Q3 2021 Glaukos Corp Earnings Call
So measure with that I will turn the call over to glaucoma, President and CEO Tom Burns.
Thank you Chris Good afternoon, and thank you all for joining US today, we hope everybody is staying safe and doing well.
Today, <unk> reported third quarter net sales of $74 7 million representing growth of 15% versus the comparable year ago period.
These results exceeded the top end of our guidance range and reflect solid execution across our glaucoma and corneal health franchises.
It's both continued COVID-19 related volatility and headwinds globally and use combination cataract glaucoma dynamics associated with the originally proposed CMS rules from July.
I'd like to take a moment to recognize the continued dedication and resiliency of our teams around the globe, who remained steadfastly committed to their work.
Throughout the ongoing pandemic it is clear that the pandemic and subsequent global recovery from it continues to pressure labor markets and the global supply chain.
And our customers are not immune to these realities in risk as we move forward, but we have been pleased with our continued ability to attract world class talent and the resiliency of our supply chain thus far.
We remain focused on our near term execution, as we drive new adoption and deeper penetration globally or transformative migs and <unk> solutions.
Importantly, we continue to self fund and successfully advance our robust pipeline of novel promising platform technologies that we believe have the ability to significantly expand our addressable markets and to transform our company into a leading hybrid ophthalmic pharmaceutical and device player over time.
Pioneering innovation scientific evidence and clinical rigor play a vital role within our organization.
During the third quarter, we accomplished a market leading clinical milestone surpassing 200 peer reviewed publications on our <unk> technologies.
This represents the most robust diversed and longest term body of clinical evidence for any mix technology.
This robust library is comprised of over 28000 eyes across a range of studies over nearly 20 years, including 15 publications analyzing long term four to eight year follow up data.
Outcomes from these studies reinforce the powerful benefit to risk calculus of Istent technologies micro invasive tissue sparing approach supported in the utilization of Istent globally.
An important aspect to pioneer new markets. The way we have is the ability to protect our proprietary inventions with a formidable portfolio of intellectual property.
To that end during the third quarter, we announced the settlement of patent litigation with I've anticipate under which <unk> agreed to pay <unk> $60 million in two payments and a 10% ongoing royalty through April 2025.
We are pleased with this outcome remain confident in the strength of our robust intellectual property portfolio and believe this settlement allows us to focus our full attention and resources on executing our long term growth strategy by bringing transformative new technologies to the market for the benefit of patients worldwide.
Within our U S glaucoma franchise, our commercial teams a team continues to successfully train and educate our current and prospective surgeon customers on the favorable risk benefit profile of our Istent family of technologies and advanced Migs towards standard of care for glaucoma.
Regarding CMS earlier this week on November <unk>.
CMS issued its final calendar year, 2022, Medicare physician fee and facility fee schedules respectively.
The final 2020 rule updates the payment policies physician fee and facility payment rates and other provisions for services furnished under the Medicare physician fee schedule and both the <unk> and ASC settings.
These final rules supersede the proposed rates that were issued in July 2021, and are subject to the issuance of any updates or corrections by CMS prior to or around January one 2022. The date. These final rules take effect.
Over the past three months following the July proposals go out coastal arm with six key national industry societies, 31 patient efficacy groups 20 States societies 16 congressional districts, many ophthalmic surgeons and others have directly engage with CMS and undertaken a car.
Prehensile and coordinated response that led to over 1300 unique submissions to CMS.
A positive recommendation by the CMS Advisory panel on hospital outpatient payment in favor of our proposals.
And broad bipartisan support from policymakers in Washington.
As a reminder, the CMS 2022 final rules include physician fee and facility fee payment rates for two new category, one CPT codes, including 66 99, 1% for non complex cataract extraction in combination with the insertion of an aqueous drainage device and $66 99 for <unk>.
Flex cataract extraction in combination with the insertion of an aqueous strange device.
CPT codes, six 690, 91, and $6 989 will replace category III code <unk> as the primary code the physicians hospitals, and AFC will used to seek reimbursement utilizing processes trabecular micro bypass technologies, including for our ice stent in.
Istent inject W devices when used as approved in combination with cataract surgery.
Starting on the physician fee often referred to as the professional or pro fee, which is the right surgeons are paid directly for doing a procedure. The final rule indicates a 2022 physician fee for CPT code 66, 90, 91 of approximately $664 representing the incremental physician.
Fee payment of approximately $135 above non complex cataract surgery alone.
This reflects an improvement of roughly $100 versus the July proposal. It still implies a decrease compared to a medium physician fee today for <unk> of approximately $350, which is a category III CPT code. This price independently by each Medicare administrative contractor or Mac.
When we do the facility fee, which is the payment that a facility receives to cover the cost of a procedure, including the cost of the devices used the final rule indicates that 2022 facility fee payment rate in the ASC setting for CPT code 66, 90, 91, and $6 99 of 3240.
$6, which reflects an improvement of $730 versus the July proposed rate of $2516 and compares to the combined ASC facility fee under the existing category III code today.
3353 three.
$3353.
We estimate that approximately 80% of procedures utilizing our trabecular micro.
Micro bypass technologies in the United States are performed in the ASC setting.
For the remaining estimated 20% of procedures performed in the <unk> setting. The final rule indicates a 2022 facility fee payment rate for CPT code 66, 98, one and 669 hundred 89 up $4251 an increase of $333.
Today's current <unk> facility fee rate of $3918.
We are pleased to see that our actions over the past several months materialize into notable improvements in the final rule for combo cataract Migs versus the proposals while we still have work to do going forward to ensure physicians and facilities are fully compensated for utilizing our sites saving technologies and Standalone and.
Combo cataract procedures.
We remain focused on various execution strategies to maximize the access and overall care for glaucoma patients here in the United States.
Now shifting gears to our international glaucoma franchise, where our year over year growth during the third quarter was broad based across the European and Asia Pacific regions.
But it is worth noting that we have continued to experience intermittent COVID-19 disruptions and nearly all of our global markets.
We remain early in our international penetration and are continuing to invest in our expanding teams.
As we drive.
Broader adoptions of mix around the globe.
These efforts were on full display at our recent <unk> annual meeting where our technologies were featured in various scientific programming.
Additionally, we held two educational symposiums are istent inject W. In Ireland technologies.
There were widely attended and continue to help us drive new physician interest and adoption through clinical education and sales initiatives to support long term growth.
Colonial health growth during the third quarter was driven by record U S. Treasury sales of $12 8 million and continued healthy momentum in the new U S. Accounts starts we continue to opportunistically expand our U S. Corneal health commercial team to fuel the execution of our commercial strategies and market develop any.
<unk> that are being well received.
As you know behind the scenes, we've invested considerable time and resources over the past 18 months to successfully integrate our Vidro acquisition Im.
I am happy to report that these corneal health franchise activities are now largely complete that Boston is integrated within our corporate enterprise systems.
Moving forward our focus remains on building upon the strong momentum we're experiencing within this emerging growth driver for glaucoma.
We've also been investing considerable time and resources in our facility infrastructure to support our growth key capabilities and pipeline development and as such we are rapidly advancing towards the expansion and enhancement of our facilities in southern California and will shortly kick off similar investments in our Burlington, Massachusetts facility.
The strong capital position, we have built has allowed us to remain on offense when it comes to successfully investing for our future.
As a testament to this were continuing to invest in and advance our fulsome pipeline of core novel platforms, where we anticipate and are planning for a robust cadence of new platform and product introductions over the coming years that have the potential to fundamentally transform glaucoma over time.
On Istent infinite our three micro bypass stent technology designed to be used in a standalone procedure. We now expect a potential FDA clearance in the first half of 2022 based upon the pace of our review with the agency to date supported by strong pivotal data highlighting favorable safety and effectiveness.
We are bullish on Istent infinite long term prospects as a highly compelling new treatment alternative in a standalone procedure for severe and refractory glaucoma patients.
We also continued to advance our late stage development of high Prime a highly complementary new biscoe delivery device designed to be a truly minimally invasive system to further support the needs of our physicians and patients.
Regarding the pressure for Microsoft the FDA continues to gather additional input from glaucoma surgeons to ensure a complete evaluation of the clinical data submitted in the PMA.
In the meantime, we are launching presser flow in Canada and are preparing for launch in Australia, given the recent regulatory approvals in both geographies.
For Idose TR and beyond we remain on track with our previous expectations for NDA submission in 2022, an FDA approval in 2023, respectively.
Beyond these important near to medium term pipeline programs. We also continue to invest in and advance our key earlier stage R&D programs, including in dry eye retina, glaucoma presbyopia and additional undisclosed projects.
During the third quarter, we added yet another early but exciting pharmaceutical opportunity to our pipeline portfolio.
Through our licensing agreement with <unk> holdings.
Under this agreement <unk> has secured global exclusive rights to develop manufacture and commercialize <unk> proprietary library of investigational pharmaceutical compounds that target the eradication of Demodex mites.
Demodex mites are the root cause of Demodex, blepharitis, and often associated with <unk> gland dysfunction and related ophthalmic diseases.
Demodex blepharitis and debit X driven by Bobby and glad dysfunction are caused by an infestation of these might be the most common ectoparasite found on human skin <unk>.
<unk> Blepharitis is characterized by island inflammation and irritation, resulting in islet redness discomfort and debris and.
Indemnity Demodex driven by building and glad dysfunction is characterized by decreased lipid secretion into the tear film and is a leading cause of dry disease.
<unk> lead compounds have demonstrated promising in vitro results in preclinical settings.
This licensing agreement adds a promising therapeutic class that expands with focus on our emerging corneal health franchise.
Into new and globally underserved disease indications and represents a highly synergistic fit within our ongoing corneal health R&D initiatives.
While this program and other earlier stage opportunities remain and preclinical developmental stages. We are encouraged with the initial progress we're demonstrating within these platforms and are hopeful to advance a number of these programs into the clinic over the next 12 months.
In conclusion, I'd like to reiterate our commitment to challenge the conventional way of thinking by driving meaningful innovation for the benefit of patients as we aspire to build a world class company.
I am confident we have the right people strategy infrastructure pipeline and balance sheet to execute our plans and deliver on our future aspirations. So with that I'm going to turn the call over to Joe and discuss our third quarter 2021 financial results Joe.
Thanks, Tom.
As a reminder, I will be discussing our financial performance on a non-GAAP or pro forma basis and will summarize our GAAP performance later in my prepared remarks I encourage each of you to review our GAAP to non-GAAP reconciliation, which can be found in today's press release as well as the Investor Relations section of our website.
<unk> global consolidated net sales for the third quarter of 2021 were $74 7 million representing year over year growth of 15% and growth of 7% compared to the third quarter of 2019 pro forma for our acquisition of vitro.
Our third quarter performance reflects improved market conditions versus 2020, but we did experience headwinds globally. This quarter due to COVID-19, most notably in July and August we've been encouraged with improving market recovery trends in September and October, but pandemic related volatility and risks remain particularly as we entered the winter months of the fourth quarter.
Now turning to our U S glaucoma franchise, specifically, our third quarter U S. Glaucoma sales were approximately $43 4 million representing year over year growth of 11%, which we believe reflects a combination of pandemic related dynamics and the impact of the originally proposed 2022 CMS combination cataract reimbursement.
On customer ordering patterns and competitive trailing activities in advance of any potential changes.
Internationally, our glaucoma franchise delivered third quarter sales of approximately $15 1 million representing year over year growth of 18% and 38% growth compared to the third quarter of 2019.
This performance reflects growing demand globally offset by pandemic headwinds that reemerged in key European and Asia Pacific markets combined with the continued challenges in Latin America.
In corneal health third quarter net sales were $16 2 million representing year over year growth of 26% and 47% growth compared to 2019 pro forma for our in vitro acquisition.
The third quarter performance was driven by U S foot trucks, our record sales of $12 8 million on year over year sales growth of 23% or 52% versus pro forma 2019, along with a continued trend of healthy New U S. <unk> account starts as our commercial integration and strategies continue to deliver.
Shifting gears towards the remainder of our P&L, our non-GAAP gross margin in the third quarter was approximately 87, 1% versus 84, 9% in the same quarter in 2020, and 84, 4% in the second quarter of 2021.
This reflects continued strong corneal health and glaucoma gross margin performance and a nonrecurring higher allocation of costs to R&D in the quarter.
Excluding these costs, our non-GAAP gross margin for the quarter would've been approximately 85, 3%.
It is worth noting that our non-GAAP adjustments to Cogs include substantial amounts related to the vitro acquisition accounting.
Our overall non-GAAP operating expenses were approximately $69 9 million in the third quarter of 2021, a 3% sequential increase versus the second quarter of 2021, as we continue to restore expansionary spending as the recovery warrants a trend that we would expect to continue moving forward.
Our non-GAAP SG&A expenses in the third quarter were approximately $41 2 million down 6% sequentially compared to the second quarter, reflecting consistent commercial spending offset by lower administrative costs and our non-GAAP R&D expenses in the third quarter were approximately $28 7 million up 19% sequentially compared to the second quarter.
As we continue to restore core R&D spending earlier stage pipeline programs and human capital investments across the organization.
Our third quarter GAAP operating expenses reflect a onetime in process R&D charge of $5 million associated with <unk> holdings licensing Transat transaction and a $30 million payment received during the quarter related to the <unk> litigation settlement.
We finished the third quarter with a non-GAAP operating loss of $4 9 million and non-GAAP net loss of $9 7 million or 21 per diluted share. Our GAAP net income was $6 2 million or <unk> 13 per diluted share for the third quarter of 2021.
We invested in approximately $9 9 million of capital expenditures in the third quarter, which as expected remains elevated versus historical levels. As we have advanced through the construction phase of the enhancement and expansion of our facilities in southern California, and Boston to meet our growing development and operational needs.
And that we would expect to continue through the first half of 2022.
As of September 32021, we had cash cash equivalents short term investments and restricted cash of approximately $438 million compared to $414 million at the end of 2020 and $428 million at the end of the second quarter 2021.
Looking forward first as it relates to COVID-19, we experienced incremental global headwinds during the third quarter with some improvement in September and October, which I discussed earlier, but the situation remains fluid and we would caution conservatism as you consider any potential impact. This may have on elective procedure markets throughout the remainder of 2021 and into 2022.
<unk> as we progress through the winter months.
Regarding CMS and the reimbursement for our combination cataract products here in the U S. While we were pleased with much of what improved in the final rule that was just released disruption of customer ordering patterns and competitive trialing that resulted from the original proposed rules had continued and we expect will ultimately still impact our fourth quarter results.
As we put this all together in the context of our expectations going forward. Our 2021 net sales guidance of 285% to $290 million remains unchanged.
This guidance takes into account, our typical underlying seasonality patterns COVID-19 related trends and risks and potential use combo cataract glaucoma headwinds.
Moving forward, we will complete a thorough assessment of any impact that the lower 2022, CMS physician fee and ASC facility be may have on our U S combo cataract glaucoma franchise in 2022 and reflect those estimates in our overall guidance. When we provided on our fourth quarter call in late February with that I'll now turn things back to Tom.
A few closing remarks, alright, thanks, Joe So in closing I'd like to reiterate reiterate our conviction in our long term vision.
We are continuing to invest in glaucoma scaling our team in driving true innovation.
We believe these are the foundational pillars to long term value accretion for all of our stakeholders.
We have pioneered the combo cataract migs in ILEC markets and we are just beginning the funding from these franchises has enabled us to build a pipeline with the breadth and magnitude that may be unmatched in this industry and we believe we're at the dawn of a robust cadence of new product launches over the next several years, assuming FDA approval, including <unk>.
Infinite high prime pressure flow micro shot Idose, TR, <unk> and potentially other exciting new complementary technologies.
The investments we're committed to over the last over the past decade have materialized into a potentially transformational period for our company in the years to come.
We would encourage investors to evaluate closely are self funded pipeline and are highly leverages <unk> global commercial infrastructure, along with the growth and scale of our glaucoma and corneal health franchises and we are confident that many of you will come to the same conclusions and enthusiasm we have for the future of caucus.
So with that I'm going to open the call to questions operator.
Thank you as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Our first question is from Andrew <unk> with William Blair. Your line is open.
Hey, guys. Good afternoon, and thanks for taking the question sorry for any background noise here.
Maybe to start here first on your updated sort of reimbursement thoughts post the final decision earlier this week.
Certainly I appreciate that you don't want to talk necessarily specifics about 2022, but maybe just conceptually can you give us an idea about how youre thinking about some of the different variables that are at play here and how that's changed now Mike. This is John final. Thanks.
Yes.
Yes, Thanks, Andrew.
Joe as we think about and I really say this in my prepared remarks, we're going to take our time here, obviously as you can imagine.
We just got these rules 48 hours ago, and we're going to take a thoughtful assessment of what it all means yes, clearly encouraged by the relative move on the facility fee reimbursement side.
And also really the move on the on the professional fee side to $135 from where it has been proposed but it's important to remember that that's still.
At.
A substantial discount to where.
Our next question is from Chris Cooley with Stephens. Your line is open.
Hey, good afternoon, thanks for taking the questions and congratulations on the.
The progress you made with CMS.
Maybe just one on reimbursement and then one when we think about our core business growth.
On the reimbursement side I realize you want to take some time to digest what.
What the combo cataract market looks like.
But I think maybe one of the more surprising data points was the reimbursement for Istent infinite.
And while I know that the profile has to be set by the Max I was curious kind of what you thought you had to see there to make that economically viable and assembly. Your take on the facility fee, which was was actually lower.
Than what was initially proposed just just thinking about how that may or may not impact your thoughts on commercialization.
Once that devices, most likely approved and in the first half of next year and then I've got a follow up.
Yeah, Chris I'm happy to take that question I mean, we regained so much ground during the commentary period in the final rule.
The aspects with regards to combination cataract surgery.
And we are.
Disappointed with the initial position CMS with regards to.
How they have approached the APC for the Standalone.
Use trabecular bypass devices and so if you think about it they've always conditioned and translated the istent products into APC 549, two and for some reason they have taken a position that it would be now translated into 549, one we think that that.
It.
The decision was made in the air and we'll be looking at their commentary on why they made that decision will be working with CMS over the course of the next several months much like we have here to gain ground in combo cataract to see if we can upgrade the payment for that transitional pass through as we move forward. So so I.
But that is certainly a result of all the different initiatives that we put into place.
Around early detection.
Of keratoconus and referral patterns of getting these patients into Eileen customers.
Good integration of the vitro Clark.
<unk> team and the power that we have of working together.
So.
I'm not surprised by the record sales of <unk> in the third quarter, but there is still a big opportunity ahead of us and we're working to capture more of that opportunity.
That it's growing pleased that we've made progress but.
But optimistic about the future of this product portfolio and what we can do with it.
I think Chris as we think about the growth prospects of this and Chris was alluding to it.
First phase of our integration was all about increasing access to the technology, making sure that as many of our customers that are in this business our potential in this business get access to technology and quickly you turn your attention to the second phase, which is increasing utilization driving additional awareness of the condition driving that additional foot traffic from the optometrist into the.
The corneal specialists that do these procedures.
And that's something where as we on the other side of Covid, We hope will really start to gain or increase our access to those accounts in person and really <unk>.
Increases overall utilization trends, but sitting here today, we're still focused on both of those and as we move forward here, we'll increase our efforts around the utilization side substantially.
Thank you.
Okay.
Our next question is from Matthew O'brien with Piper Sandler Your line is open.
Well I think maybe first I should just as a reminder, we didn't lower anything right. The numbers, we talked about the $90 million to $110 million range for the U S. Combo cataract was really based on math of what it was.
Based on the Wall Street commentary followed those initial 2022 proposals.
Within that we've gotten the question is sort of what what did that what were those inputs from the various.
<unk> estimates that it existed and I would tell you that in general.
The proposed rule added eight over $800 price decrease built into it and we said that a material portion of that reduction could be realizing lower pricing.
On the professional fee side.
There was a variety of estimates out there from analysts in terms of the potential impact that range from anywhere from 25% to 50% based upon the proposed rules.
As they stood so we looked at a lot of different scenarios and there you have to factor in the fact that about 80% of our business is done in the ASC setting and about 80% of that business is Medicare you put all that together and what we said at the time was the math sort of centered around that $90 million to $110 million range of the pipe.
Okay.
Okay got it and then one quick one on the pipeline do we have an update on idose.
But we should be expecting from that program in 2022.
Yes, Im happy to take the <unk> question, So as I've said before and will continue to reiterate we are.
Very very pleased with the two year data from the phase <unk> study that I've shared with the investment community and it's my intention to share the three year data with the investment community in the first half.
2022.
Okay perfect. Thank you guys.
Youre welcome.
Our next question is from Jon Block with Stifel. Your line is open.
Perfect. Thanks, guys.
Good afternoon. The first question might be more of a wall Street concern then real world, but the company really faced a lot of uncertainty.
Over the past four months.
<unk> trial enjoy that you called out.
Have you seen anything so far into the word someone tries to competitive device in any defections or loss of share in that account. That's trialling the competitive procedures, and then sort of the bolt on but admittedly separate question is just could you remind us of the percent of your Doc customers that one an ASE or have an equity ownership in.
I think it's very high and clearly if that's the case it would better shield you guys from Justice step down in the pro fee because they'd be looking at the overall economics of pro P versus ASC, where the percentage drop as much lower than Profi alone hopefully that made sense. Thanks.
Yes, It did John he'll answer and Christmas added.
We've talked in the past and I am not sure as meaningfully change that about 75% of the docks, who operated ASC have some degree of equity ownership in the overall practice.
Some owners fully outright some in partnership with other southern partnership with private equity, but they have an equity stake.
In the business itself.
The second part of your question maybe the first part of your question was around loss of share I'd say, it's a little premature for that right. I mean, if you think about this the July was when the proposals came out the reaction there in some accounts, where they they want to be prepared for worst case scenario and try a trial other products.
That takes place over the course of August September October it's a little early to say whether that is indeed, a share shifted we look forward now to re engaging with many of those folks now that the final rules are out.
Got it thanks, Joe.
Our next question is from Ravi Misra with sparing Berg capital management. Your line is open.
Hey, Dad, then probably here thanks for taking my questions.
Joe I guess I just wanted to focus I'm kind of put a couple of things together So guide.
Guidance hasn't really moved since last time, but cute he came and maybe a little bit better than expected.
And we had the reimbursement knew that is somewhat of a positive here.
And it sounds like you know that does not incremental kind of loss of share in the market.
Approval kind of looking at H, one 'twenty two how does the commercialization ramp there look like in terms of timing. Thanks.
Yes, okay.
I'll start with the electric procedures as we said in the prepared remarks and it is factored into the guidance. We gave for the fourth quarter appeared to trough in that.
Late July August timeframe from I'll call it Covid headwind standpoint.
And we've seen recovery in.
The months of September and October.
Particularly here in the U S and internationally as well.
But I think within that we still have to be careful as we think about the coming months here as we turn towards winter and what that could or Couldnt mean from a COVID-19 standpoint.
And this is Chris I'll address your second part of your question around infinite keep in mind. This is a.
Category three.
Device so.
The profile for this has not been established looks like we did with Istent will have to work with all the.
Max to secure a consistent payment for that so you can expect a controlled strategic launch very calculated and what we do spending time with the Max to get that reimbursement for <unk>.
<unk>.
Physicians and Thats when youll start to see.
A launch or excuse me a lift in the sales of that product okay.
Okay.
Alright. Thanks.
Our next question is from Ryan Zimmerman with <unk>. Your line is open.
Good afternoon. Thank you for taking the question so, yes talk for Chris or Tom.
Around the Standalone market I wanted to spend a moment discussing that because I know obviously the timing of an incident. It's helpful. But as you think about the market and the development of the market and the ability for that market I appreciate that it's bigger than the combo cataract market by a lot but is it is it developed and I'd love your thoughts around that because.
At least when we talk to physicians their definition of Standalone in terms of whats applicable as far more narrow today and maybe what would suggest in terms of market size and so I'd love to get your thoughts on that and then I have a follow up thank you.
Yes, Brian I'm happy to address your question and I think what I would do is point to some legacy positions.
So many of you may not be aware about in 2010, they held a plenary session of the American Glaucoma Society.
And the question was asked from the podium how many people either we're using or plan to use I stent over the next 12 months.
And the answer came back about 15% of the audience.
This was an applicable procedure.
As we see a much larger market opportunity than combo cataract Mig so.
<unk> point, it will take market development efforts.
The market develop efforts that were experiencing and we look forward to expanding that market over time.
Okay.
Fair and look you guys out of the market later on Mega. So you have that you have that history behind you.
In terms of.
Behaviors for physicians do you anticipate obviously I understand the guidance and I appreciate the caution on the fourth quarter, but do you anticipate a reversion.
Come January one 2022 or is this going to be more of a methodical kind of gradual improvement in behavior. Once the rates are kind of communicated out to the community. Thank you for taking the questions.
I think if I'm understanding your question right.
Youre asking us.
This is going to be more of a cliff face thing or is it going to be something that gradually changes over time is that fair.
Your fourth quarter guidance implies a worsening off of the third quarter right and I. Appreciate that we just got this update midway through November. So the question is come January 'twenty, two I went back to.
Old behaviors or are we or is it going to take some what do you have some wood to chop.
Ill get back.
Some of the dynamics that you had before.
Yes, I think the simple answer is of course theres, some wood to chop the professional fees of $135 versus the prior range of $3 to $500, but I guess I would answer it in two ways. The first one is in the fourth quarter you have to think about the fact that for the biggest month typically of the fourth quarter Okta.
Over the proposed rules were still the prevailing wisdom.
In the community right and in the market and so that obviously has an impact.
And no matter how quickly you are able to get closer back to normal over the remainder of the year Youre still going to deal with that when we ultimately report the fourth quarter results right.
And as it relates to 2022.
As I said in my prepared remarks, we're going to take our time to analyze that right. There is a lot of moving parts here that we want to make sure we have our arms fully around not just the reimbursement themselves, but our strategies and how we plan to go to market in 2022, and as we have our views are solidified we will share them with the street.
Okay.
I'll pause there and hop back in queue. Thanks for taking the questions I appreciate all the answers.
Thanks, Brian.
In some areas, we're actually seeing.
Practices, where the volumes are up and it's a mixed bag, but I consistently hear that.
Labor and staffing is a challenge and all of those areas hospitals facilities in the practices as such in terms of the reimbursement.
Hospitals have always had consistently had a higher reimbursement and a lot of times they get a higher percentage increase I think that's more of a function of the.
Inefficiencies and costs that you saw.
Within the hospital system versus an ASC.
Given that <unk>.
<unk>, 80% to 85% of these procedures are done in afcs and given that.
Of those.
Procedure, 75% of them have the physicians have an equity position within the ASC, it's very unlikely that you will see procedures move from surgery centers to the hospital market.
Thank you.
Okay.
Okay.
Our next question is from Allen Gong with Jpmorgan. Your line is open.
Okay.
Okay.
Allen Gong with Jpmorgan. Your line is open. Please go ahead.
I'm, obviously very strong gross margin for the quarter, but.
But as we think about sort of the positive reimbursement dynamics, particularly on the S E payments.
Any reason to think that margins should deviate significantly from current levels going.
Going forward. Thanks.
Yes, Thanks, David I.
I think if you if you take the sort of <unk>.
Adjusted view the gross margin in the quarter would have been around 85% I think at this stage, we're still most comfortable saying that.
You should expect gross margins in that 80, 384% ZIP code until I see an established trend otherwise asbestos stay in that in that area.
Okay, great. Thanks.
Okay.
Our next question is from Allen <unk> with Jpmorgan. Your line is open.
Allen Gong with Jpmorgan Your line is open.
And it appears to us having some audio issues. So was that there are no further questions I will turn the call back to the presenters.
Okay.
Okay, well I want to thank everyone for your time and attention today, we do hope that everyone is staying safe and thank you for your continued interest and support of.
Mclaughlin Corporation Goodbye.