Global Growth Fireside Chat Series
Featuring Glaukos Corporation

Ragu: Joe and Alex welcome to the Fireside Chat with Global Upside. As you know, my name is Ragu Bhargava, I am the CEO and why don’t you introduce yourselves quickly?

Joe: Sure. Thank you for having us. I am Joe Gilliam, the Chief Financial Officer and Senior Vice President, Corporate Development here at Glaukos.

Alex: Yes. Hi, I am Alex Thurman, the ‎Vice President of Finance and Accounting here at Glaukos.

Ragu: Well, thank you both, and thank you for being on the chat. Let’s dive into a few questions. Tell us about Glaukos and the company’s mission.

Joe: Sure, I am happy to, and Alex you want to add anything you can. So, Glaukos was founded back in 1998. It has been around for quite some time but as is the case with many emerging healthcare companies the first, I am doing the math in my head, I think it was 14 years were spent in developing our initial product. So, our primary focus is in glaucoma, corneal health, and retinal disease in ophthalmology. Our first product actually was in glaucoma, in an area that we coined and termed Minimally Invasive Glaucoma Surgery or MIGS. The purpose of that was to step in the middle of the existing treatment paradigm for glaucoma, whereby patients who were afflicted with this condition would be treated with one medication and then two medications, three medications, sometimes four medications, and eventually if the disease continues to progress they would end up with a pretty invasive surgery. The idea of MIGS was to disintermediate that and create a safe alternative in the middle for patients to hopefully prevent them from having to get to that end-stage for invasive surgery. And that was the genesis of Glaukos in the invention that started it all back in 1998 on a cocktail napkin.

I do not remember the exact amount but let us say it was 14 years and $100 million or more. Later, we got our first product approved, the iStent in mid-2012. And that began the journey that we have been on for most of the last decade as we commercialize that platform. We have added in additional products both organically and through acquisition and built the company more broadly from a, I will call it, single product US-centric company to a multi-product global direct enterprise that we are today.

Ragu: So we will get into the global aspects of your business in a minute but what is it like working at Glaukos – the culture of the company, especially these COVID times it is even more important?

Alex: Ragu let me answer that question for you. So, it is a great question, one we would love to answer. I would say the culture here at the company is one of the large extended family and that started way back at the beginning with our CEO. He wanted to develop this very tight-knit family-like culture and along the way, along these twenty-plus years that the company has been in existence, he has been very keen to try and maintain that culture. And, you know, to this day we still have very family-oriented activities such as have a big Halloween party and a big Thanksgiving day lunch and things of those nature to try and keep everyone feeling like a family and helping one another. That has been a great culture to work in, to know that if I have questions in other departments or need help that I can reach out to my colleagues and I am not going to get stonewalled or there are not those feelings of silos that some organizations have. It is a very cooperative and collaborative organization. And I will just briefly mention the second culture that our CEO is trying to install is one of giving back. He is very keen on giving back to the community and in a sense, giving thanks for the blessings that the company and the success that we have had. So there are a lot of volunteers and other opportunities to give back to the community.

Ragu: Yes, and you guys have had very good success so I am sure that the organizations you are contributing to are extremely happy with your relationships with them. But that is pretty impressive about the culture and Global Upside is about 20 years old also and we also want to maintain that culture of very professional environment whereas the employees are treated like family. And it has been really hard during COVID because you cannot reach out to people, you do not see them ever. But you know hopefully, it is still coming through.

Joe: It probably has been, Ragu, the most difficult thing through COVID, right. I mean, most of us have managed to develop or bring forward technologies that remain connected. But it is that loss of everyday interaction in the hallways of the company that you miss the most, and the collaborative and family-like relationship that you have, you cannot replace with a video screen. And for us in the field even commercially, in a similar fashion, you know our Salesforce can do a lot via tools like the one we are on. But that will never replace the relationship they have with the doctors and the office staff or the clients that we have around the world. And so getting them back into those accounts, in that dialogue, person to person, is something we look forward to very much.

Ragu: Absolutely, absolutely. So maybe one of you can tell us about the growth over the years that Glaukos has experienced?

Joe: Yeah. Well, so first of all, just from a numbers perspective, and setting aside COVID, what I can say is, that you know, from a standing start of zero back in 2012, grown annually well over 40% a year through 2019, where we had almost 230, a little over 237 million of revenue. Along the way, we have diversified that to the point that was at the beginning, those first several years dominated by US revenues, whereas today, the international part of our businesses is a little more than 20% of our overall franchise. So an important part of our overall growth. I will tell you the other thing that probably we spend as much time on is just what that means in terms of the day-to-day operations of Glaukos. So if we break it down the people, processes, and systems. And when you are a venture-backed startup, as a company, you do not come with legacy, any of those things, people, processes, or systems.

So the biggest evolution for us has been if you take each one, from a people perspective, from what was that incubator team of 20,30, 40 people to now a worldwide employee base of over 750, quickly going towards 1000. When you think about processes in which you did not have many, and now you have got the controls and checkpoints and analytics, and the tools to try to understand and digest a growing business, both in terms of people and in terms of revenues, and complexity. And in the systems, we have made a big step forward, as you know, well, in the most recent year where we have gone from the kind of original, I will call it tier 1 type or smaller ERP system to now, Oracle Enterprise-wide, have been significant evolution points for us over a great many years that are certainly coming together as we speak now.

Ragu: It is quite a story to go from the back of a napkin to 750 people, and like you said, growing to 1000.

Joe: Yes. You know it is exciting right here, but we spend more time on that than about anything else. Right? And it ties into your prior question. As you grow and the scale and complexity grow, how do you maintain that culture, right? While continuing to innovate, while continuing to generate incremental sales, and everything else we expect to do? It is a formidable challenge for any company, and we are no different.

Ragu: And how many countries are you in today Joe with your own people?

Joe: So you can divide that and look at that in a couple of different ways. We currently have direct full operations in 17 countries around the world, including the United States, within and that spans Asia, primarily in Japan and Australia, Western Europe, and then what we call the Americas, which includes Canada, Brazil, and the rest of Latin America. But we also have other countries where we have what I will call more of a hybrid model. So we may use a distributor for logistics and all of the things that are relevant to that market, but where we have direct employees that are helping to drive, Doctor education training, and that initial launch, we find when you are pioneering a new category, you have to agree to have boots on the ground to help change the thinking and physician behavior around that category. So we have done that in say, a dozen or so other countries, in addition to the 17^th that was fully directed.

Ragu: So that is quite a footprint, Joe in about 30 countries or so. Tell me why is it important – the global strategy on one side and how did you know where to go? Like, why did you pick Japan versus South Korea or any other country?

Joe: Yes. Well, first of all in traditional ophthalmology markets and every market is a little bit different in terms of the International versus US opportunity, especially in healthcare. In ophthalmology, the international opportunity tends to be equal to that of the US. So if you think the US is a billion-dollar market, the global market might be too. So number one, financially, there is a huge opportunity outside the US. In fact, international markets in vision care, have been growing much faster than the US because increasingly in countries they are getting more and more access to preventive and primary vision care that they have not had in prior generations. And that is driving more and more procedures, therapeutics, and otherwise to help treat the conditions in our case glaucoma, retina, and corneal conditions.

So for us, it is a combination of our experience in these markets and the opportunity size that we see within them now often comes down to a couple of factors, the degree of vision care penetration, right? How many people have access to primary care, ophthalmology diagnosis, and treatment? The amount of spending that countries do per capita or per procedure. Another way of saying, do they fairly reimburse for products versus not, right, when, when procedures are being done, and how much capital are they putting towards health care generally, is another metric that we look at as we evaluate these countries. And then just the, we will call it the degree of straightforwardness of doing business in a country. And as we all know, we will talk about more, I think there are certain countries that are far more complex to operate in than others. And so as we thought about the prioritization, it was about that market-sized opportunity, and then our ability to operate within that country’s borders, and hopefully, successfully execute on our vision and our products.

Ragu: So, Joe, I am sure a lot of this is management trying to sit down in a boardroom and figure out what makes a lot of sense. But I am going to turn over to Alex and talk about how did you manage through all of this and what was important, strategically from your perspective, during this growth process going from, if you can say to one to thirty countries, correct.

Alex: Right. So it is an interesting story, Ragu, because it actually started before I joined the company. So I would give a little bit of history, and then tie into where I think this is important. But when the company first went internationally, the first country they went into was Germany and that was back in 2013. And being a young company, growing company, trying to figure it out like a lot of probably similar type organizations, they were not sure kind of what they were doing. And so they went into Germany, they were able to get a legal entity set up, they had to find an independent accounting firm to do the books and records, they found a local banking partner, a local legal partner, etc., and set up the entity and started operations. A year later, they decided to go direct in Japan, and they said, “Gosh, I guess we got to do this whole process over again.” So they did the same thing in Japan, finding the local partner, local accounting, banking, etc. A year or so after that, management came to the finance group and said, “We want to go direct in Canada and Australia.” And at that point, the controller at that time said, I cannot continue this, this ad hoc approach.

And that is when he was introduced to Global Upside. And what Global Upside brought to the company, to the organization was a consistent approach, right? A partner that was local in those countries that provided a local accounting firm, a local HR partner, legal partner, tax partner, etc., and helped to form those legal entities and do the back office booking, etc. And that was the key to the explosion that happened right after I joined the company where we went direct, I believe in, I want to say, another 10 to 13 countries over the course of a year or two. And the only way we did that was with the consistent approach that Global Upside as a partner provided us.

Joe: Never could have done it otherwise, truthfully. You know, when you take a step back, the most, some of the intimidating challenges, and Alex talked about them in the company, thankfully, learned how difficult it was, in the context of trying to do Germany and Japan. I think I do not remember Alex, you might, but in Japan, for example, it took us many years to even have our bank accounts opened, right, properly flowing and everything else that was there that process in terms of local labor laws, local incorporation laws, local tax, and regulatory components, not FDA equivalent, but the actual corporate regulatory environment. And then the banking side and everything else that goes along with it is just a chat. It is enough of a challenge for a company like ours to identify the right salespeople, leadership, commercial, the things that we need to drive our business, we could never have gone into that many countries that quickly and focus both on, I will call it, the blocking and tackling of commercial success and the administrative side, we just did not have the resources or knowledge to do that on our own. And that is where Global Upside has been a critical partner for us.

Ragu: Well, thank you both for that endorsement. But you brought up this issue of opening a bank account in Japan took you quite some time. And actually, the environment has gotten worse, in many respects, because of all these KYC, UBO, or broadly AML requirements, anti-money laundering, and sometimes it just is so hard to open bank accounts. And I have traveled the world to open our own bank accounts as our footprint has grown in over 70 countries now so, but I can understand that. And banking is for sure a challenge. But Alex, are there other challenges that you were seeing in this expansion process?

Alex: Absolutely. Probably other than banking which, to your point, you better plan on a nice lead time to get those bank accounts set up given those regulatory requirements. But the other biggest one, biggest complexity that I will just throw out, is around the HR and benefits, employee rules and regulations, and pension plans and all of the things that are dealing with human resources is highly complex, and every country has its own unique set of rules and set of things and complexities. And so, when you are a growing company, and you do not have the resources on the ground, as employees of the company, you have to have a partner that has those resources available to help you. And we could not deal without that.

Ragu: So we have talked about growth, you have talked about complexities in terms of the expansion and stuff, we talked about challenges with ERP systems. Alex, maybe you can provide us some perspective on what countries or where did you find complexity, as you start to grow overseas or globally?

Alex: Sure, but one we have already mentioned, which was Japan, right? And Japan has its own issues and Joe has mentioned some of those. And so I do not need to belabor those more but the second one that has been complex for us is Brazil. And Brazil just comes with its own set of regulatory government, language, requirements, import taxes, so many things that are very costly. Right. And while it is a huge market, I think, it is something that has been eye-opening for the company as we have watched the complexities that we have had to deal with in that particular country and try to overcome them and we recognize the potential benefit of that country and that is why we are there and indirect, but it has been highly complex and highly difficult at times for sure.

Joe: I was going to say the complexity in both those two countries candidly exceeds even what you have heard going in right. This is not an uncommon knowledge amongst professionals that doing business in Brazil or Japan for different reasons can be difficult. But I will say it is more difficult than even we anticipate going in. You navigate it but they are the combination of language especially in Japan along with unique rules and regulations and then just the overall administrative burden associated with Brazil really does add a lot of complexity. But to that point, Japan is an enormous market, Brazil has the potential to be an enormous market given where it sits in its population. So you navigate it as best you can.

Ragu: Yes and Brazil is one of the countries, that I constantly tell our prospects and clients, is one of the most complicated countries and language is also a barrier there because of Portuguese versus Spanish in the rest of LATAM and things like that and yes the administrative burden is just tremendous in terms of the requirements and stuff no doubt about it.

So talking about all these challenges, tell us a little bit about the partners that have helped you along the way. And those that were critical to your global expansion or overseas expansion.

Alex: Right, I can take that because we deal with it every day. I think that if I were to boil it down, Ragu, there are five categories of partners that are important as you go and expand internationally. I have mentioned HR being a key partner, given the human resource complexities in each country. The accounting partner needs to be a solid partner so there are typically different books and records requirements in countries, some require local statutory books to be kept, as opposed to US GAAP books, etc. So you have got to have a solid partner that can help you with that. The third partner I will mention would be a tax partner since there are local tax requirements and things that we just do not have the expertise in-house to deal with all of these different countries and what their tax rules are. The fourth would be a legal partner. And that makes a lot of sense, given legal complexities and local legal laws. And then the last one, I will say, and we have already talked about it would be a local banking partner, someone that we can rely on for banking, and that becomes a key aspect. So those are the five partners that I would say are the most important than the ones that we focus on.

Ragu: And how did you pick? Well, to the extent you pick Global Upside, but how did you pick partners to address these five needs?

Alex: That’s a great question. So Global Upside, you have recommended and referred to us, many of the partners in those categories, from the HR, legal accounting, and tax. The only partner that we have kind of done on our own was Bank of America for banking. We had a relationship with them and we knew they had a global platform. And so we have tried to incorporate that global platform and all of the countries that we have done through our pre-existing relationships with Bank of America.

Joe: I think part of what you navigate in choosing these partners is the combination of capabilities and trust. So for us the capabilities, you can run your typical process of evaluating what they have either technology, human resource, etc., whatever it is that is relevant in that particular situation. In the case of Bank of America, their ability to transact in local currencies and make all that as seamless as possible for you. But then, can you have that trust? So that is where, for example, whether it is Global Upside as a partner or Bank of America or the local network affiliates that you have got. If we were entering into those countries, we would not necessarily have or we would be relying upon other third parties to make endorsements of their relationships. Whereas with Global Upside, because we have established a trusting relationship, we can replicate that in all these countries where you have, quite frankly, done a lot of that spread work. And you have established and I am sure, we could have a whole separate call where you tell us about partners that did not work locally, then you have moved on from. But we get to benefit from that right, your experience in these countries and where our partners have been good over a prolonged period of time. We get to access those affiliates and partners as a part of our relationship and that is essential for us.

Ragu: So, now moving a little bit to the current environment and the topic of the day always is COVID for the last one year. So tell us, how has COVID impacted and we talked a little bit about maintaining the culture and those kind of things. But from a business perspective, how has COVID impacted the Glaukos business?

Joe: Yes, I think I will answer that two ways. One is the direct impact on the business financially, and what COVID has meant. So for Glaukos we never really thought about our products or our procedures as being elective. Because at the end of the day, if a patient has either cataract surgery or glaucoma, or a corneal condition called keratoconus, these are conditions that must be treated, right! The downstream effect of which can be either corneal transplants in the case of keratoconus, if left untreated, or blindness to the extent that glaucoma or cataracts are left untreated, so we do not think of our products as being elective. Having said that, you can defer them. So what we experienced during the start of the pandemic, in the lockdown phase, given the global approach to trying to make sure there was enough PPE supply. So, gowns and masks, and everything else available for potential triage need to the extent that the emergency rooms and hospitals required it. They kept the, I will call, what they say non-elective or the elective procedures lockdown. So to put that in context, in April of 2020, our US glaucoma business was at 3% of normal, down 97%, 3% of normal. Internationally, because that was a collection of different countries that were different places it was down 75 to 80%.

So it was substantial and we went into a very quick, I will call it, a re-budgeting exercise where you are trying to understand how much of your expense basis is fixed versus variable versus discretionary, and make decisions in those buckets quickly to preserve the balance sheet. Because you assume that there will be a recovery, but you just do not know how long that recovery will look like. And at the end of that rainbow, it is hard to call it a rainbow, you do not know what your balance sheet will look like. Right? How much of a dent in it will be when it is all said done.

So, we very quickly implemented a series of actions around cost savings while preserving jobs. And we raised a pretty substantial convertible debt offering in June, to bolster our balance sheet not knowing again, how long this pandemic may go on, we were lucky that we had a pretty substantial net cash balance. So, we were confident that we did not want to take our foot off the pedal in terms of the future growth of our business. And like what we have watched from a macro perspective, starting in May, we have seen a, I will not say every single month, but month-in and month-out recovery in terms of the dynamics and the trends such that by the time we got to the fourth quarter, we were getting much closer back to normal in terms of, potential procedure volumes. Now, alongside of that, we adapted in many ways that everybody else did. And we have learned a lot of things and even though we missed the in-person dynamic, it certainly has taught us like a lot of companies that we can still operate very efficiently, in some ways even more efficiently, in a remote work environment using technology tools, like what we are on here, and through constant communication but through video conference instead of in-person. So you lose something there but you also gain some efficiencies, and for some employees, it gains a lot of efficiency where it has reduced commute times, or other things that are distracting and enables them to do even more. So, I think the future, where I will tell you we are not in a place where I think for as a company, that we are going to go to the extreme that we have seen in some examples where they are removing their office spaces, and it is going to be hundred percent virtual work environment. But we are going to think being a degree of hybridization, where depending upon the job, the employee, the situation, will continue to utilize tools like this to work in an increasingly hybrid world going forward.

Ragu: So what is next for Glaukos in your 20-some year history growth, what is next?

Joe: I would like to say that I think we spent the last 20 years building the race car and the next 10 and beyond are about optimizing and racing it and trying to win as many races as you can to stick with the analogy. From that first product, and being US-focused to being now global and across three major franchises and for primary products, having three major products on the market. We have a pipeline that is second to none in ophthalmology. We have got 10 plus products that we have talked about publicly that are progressing through various stages of R&D, several of which we hope to launch in the next one, two, and three years. So a big portion of what we have been doing in the last three or four years has been about, back to my prior analogy, getting as many of the people processes and systems in place so that we can now bring all these products into the marketplace and successfully commercialize them and not be trying to do both at the same time. And so I look forward to, in glaucoma alone, the product approvals we have in the next three years should increase the size of our market sevenfold. And you add in what we are doing in corneal health, which includes extending into therapeutics around dry-eye, in the retina where we have got programs that can just change the whole paradigm of how you treat retinal disease. We think we have got an incredible future in the coming years and Alex and my job is just to make sure that administratively we do not screw it up. Because there is a lot of incredible stuff coming out of our R&D organization. And I have a lot of confidence in our commercial team’s ability to execute. And it is up for us to make sure that we have got all the blocking, tackling right going into that.

Ragu: Well, you have done an excellent job. I know we talked about a lot of challenges historically, but I am sure you are now set up for that race car to do whatever 200 miles an hour and win at every race that you are in.

So, Joe and Alex thanks a lot for taking your time out of the busy day and spending some time with me, and assisting us to record this chat. Hopefully, we will share the story with the world and help you grow your business and address the challenges you are facing. Thank you.

Joe: Well, thank you so much Ragu and the entire Global Upside team for having us here today, and even more importantly just for the partnership over these last several years, we could not have accomplished what we have internationally, without your partnership and without your flexibility and your adjustments along the way with us as we have navigated some of these countries and the unique dynamics for our business in them. Global Upside has been a terrific partner. So, thank you.

Alex: Thank you, Ragu.

Ragu: You are very welcome. Looking forward to another 20 years of partnership.