Stifel Sees Near-Term Concerns At Glaukos Overshadowing Long-Term Bullishness

Jonathan Block of Stifel initiated coverage of ophthalmic medical technology company Glaukos Corp GKOS with a Hold rating, saying near-term concerns overshadow long-term bullishness. "In the coming years, we expect Glaukos' total addressable market (TAM) to expand significantly as new offerings (Inject, Supra, and iDose) pass through the regulatory pathway. However, in the near term (2H17 and 2018), our diligence raises some concerns regarding the impact from competition, notably Transcend Medical's (recently acquired by Alcon) CyPass," Block wrote in a note to clients. "While MIGS market growth appears very healthy, CyPass' potential entrance may disrupt market share, tempering our long-term bullishness," he added. According to the analyst, Inject concomitant could potentially increase 2019 revenue and gross profit by $16.0 million and $15.0 million, respectively, for Glaukos, which pioneered Micro-Invasive Glaucoma Surgery, or MIGS. Block noted that though Glaukos' primary opportunity is the $790 million to $1.1 billion U.S. concomitant mild-to-moderate MIGS/cataract market, the company also has a robust product pipeline that should dramatically increase its TAM over time. "Specifically, the company's iStent Inject would place multiple stents (likely two) into the Schlemm's canal, further increasing aqueous outflow in an attempt to achieve a greater reduction in intraocular pressure (IOP). U.S. approval for use in combination with cataract surgery is possible in mid-2018," Block elaborated. That said, Block noted near-term (2H17 and 2018) concerns regarding the impact from competition, notably Transcend Medical (recently acquired by Alcon). The company has submitted the final PMA module of their CyPass stent in October 2015, setting up a potential FDA approval decision in 2017. As a result, the analyst rates the stock Hold and sees 2018 revenue of $128.6 million, lower than consensus view of $144.4 million. For fiscal 2016, the analyst expects a loss of $0.29 a share and revenue of $92 million, while fiscal 2017 loss is estimated at $0.10 a share on revenue of $109.2 million. Shares of California-based Glaukos closed Thursday's regular trading session at $17.10. The stock has fallen 31 percent this year.