Organization and Basis of Presentation	9 Months Ended
Sep. 30, 2019
Organization and Basis of Presentation
Organization and Basis of Presentation	Note 1. Organization and Basis of Presentation Organization and business Glaukos Corporation (Glaukos or the Company), incorporated in Delaware on July 14, 1998, is an ophthalmic medical technology and pharmaceutical company focused on the development and commercialization of novel therapies designed to treat glaucoma, corneal disorders and retinal diseases. The Company initially developed Micro-Invasive Glaucoma Surgery (MIGS) to address the shortcomings of traditional glaucoma treatment options. MIGS procedures involve the insertion of a micro-scale device or drug delivery system from within the eye’s anterior chamber through a small corneal incision. The Company’s MIGS devices are designed to reduce intraocular pressure (IOP) by restoring the natural outflow pathways for aqueous humor. The Company’s MIGS drug delivery systems are designed to reduce IOP by continuously eluting a glaucoma drug from within the eye, potentially providing sustained pharmaceutical therapy for extended periods of time. Glaukos intends to leverage its capabilities to build a portfolio of micro-scale surgical and pharmaceutical therapies in corneal health and retinal disease as well. The accompanying condensed 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. Basis of presentation The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements. As permitted under those rules, certain footnotes and other financial information that are normally required by GAAP have been condensed or omitted. In the opinion of management, the unaudited interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for the fair presentation of the Company’s financial information contained herein. The condensed consolidated balance sheet as of December 31, 2018 has been derived from audited financial statements at that date, but excludes disclosures required by GAAP for complete financial statements. These interim financial statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2018, which are contained in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 28, 2019. The results for the period ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other interim period. Proposed Acquisition of Avedro, Inc. On August 7, 2019, the Company entered into an Agreement and Plan of Merger by and among Glaukos, Atlantic Merger Sub, Inc. (Merger Sub) and Avedro, Inc. (Avedro), pursuant to which Merger Sub will merge with and into Avedro, with Avedro continuing as the surviving corporation and a wholly owned subsidiary of the Company (the Merger). The Merger is subject to certain closing conditions, including but not limited to, the adoption of the Agreement and Plan of Merger by holders of a majority of the outstanding common stock of Avedro entitled to vote which is expected to occur on November 19, 2019. The closing of the Merger was also subject to the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act); however, early termination under the HSR Act was granted on August 28, 2019. If all remaining conditions are satisfied, upon the closing of the Merger, all issued and outstanding shares of Avedro common stock will be automatically cancelled and converted into the right to receive a number of shares of Glaukos common stock equal to the product of the number of shares of Avedro common stock multiplied by 0.365. The Company filed a Registration Statement on Form S-4 with the SEC on September 17, 2019 (the Registration Statement) to register the issuance of shares of Glaukos common stock to Avedro stockholders upon closing of the Merger, which was declared effective by the SEC on October 17, 2019. The Merger is expected to close in the fourth quarter of 2019. Following the Merger, existing Glaukos stockholders are expected to own approximately 85% of the combined company, with the former Avedro stockholders expected to own the remaining 15%, on a fully diluted basis. Avedro provides several corneal strengthening solutions, including Photrexa, a bio-activated pharmaceutical therapy for the corneal cross-linking treatment of keratoconus. Through 2018, over 400,000 procedures have been performed globally with Avedro’s products, including more than 18,000 procedures performed in the United States alone. The Merger is intended to expand the Company’s portfolio of pipeline products beyond the treatment of glaucoma to include pharmaceutical therapies for the treatment of corneal disorders as part of the Company’s strategic objective to build a portfolio of micro-scale surgical and pharmaceutical therapies in corneal health and retinal disease. Licensing Arrangement with Intratus, Inc. On July 22, 2019, the Company entered into a global licensing agreement with Intratus, Inc. (Intratus) for $1.5 million in cash, plus future performance-based consideration upon achievement of certain development, regulatory approvals and commercial milestones and royalties on commercial sales, pursuant to which the Company obtained an exclusive, royalty-bearing license to research, develop, manufacture and commercialize Intratus’ patented, non-invasive drug delivery platform designed for use in the treatment of dry eye disease, glaucoma and other corneal disorders such as blepharitis, conjunctivitis and related conditions. The $1.5 million payment was immediately expensed to in-process research and development (IPR&D) as management determined there were no alternative future uses for the technology acquired. Acquisition of DOSE Medical On June 19, 2019, the Company entered into a definitive agreement and plan of merger to acquire DOSE Medical Corporation (DOSE) for $2.5 million in cash, plus potential future performance-based consideration upon achievement of certain regulatory approvals and commercial milestones and royalties on commercial sales (the DOSE Merger). If certain DOSE products receive United States Food and Drug Administration (FDA) approval within ten years following the closing of the DOSE Merger, the Company will pay the DOSE shareholders amounts between $5.0 million and $22.5 million, depending on the type of DOSE product approved. The Company will pay additional performance-based payments to DOSE shareholders if within ten years of closing of the DOSE Merger, such DOSE products receive approval from the EU European Medicines Agency, in which case the Company will pay the DOSE shareholders either $1.25 million and/or $2.5 million, depending on the type of DOSE product approved. Following FDA approval of such DOSE products, the Company will pay the DOSE shareholders quarterly royalty payments equal to 5% of net sales of such DOSE products for a period of ten years. The Company will also pay the DOSE shareholders additional performance-based payments of $7.5 million and $20.0 million upon the achievement of certain net sales milestones with respect to such DOSE products. Finally, under the terms of the DOSE Merger, the Company may elect to buyout the additional milestone and royalty payments described above by paying former DOSE shareholders between $10.0 and $55.0 million, depending on the type of DOSE product involved. On June 27, 2019, the Company completed its acquisition of DOSE and DOSE became a wholly-owned subsidiary of the Company. The transaction was accounted for as an asset acquisition. Of the $2.5 million initial cash payment, $2.2 million was immediately charged to IPR&D expense as management determined there was no alternative future use related to the single group of identifiable assets purchased. The remaining $0.3 million of upfront consideration was capitalized as property & equipment, net and is being depreciated over the corresponding asset’s useful life. Management will account for the payment of the future performance-based consideration if and when earned. DOSE was previously a wholly-owned subsidiary of the Company. In 2010, it was spun-out as a standalone entity and was accounted for as a consolidated variable interest entity. In 2015, the Company acquired the iDose product line and related assets from DOSE and upon the acquisition, the Company derecognized DOSE as a consolidated variable interest entity in the financial statements, and in 2017 the Company acquired DOSE’s IOP sensor system. Thomas W. Burns, the Company’s President, Chief Executive and a member of its board of directors, and William J. Link, Ph.D., Chairman of the Company’s board of directors, served on the board of directors of DOSE and certain members of the Company’s management and board of directors held an equity interest in DOSE prior to being acquired by the Company.

Organization and Basis of Presentation

9 Months Ended

Sep. 30, 2019

Organization and Basis of Presentation

Note 1. Organization and Basis of Presentation

Organization and business

Glaukos Corporation (Glaukos or the Company), incorporated in Delaware on July 14, 1998, is an ophthalmic medical technology and pharmaceutical company focused on the development and commercialization of novel therapies designed to treat glaucoma, corneal disorders and retinal diseases. The Company initially developed Micro-Invasive Glaucoma Surgery (MIGS) to address the shortcomings of traditional glaucoma treatment options. MIGS procedures involve the insertion of a micro-scale device or drug delivery system from within the eye’s anterior chamber through a small corneal incision. The Company’s MIGS devices are designed to reduce intraocular pressure (IOP) by restoring the natural outflow pathways for aqueous humor. The Company’s MIGS drug delivery systems are designed to reduce IOP by continuously eluting a glaucoma drug from within the eye, potentially providing sustained pharmaceutical therapy for extended periods of time. Glaukos intends to leverage its capabilities to build a portfolio of micro-scale surgical and pharmaceutical therapies in corneal health and retinal disease as well.

The accompanying condensed 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.

Basis of presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X.

The unaudited interim financial statements have been prepared on a basis consistent with the audited financial statements. As permitted under those rules, certain footnotes and other financial information that are normally required by GAAP have been condensed or omitted. In the opinion of management, the unaudited interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for the fair presentation of the Company’s financial information contained herein. The condensed consolidated balance sheet as of December 31, 2018 has been derived from audited financial statements at that date, but excludes disclosures required by GAAP for complete financial statements. These interim financial statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the fiscal year ended December 31, 2018, which are contained in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (SEC) on February 28, 2019. The results for the period ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other interim period.

Proposed Acquisition of Avedro, Inc.

On August 7, 2019, the Company entered into an Agreement and Plan of Merger by and among Glaukos, Atlantic Merger Sub, Inc. (Merger Sub) and Avedro, Inc. (Avedro), pursuant to which Merger Sub will merge with and into Avedro, with Avedro continuing as the surviving corporation and a wholly owned subsidiary of the Company (the Merger). The Merger is subject to certain closing conditions, including but not limited to, the adoption of the Agreement and Plan of Merger by holders of a majority of the outstanding common stock of Avedro entitled to vote which is expected to occur on November 19, 2019. The closing of the Merger was also subject to the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act); however, early termination under the HSR Act was granted on August 28, 2019. If all remaining conditions are satisfied, upon the closing of the Merger, all issued and outstanding shares of Avedro common stock will be automatically cancelled and converted into the right to receive a number of shares of Glaukos common stock equal to the product of the number of shares of Avedro common stock multiplied by 0.365. The Company filed a Registration Statement on Form S-4 with the SEC on September 17, 2019 (the Registration Statement) to register the issuance of shares of Glaukos common stock to Avedro stockholders upon closing of the Merger, which was declared effective by the SEC on October 17, 2019. The Merger is expected to close in the fourth quarter of 2019. Following the Merger,

existing Glaukos stockholders are expected to own approximately 85% of the combined company, with the former Avedro stockholders expected to own the remaining 15%, on a fully diluted basis.

Avedro provides several corneal strengthening solutions, including Photrexa, a bio-activated pharmaceutical therapy for the corneal cross-linking treatment of keratoconus. Through 2018, over 400,000 procedures have been performed globally with Avedro’s products, including more than 18,000 procedures performed in the United States alone.

The Merger is intended to expand the Company’s portfolio of pipeline products beyond the treatment of glaucoma to include pharmaceutical therapies for the treatment of corneal disorders as part of the Company’s strategic objective to build a portfolio of micro-scale surgical and pharmaceutical therapies in corneal health and retinal disease.

Licensing Arrangement with Intratus, Inc.

On July 22, 2019, the Company entered into a global licensing agreement with Intratus, Inc. (Intratus) for $1.5 million in cash, plus future performance-based consideration upon achievement of certain development, regulatory approvals and commercial milestones and royalties on commercial sales, pursuant to which the Company obtained an exclusive, royalty-bearing license to research, develop, manufacture and commercialize Intratus’ patented, non-invasive drug delivery platform designed for use in the treatment of dry eye disease, glaucoma and other corneal disorders such as blepharitis, conjunctivitis and related conditions.

The $1.5 million payment was immediately expensed to in-process research and development (IPR&D) as management determined there were no alternative future uses for the technology acquired.

Acquisition of DOSE Medical

On June 19, 2019, the Company entered into a definitive agreement and plan of merger to acquire DOSE Medical Corporation (DOSE) for $2.5 million in cash, plus potential future performance-based consideration upon achievement of certain regulatory approvals and commercial milestones and royalties on commercial sales (the DOSE Merger). If certain DOSE products receive United States Food and Drug Administration (FDA) approval within ten years following the closing of the DOSE Merger, the Company will pay the DOSE shareholders amounts between $5.0 million and $22.5 million, depending on the type of DOSE product approved. The Company will pay additional performance-based payments to DOSE shareholders if within ten years of closing of the DOSE Merger, such DOSE products receive approval from the EU European Medicines Agency, in which case the Company will pay the DOSE shareholders either $1.25 million and/or $2.5 million, depending on the type of DOSE product approved. Following FDA approval of such DOSE products, the Company will pay the DOSE shareholders quarterly royalty payments equal to 5% of net sales of such DOSE products for a period of ten years. The Company will also pay the DOSE shareholders additional performance-based payments of $7.5 million and $20.0 million upon the achievement of certain net sales milestones with respect to such DOSE products. Finally, under the terms of the DOSE Merger, the Company may elect to buyout the additional milestone and royalty payments described above by paying former DOSE shareholders between $10.0 and $55.0 million, depending on the type of DOSE product involved.

On June 27, 2019, the Company completed its acquisition of DOSE and DOSE became a wholly-owned subsidiary of the Company. The transaction was accounted for as an asset acquisition. Of the $2.5 million initial cash payment, $2.2 million was immediately charged to IPR&D expense as management determined there was no alternative future use related to the single group of identifiable assets purchased. The remaining $0.3 million of upfront consideration was capitalized as property & equipment, net and is being depreciated over the corresponding asset’s useful life. Management will account for the payment of the future performance-based consideration if and when earned.

DOSE was previously a wholly-owned subsidiary of the Company. In 2010, it was spun-out as a standalone entity and was accounted for as a consolidated variable interest entity. In 2015, the Company acquired the iDose product line and related assets from DOSE and upon the acquisition, the Company derecognized DOSE as a consolidated variable interest entity in the financial statements, and in 2017 the Company acquired DOSE’s IOP sensor system. Thomas W. Burns, the Company’s President, Chief Executive and a member of its board of directors, and William J. Link, Ph.D., Chairman of the Company’s board of directors, served on the board of directors of DOSE and certain members of the Company’s management and board of directors held an equity interest in DOSE prior to being acquired by the Company.