[creativ_pullleft colour=”light-gray” colour_custom=”” text=”Episode 052″]
MIGs leader Glaukos Corp. raised over $100 million in an IPO to expand its already commanding reach in the white hot MIGs Market. Now the company commands a market capitalization close to $1 billion, enriching the venture investors who committed more than $100 million in venture capital to the company. CEO Thomas Burns explains how Glaukos got where it is today and where he sees it – and the entire MIGs market – going.
Mr. Burns has provided the leadership for Glaukos since its founding in 2001 to create the premier device franchise in glaucoma treatment– a business that was recently ranked #19 by the Wall Street Journal in a review of over 5000 venture-backed companies.
Tom Salemi: : Tom Burns, welcome to the Podcast.
Tom Burns: : Well, thank you, Tom, thanks for having me today.
TS: : So what’s your assessment of the state of medtech? You may not know this, but Glaukos has kind of got rock star status right now. People are very excited, the folks I’ve talked to are very excited to hear that we’d be sitting down and chatting. They want to hear more about your story. In addition to your story, we’ve got Second Sight and the acquisition of Oculeve. Are we sort of entering a golden age of medtech in ophthalmology?
TB: : Yeah. So what I would say is that ophthalmology as a discipline I think was kind of late getting to the game with venture capital investing until at least early to mid-90s, when venture capitalists began to recognize the value of the ophthalmic market. So we have venture capital firms like Versant Ventures, Domain, InterWest, SV Live Sciences and others that began to actively invest sometime in that timeframe. So I think today what we’re seeing is really the fruits of many of these investment commitments that began really in earnest in the early 2000s time period. And because of that, I believe that the demonstrated success of this venture investing in ophthalmology is going to continue to produce these innovative companies for many years in the future.
TS: : You raise a great point. And Glaukos started in 98, Second Sight started in the 90s as well. I think Oculeve is the real outlier in this and has probably garnered some resentment from medtech folks for their quick exit. But good natured resentment, of course. Take us back to the beginning. Glaukos is one of those companies with its origins have some very personal roots, although Bergheim, when it was Domain, sort of got the ball rolling when a relative of his was diagnosed with glaucoma. And now here we are. We have the fruits of those labors of getting this effort started. How did Glaukos begin? I know you came in early on in the company’s history.
TB: : Yeah. So I was privileged to join Glaukos in 2002, shortly after its founding. But the company really had an altruistic beginning. Olav Bergheim is the life science investor here, prolific guy who’s built many, many companies in the medtech space, had a family member who had secondary glaucoma, and really had progressive, advanced stage of glaucoma that required bilateral trabeculectomies. So he brought him into Rick Hill, who then was a glaucoma specialist and a professor at UCI. And Rick diagnosed him, and talked about the procedures that were available, and really the high surgical morbidity associated with some of the trabeculectomies. And Olav was saying that there had to be a better opportunity. There had to be a better, more compelling treatment alternative. And Rick answered that he had a broad idea for the placement of an internal stent that could be placed an injected through, using the cornea as an entry point, and could be placed in a physiological outflow pathway, either the trabecular meshwork or suprachoroidal space, which would be able to relieve pressure and reduce medication burden of glaucoma. So Olav then recruited Maury Ghureed who’s a vice provost at Caltech University and aficionado in fluid mechanics. And they began pulling together and collaborating on the apparatus of what such a device would look like that would provide a patent opening in one of these physiological channels. And that really was the origin for the iStent. And when you talk about how we built the company since that time, since that was early in 2001, under the leadership of some pretty prolific people that I’ve had the privilege of working with here, Dave Haffner and Hal Heitzmann, they’ve been able to spawn many successive products based upon that platform, including the second generation iStent, a suprachoroidal stent, and then a product that we recently disclosed, which was an IDOSE device which could deliver long term drug delivery for the treatment of glaucoma.
TS: : And over that time, you’ve raised a significant amount of venture capital. We talked earlier on about how VCs really started getting into ophthalmology in the late 90s. What was that experience like, raising that venture capital, and when was it apparent to you, kind of shifting into current day, that an IPO was in the offing and was possible?
TB: : Yeah. So any time that you’re a privately held company in need of some significant capital to be able to develop this successive pipelines of products for glaucoma, that’s an onerous task. I would tell you that over the course of the last decade and a half there were – we raised $156 million of Enterprise capital, and it was difficult at times. There are times when the timing of either your interactions with the FDA or product development or sometimes external factors sometimes will make it an inopportune time to be able to approach some of these venture capitalists. But we were successful in doing so over the course of the last decade and a half in 6 rounds of financing, raised every round at a significant step to the prior round, and were able to really husband our capital and prevent dilution in being able to get Enterprise capital for the company. And so we brought it to a state where we had to really be able to wring really as much commercial and clinical risk out of the company as possible, and we did so, I think, with the launch of the iStent in late 2012. In our first year we did $21 million in sales from a standing start, and producing gross margins on the order of 80+%. And then Chris Calcaterra and his team were able to kind of double down and create in the second year, generate $46 million in sales and increase the company about 120% year on year in sales growth. So when you look at that kind of results, rapid adoption of the product, this is a large and burgeoning marketplace fulfilling an unmet clinical need, I think that put us in the appropriate position then to seek public market entry and be able to create the value for the company that we see today.
TS: : Did you have to make any difficult decisions along the way? Obviously you did; everyone does. But in terms of pipeline, you’ve been able to build a broad pipeline that you had outlined earlier. Often we hear venture capital backed companies sort of have to decide to focus on maybe one or two companies to start to get the company to closer to the finish line, and then work on broadening the pipeline. How were you able to do both, to advance the product that has driven this company forward, but also develop a line of complimentary products?
TB: : Well, I think first of all, I’m blessed with immensely capable teams. That would one. Two, I’ve been able to – we’ve been able to generate the Enterprise capital to be able to fund multiple development pathways as we move forward. And three, I’d say that I have a highly supportive board. So I think most companies, especially private held venture capital companies will be kind of singularly focused on a device that they can get to the marketplace and then be able to create value and come up with a compelling exit strategy. It’s been our position and my position from the beginning to build a broad pipeline that could create a formidable company in ophthalmology, and with its first major target being glaucoma, that could provide the ability to have a durable, competitive leadership position for the next couple of decades. So in order to do that, we needed to have a serial development of products that would, at each stage, be able to expand the market and bring this product into indications that would make it more available for a more expanded offering for global patients who are afflicted with glaucoma worldwide.
TS: : And were you – this’ll be one of those points that I edited out –
TB: : Sure. OK, before you go any further, are these answers pretty colloquial or are they sounding more stilted or –
TS: : No, I think they sound fine. I think they’re good. You’re keeping a good sense of the length. Sometimes people tend to answer very long, myself included. No, I think they’re great. We’ll start back up. Would you be able to – or would someone else be able to start a company like Glaukos today? This is one of these sort of pure traditional medtech companies that had a very big idea and required a lot of capital to do it. The VC market today is much different than it was in the late 90s, even though that wasn’t a great time for medtech VCs, but certainly things picked up in the 2000s. But do companies like Glaukos, do you think, still get funded today?
TB: : Well, I think it’s become increasingly difficult for young entrepreneurs to be able to enter and to raise the capital necessary, certainly to do what we did, which was to create this broad pipeline of successive products to build a complete franchise in glaucoma. And so I would say that given the long cycles that venture capitalists now have become exposed to and kind of more onerous regulatory paths, it is more difficult for more young serial entrepreneurials or companies that are engaging at a very early seed or series A round to be able to raise money. Not impossible. There are still elegant and compelling innovative ideas that are being funded, but it has become more difficult.
TS: : You’ve worked with Eyetech and Chiron, and now of course Glaukos. You’ve got great experience. Would you have any insights or advice to offer someone out there who’s listening, who they think has a big idea and wants to get VCs interested?
TB: : Well, I think you need to go through the fundamentals. And I think the scrutiny has become even more kind of onerous today from venture capitalists who are seeking appropriate returns from their money at earlier stages. And so I think it comes down to blocking and tackling, understanding that you have a large, burgeoning market with an unmet clinical need, making sure you have a formidable IT patent state to cover that product, making sure you understand the market, how you’re going to get adoption, including reimbursement. Reimbursement is, I think, a particularly undervalued skill that new companies that are entering new markets need to acquire as they go into the commercial phase. And then I think finally pricing, and as part of that, the coverage for reimbursement become critical to understanding what kind of market adoption you’re going to get and what kind of value you’re going to create. If you can create those kind of compelling, blocking and tackling checkboxes and provide a return on investment scenario that makes sense to a venture capital community, then I think you have every reasonable chance of being funded with an innovative idea.
TS: : Let’s get into reimbursement. You’ve obviously had some success there, some great success. Within your clinical trial, you actually managed to obtain or secure reimbursement for your product during one of your trials, at least. How did you come to get the – what kind of approval did you need to get that reimbursement, and how did that all come together?
TB: : Yeah. So what we did is we actually took the option and action of filing for a category P2 designation as part of our first clinical trial of iStent back in the mid-2000s. And by doing so, what that allowed us to do was to charge for our stents or have the customer’s bill for our stents as part of their investigative clinical trial. Now in doing so, what that did was half those billings go to the Medicare administrative contractors over several years, who adjudicated the iStent, got to know the product, and in some cases, already had pre-approved the product prior to our commercial entry. So we took advantage of an opportunity to charge for the stents, to build a charge history with CMS and with the Medicare administrative contractors. And because of that, when we hit the ground running with an approval of June in 2012, we were quite fortunate with not only the early reimbursement, but we were able to secure full 100% Medicare reimbursement within the first 7 months of a medtech device launch. And I think that resonated with the investment community and certainly resonated with our customers, and aided in the early adoption of the iStent.
TS: : And what do you need to show to get the ability to reimburse during a clinical trial? What do you need to show? Why doesn’t every device company do that?
TB: : I’m not sure I can answer that. I think what you just need to be able to submit for billing as part of using the iStent, and then you build up a charge history, which then CMS will look at at the appropriate time as you head for coding and coverage. And as well as the [max?], who will take any new technology and assess it based upon its safety and efficacy and the published data that’s available. So similar to all products, they are evaluated on both medical need and the kind of consistency of their performance. But importantly, what we did is by engaging that process several years prior to our commercial launch, we were that much better ahead of the game.
TS: : And how would you rank your exchanges with the FDA overall? You’ve had that success obviously with the reimbursement, but in clinical trial design and other areas, did you find it to be a relatively smooth ride? Or were there some significant bumps along the way?
TB: : I think you appropriately characterized it as a partnership that clearly was developed over several years. And out of that partnership we were able to create really what is recognized as the dedicated regulatory pathway today for the approval of a mixed device. And because of that, the pathway that we’ve established with the FDA has become the predicate that other MIGS companies employ as we speak today.
TS: And how about in reimbursement? You mentioned the Medicare reimbursement, which is great news. You’re still working, though, with the CTP3 code, which is the clinical temporary code you received several years back, and I guess you got a renewal a few years ago. How important is it for you to upgrade that to a CPT1 code? And is that something you’re working toward in the future?
TB: : Well, what I would say is that our category 3 today has provided us with really fair, broad, and consistent physician reimbursement. And its corresponding approved product code, which is APC673, has provided for consistent reimbursement for facilities, as well as for us to charge for our device. And so we’re in no – we have no sense of urgency in converting to a category 1 code. It’s at really at our election. The category 3 code that we have today will sunset at the end of the decade, so we have the ability to convert as we choose at any time over the course of the next several years. In doing so, we think we have more than strong and broad physician support and societies support to do so. So it’s really just an elective that we’ll choose to engage and to take action when we think it best serves the company and serves our customer.
TS: : How have you been so successful in getting your hands into the tools, into the hands of surgeons and of course the eyes of patients? I mean MIGTS, it’s an area unlike any other, where there’s just such a ground swell of enthusiasm about the potential, from Glaukos and other companies in this space as well. How did that begin to form, and how do you take advantage of that and keep moving the ball forward?
TB: : Sure. Well, I’d say first of all, one of the things that we’ve been privileged to be able to respond to is an exceedingly high unmet clinical need. And so today, for advanced patients, the only alternative for these glaucoma patients are end stage filtration procedures and aqueous shunt implantations, which are associated with really high rates of surgical morbidity. Likewise, topical meds, glaucoma drops, which are the mainstay of treatment, are subject to really ubiquitous and rampant non-adherence and non-compliance. And so there was this kind of burgeoning unmet clinical need that we were abler to be able to address with the iStent. And in doing so, I think we did so in a very methodical and prudent way. So Chris Calcaterra and his team here were able to come up with a training program that really is mandated, in which adopting surgeons follow, where they will go through a webinar series of several chapters, take a quiz at the end of that. They’ll engage with our representatives to conduct wet lab training, and then our representatives will spend the time necessary to train the surgeons in their early cases until they get their sea legs and feel fully accomplished in placing the device. And typically we see that happen in a very short period of time. Over the course of probably 10 to 15 cases, surgeons become reasonably acclimated and are able to place the iStent. And so by resisting the temptation to aggressively approach the market and seek kind of broad adoption, which a lot of companies tend to do, we actually went with a very methodical, controlled clinical launch, which we think then has really summarily aided us in providing a highly safe and effective product in the marketplace, and I think will benefit both us and other companies that enter in the MIGS space, because we’ve had such a successful safety and efficacy record with the iStent.
TS: : What do you think this market looks like in five years, as we get more products approved by the FDA? Is there enough for everyone to sort of grow at a pace? Or does there need to be one, or will there, do you think, be one dominant player, and I’m guess you would put your money on Glaukos?
TB: : Well, I’d like to believe there’ll be one dominant player, but what I would say is that the market is – we’re very much in an embryonic state of penetration, so there is a large opportunity to be able to fulfill a marketplace that we believe right now, the current addressable market in the United States is anywhere from 550 to 700,000 patients who could benefit from the iStent placed in combination with cataract surgery. So that would be one. Two, one of the things that we’re going to lead is the use of this product into patients with – into pseudophakic and phakic glaucoma patients as a standalone procedure. So that will allow us to approach another significant portion of the marketplace, actually several times order of magnitude of the combined comorbidity market of cataract surgery glaucoma. So we’re currently in an approved FDA clinical trial which evaluates the safety and efficacy of our second generation iStent Inject, which is going to be – we’re seeking indication for use of phakic and pseudophakic glaucoma patients. I think what we’ll end up doing, and I think we will provide the leadership in MIGS, we’ve built the market place; we’ll continue to provide leadership. We will transform the market into a market of injection therapy. So much like we see injections taking place to the back of the eye for chronic diseases like AMD and DME, we will propose will be to really the anterior portion of the eye, and providing the single injection that could provide therapy for millions of glaucoma patients for extended periods of time, and we hope for several years of therapy with a single injection of the iStent. So by doing so, I think then we create MIGS not just as an adjunctive procedure in combination with cataract, but as a compelling alternative to early intervention with glaucoma and competing with topical drops, which currently dominate the marketplace. So when you ask me will it be plenty for everybody, I think every competitor will have an opportunity to establish some position within the glaucoma framework, and I think we will take leadership position of creating a whole new marketplace on the phakic and pseudophakic side in standalone procedures, which will provide for really aggressive growth of the overall marketplace, really incendiary growth. And I think finally, as you probably have read in our recent S-1, we are looking at placing ophthalmic drugs inside of the platform that we’ve created with an abinternal placement. By using this drug therapy, we think will address a significant need in the marketplace that deals with the non-compliance and non-adherence associated with topical drops with a single injection of our platform we think will provide several months of therapy, and we think this will resonate with the glaucoma community. And so that will put us in a wholly new portion of the marketplace then to address surgeons who are seeking and ophthalmic clinicians who are seeking a long term solution to the treatment of glaucoma.
TS: : Do you see a need for Glaukos to own these drugs or just license them? Does this going public and having all these funds enable you to really build out into a broad glaucoma company with both drugs and devices?
TB: : I think so. I mean I think as you see the portfolio that we’ve created, I would suggest that we’re probably already there. And I think by raising this additional significant capital, we then will have the impetus to move forward and to build on this platform, and provide a number of different salient alternatives that will treat the full range of glaucoma progression, which are use both outflow mechanisms and drug mechanisms.
TS: : That’s exciting. Final question just about the IPO itself: how is ophthalmology, do you think, viewed by public investors? On the biopharma side, due to clinical results or clinical trials that didn’t produce the anticipated results, we’ve seen some ups and some downs. You’ve been pretty steady in your price, so it’s effectively being seen as a different company. But is there a lot of enthusiasm about ophthalmology? Is it seen as a new frontier for medtech and for medicine in the eyes of those important public investors?
TB: : I think it is. I mean I think there has been kind of a pent-up demand within both the institutional investment community and certainly with analysts to be able to identify innovative companies that are able to kind of reach and be able to create massive markets within ophthalmology. And I’d like to believe we’re considered among those. And so I see this demand; I see people who call me daily asking about the company, asking how they can get involved and trying to learn more. And I think there is this need to see aggressive building of formidable companies develop within ophthalmology. So we’ve been the beneficiary of that movement and I think we have struck a chord with our IPO, clearly with institutional investors who have provided certainly a validation of the decade plus of hard work that we’ve conducted here with, we think, a very robust valuation.
TS: : Great. Well, we’re the beneficiary of having you as part of the Ophthalmology Innovation Summit community and having you on this Podcast. We appreciate the excitement that MIGS overall and that Glaukos is bringing to the sector.
TB: : Well, Tom, I appreciate it as well, and look forward to talking with you in the future.
TS: : Thanks for being on the show.
TB: : OK, thank you.