Glaukos Medical: Small-Cap Firm with Big Opportunities

Glaukos Medical (GKOS) is an interesting small ophthalmic medical technology company.  GKOS, with 2016 revenues of around $110 million, has devised a “stent” that is surgically implanted in the eye to allow the organ to consistantly drain, reducing eye pressure.

According to the company, there are over 4.5 million people in the US with glaucoma, and 83 million inflicted worldwide.  The vast majority have open-angle glaucoma, which manifests itself through elevated intraocular pressure (IOP), aka high eye pressure.  GKOS believes the current global glaucoma treatment market is around $5 billion, and could grow to $7 billion in 2021.  

Left untreated, glaucoma can cause loss of vision, and is the leading cause for blindness across the globe.  Conventional treatments include eye drops multiple times a day, laser surgery, and invasive surgery.  However, each treatment has its severe drawbacks.  The drops are uncomfortable and for many patients causes consistent eye irritation; laser treatment results typically last only 1 to 5 years; and invasive surgery is highly complicated with lower success ratios.   Typically, eye drops are prescribed, but 40% to 60% of patients stop taking them.

I can appreciate the problems with the drops as I have been taking them for several months.  

There is a new area of treatment called micro-invasive glaucoma surgery, or MIGS.  Treatment typically involves implanting a device in the eye to relieve eye pressure, and is often used in connection with cataract surgery.   

Usually the treatment goal is to reduce IOP to the 15 range, with a reading of 20+ being the level to begin treatment.  In 2012, the FDA approved the GKOS stent, called iStent, after clinical trials showed a mean reduction in IOP from 23.0 to 14.9 after 3 years and to 16.3 after 5 years.  

iStent is the first and only FDA-approved MIGS implantable micro-surgical devise to help regulate eye pressure, but there are others in the works.  Competitors are working on similar devices (Alcon’s Cypass and Ivantis’ Hydrus drain tube pictured above next to a penny for comparison), but they are substantially larger in design and appear to be more cumbersome.  At 1 mm, iStent is quite a bit smaller than the 6.5mm Cypass or 8.0mm for Hydrus.  The iStent is smaller than the “L” in the word “Liberty” on the front-side of a Lincoln penny.  Pull one out of your pocket for comparison and you may be amazed at its small size.  iStent is also the smallest surgical device ever approved by the FDA.  

While there will eventually be competition, it seems the iStent product benefits and “first out of the gate” positioning will favor GKOS for some time.  

iStent has been approved for 100% reimbursement coverage by Medicare and most national private insurance companies approve of its use. 

There are currently 2,200 surgeons in the US approved to use iStent, out of a total of 5,500 surgeons who perform the majority of cataract surgeries. GKOS is expanding its surgeon base by around 60 per month, or about 30% annually.   GKOS is currently seeking 2 new FDA approvals for spin-off and improved designs of the iStent.  

Share prices collapsed in Jan 2015 from $25 to $15, based on a temporary slowdown of growth.  However, in May 2016, investors started to regain confidence in the GKOS story, and share prices climbed to over $30 by Aug, and the stock has traded between $30 and $40 since.  The current price is $34.  

William Blair, Wells Fargo, Piper Jaffery, Roth Capital, GMI, and Cantor Fitzgerald have GKOS rated as a buy or outperform with three analysts rating the stock as neutral.  The average price target is $41.    

Anticipated earnings per share are $0.12 in 2016, $0.22 in 2017, and $0.54 in 2018.  Revenues are anticipated to grow to $110 million, $142 million and $172 million, respectfully.  The firm lost
-$2.12 in 2015.  

Technically, the stock appears to be about its support range of $32, and if it falls below that level, it could hit $28. 

While the company has potential to continue growing in the 40% range, and is on the cutting edge of ophthalmic medical technology, it is difficult to peg a valuation on shares.  I like the exposure to a growing glaucoma medical treatment, but GKOS is not for the faint of heart as it is a very speculative buy.   Interesting but speculative.  


This article first appeared in the Jan 2017 issue of Guiding Mast Investments.  Thanks you for reading.  George Fisher