Shares of Glaukos (GKOS) are under pressure on Wednesday as both William Blair and Oppenheimer downgraded the stock to Neutral-equivalent ratings after the CMS proposed a cut to reimbursement for the company's iStent procedure. On Monday, the Centers for Medicare and Medicaid Services issued its fiscal 2020 proposed physician fee schedule, which for the first time included two combined category I cataract plus stenting procedure codes. William Blair analyst Brian Weinstein called the proposed CMS rate "disappointing and surprising," while his peer at Oppenheimer argued that while a reduction to the physician reimbursement code for the company's iStent is not a surprise, the decrease was "far more than expected."
'DISAPPOINTING' CMS RATE: William Blair analyst Brian Weinstein downgraded Glaukos to Market Perform from Outperform without a price target after the Centers for Medicare and Medicaid Services issued its fiscal 2020 proposed physician fee schedule. Included in the update was a "disappointing and surprising" preliminary physician reimbursement rate for the anticipated Category I CPT code that will combine cataract surgery and the iStent procedure into one code, Weinstein told investors in a research note. The proposed rate calls for incremental reimbursement for the iStent procedure to be approximately $34, well below the analyst's expectation of somewhere just south of $300. Weinstein pointed out that the proposed rate represents an approximately 90% cut to the current rate at which the majority of procedures are reimbursed today under the Category III code. He believes this will put an overhang on Glaukos shares.
Voicing a similar opinion, Oppenheimer analyst Steven Lichtman downgraded Glaukos to Perform from Outperform and removed his prior $105 price target on the shares after CMS released its calendar 2022 proposed physician fee schedule that includes a "significant reduction" to the physician reimbursement code for the company's iStent. A reduction isn't a surprise, but "the decrease was far more than expected" as the new payment would be approximately $565 versus prior average reimbursement of $850-$900 for iStent plus cataract surgery, Lichtman said. Though he remains a believer in Glaukos' pipeline, he fears that a significant physician fee reduction will have an impact on physician inclination to use iStent. A 60-day public comment period now follows, with Final Rule expected by November 2021 for implementation on 1/1/22, the analyst added.
MODEST NEGATIVE: Also commenting on the Centers for Medicare and Medicaid Services' proposed physician fee schedule, Piper Sandler analyst Matt O'Brien noted that the physician payment ranged from $626-$790, which, as a combined procedure, is down somewhere in the 20%-35% range. The analyst believes this level of reduction is slightly worse than the Street was expecting. O'Brien believes this is a modest negative for Glaukos and thinks the stock's risk/reward "remains largely balanced at this point in time." The analyst has a Neutral rating on the shares with an $80 price target.
PRICE ACTION: In Wednesday morning trading, shares of Glaukos have dropped about 21% to $58.07.
