plan, and 2001 Stock Option Plan;
of our reports dated March 1, 2021, with respect to the consolidated financial statements of Glaukos Corporation and the
effectiveness of internal control over financial reporting of Glaukos Corporation included in this Annual Report (Form 10-K) for
the year ended December 31, 2020.
/s/ Ernst & Young LLP
Irvine, California
March 1, 2021
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a) OF THE
SECURITIES EXCHANGE ACT, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Thomas W. Burns, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Glaukos Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 1, 2021
/s/ THOMAS W. BURNS
Name: Thomas W. Burns
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) AND RULE 15d-14(a) OF THE
SECURITIES EXCHANGE ACT, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
I, Joseph E. Gilliam, certify that:
2002
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Glaukos Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 1, 2021
/s/ JOSEPH E. GILLIAM
Name: Joseph E. Gilliam
Chief Financial Officer & Sr. Vice President, Corporate Development
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, Thomas W. Burns, President and Chief Executive Officer of Glaukos Corporation (the “Company”), certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
the Annual Report on Form 10-K for the year ended December 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 1, 2021
/s/ THOMAS W. BURNS
Name: Thomas W. Burns
President and Chief Executive Officer
This certification accompanies and is being “furnished” with this Report, shall not be deemed “filed” by the Company for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that Section and shall not be deemed to be incorporated by reference
into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before
or after the date of this Report, irrespective of any general incorporation language contained in such filing.
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
I, Joseph E. Gilliam, Chief Financial Officer & Sr. Vice President, Corporate Development of Glaukos Corporation (the “Company”), certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
the Annual Report on Form 10-K for the year ended December 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 1, 2021
/s/ JOSEPH E. GILLIAM
Name: Joseph E. Gilliam
Chief Financial Officer & Sr. Vice President, Corporate Development
This certification accompanies and is being “furnished” with this Report, shall not be deemed “filed” by the Company for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that Section and shall not be deemed to be incorporated by
reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether
made before or after the date of this Report, irrespective of any general incorporation language contained in such filing.