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Tuesday June 15, 1999 (1:11 pm ET)
Stock of the Week: Sunrise Technologies
By Mark Arbeter, S&P MarketScope Analyst
NEW YORK, Jun. 15 (Standard & Poor's) - This week's Stock of the Week is Sunrise Technologies (SNRS), which develops Holmium laser-based systems which utilize a patented process for shrinking collagen developed by Dr. Bruce Sand (the "Sand Process") in correcting ophthalmic conditions. The Sunrise laser thermal keratoplasty (LTK) System is a non-contact simultaneous application for treatment of hyperopia (farsightedness), presbyopia (loss of focus due to natural aging), and overcorrection resulting from PRK and LASIK treatments for myopia (nearsightedness). The company's Premarket approval (PMA) application is scheduled for review on July 22nd by the Ophthalmic Devices Advisory Panel. The panel will review the PMA for the Sunrise LTK System for the treatment of hyperopia (+0.75 to +2.50 diopters).
The human eye functions much like a camera, incorporating a lens system which focuses light (the cornea and the lens), a variable aperture system which regulates the amount of light passing through the eye (the iris), and film which records the image (the retina). Light from a distant object passes through the cornea, iris, and lens, which together focus the light on the retina. The retina contains light sensitive receptors which transmit the image through the optic nerve to the brain. Seventy-five percent of the focusing power of the eye is provided by the curvature of the cornea.
Refractive disorders prevent the eye from properly focusing images on the retina. Nearsightedness (myopia), farsightedness (hyperopia) and other irregularities in the shape of the cornea (astigmatism) are the most common refractive disorders. If the cornea is too steep or too flat, the eye cannot properly focus the light passing through it onto the retina, and the individual sees a blurred image. Historically, consumers have most often chosen glasses or contact lenses to correct refractive disorders.
The Sunrise corneal shaping system directs small amounts of heat to eye tissue, outside of the central vision zone, thereby shrinking collagen in a few small spots, and reshaping the cornea to treat refractive errors of the eye. There is simultaneous delivery, in a circular pattern, of up to 8 energy balanced and homogeneous infrared laser beams at a wavelength of 2.1 micrometers. The ophthalmologist delivers holmium energy in two series of eight spots for a total of sixteen spots at the periphery of the cornea and outside the vision zone. These sixteen spots cause the collagen in the cornea to contract or tighten, which steepens the cornea's curvature and changes the refractive power of the eye, reducing hyperopia and improving vision.
The market for SNRS's procedure is enormous. The company is initially focusing on the market for low hyperopia, or individuals between +0.75 and +2.50 diopters. Statistically, 31% of the initial targeted market over 40 years old in the Americas and Europe, or about 200 million people, are candidates for the SNRS procedure.
The company intends to sell these lasers for $200,000. The ophthalmologists will charge about $1,500 to $2,000 per eye with SNRS getting about $150 to $200 of that. Projected net margins are 90% for the procedure and 60% for the machine. Just a 5% market penetration rate would yield per- procedure fees of $3.0 to $4.0 billion per year, and that does not include sales of the laser machines.
According to VP of Clinical and Regulatory affairs, Jeannie Gifford Cecka, the co. has treated over 750 eyes (over 450 patients) and the results have shown an extremely high safety profile (no sight threatening complications or adverse events have been seen thus far). Dr. Alan Aker, Aker- Kasten Cataract and Laser Institute, tells MarketScope that he has personally performed over 100 of these procedures and says the results have been incredible, has had no problems with the procedure, and marvels about how happy his patients are after the procedure. In fact, some leading cataract and refractive surgeons have had the procedure along with some of their family members.
The procedure itself, which I witnessed firsthand, is quite simple. Anesthetic drops are placed in a patients eye while the doctor waits for the cornea to dry. This takes about 10 to 15 minutes. Then the patient sits in front of the machine, the ophthalmologist aims the laser and shoots, all of which takes about 10-20 seconds (the actual laser firing takes 3 seconds). When I watched the procedure, staring intently at the patients eye, I did not even know the procedure took place. The patient didn't even know the procedure was over until the doctor told him. The patient got up, his eye a little teary, and walked out of the office and drove home.
After viewing the procedure, I met with 6 patients at the doctor's office and was very impressed with their overall responses. All the patients I spoke with were hyperopes (from +0.75 to +2.50 diopters) over the age of 40. Three of the patients already had both eyes treated with the other three patients waiting to have their second eye treated. The three patients with both eyes treated (within the last year) were in a word, "overwhelmed". They all went from wearing glasses full-time to being without glasses either completely or 90% of the time. Some comments from these patients included: vast improvement in both near and far sight, vision is now much more intense and vivid, colors seemed brighter, small print was no longer a problem, vision improved within a couple of days, and maybe most important, street signs were now easier to read. They all had some mild discomfort for just a couple of days, saying that their eyes felt dry, scratchy, and teary. The three patients that had one eye treated were for the most part happy and anxious to have the other eye treated. They had noticed a definite improvement in the vision of the treated eye vs. the untreated eye. By the way, the co., because of the very high safety profile, has gotten the okay from the FDA to treat both eyes the same day during the hyperopia study (+0.75 to +2.5 diopters).
I subsequently spoke with another patient on the phone, an executive at a major pharmaceutical company, that had one eye treated in April '98 and the other eye treated in September. She used to wear very expensive ($700) trifocals and now does not need glasses at all. Both near and far vision improved. She commented how easy and wonderful the procedure was. There was 24 hours of mild discomfort, with some tearing of the eyes and some haziness for the first 48 hours. She noticed improvement in her sight within 1 to 2 days of each procedure.
One of the co.'s main strategies besides making the laser procedure attractive to patients, is to also make the whole package very profitable to ophthalmologists. According to Dr. Aker, ophthalmologists have been hit hard by reductions in cataract fees and will seize upon this technology to offset their losses. They can perform many procedures each day, training is fairly simple, and maintenance for the laser system is minimal. Current eximer laser systems for nearsightedness cost up to $500,000 with maintenance running up to $100,000/year. Plus the procedures are invasive, that is a flap in the eye is cut, folded over, and then the eye is shot with the laser. This procedure has to be done in a surgical atmosphere, with tools and supplies that are discarded after each procedure. Obviously the recovery time from this procedure is longer and the safety risks are much higher than SNRS's. As a vote of confidence for SNRS's procedure, many ophthalmologists have taken big equity stakes in the company.
SNRS is also currently involved in FDA trials for the treatment of hyperopia from +2.75 to +4.0 diopters. Twenty patients have been treated so far, and the FDA recently allowed the co. to expand that trial by 60 more patients. According to CEO and President, Russ Trenary, that study is going well. In this study, 2 rings of 16 spots are used on the cornea, which has a greater effect on the cornea. CEO Trenary tells MarketScope that once the PMA has been okayed by the Ophthalmic Devices Advisory Panel, the FDA has a period of time to address manufacturing, labeling, and other issues before they give their final okay. This timeframe is typically 2 to 6 months after the panel okay. This should allow the company to launch by the 4th quarter of '99. The co. has hired, and plans to continue to hire sales representatives that have an average tenure of 15 years of calling on ophthalmic surgeons. This powerful sales effort coupled with the speed, ease of learning, and other attributes of the LTK procedure, leads Trenary to believe that SNRS will place significantly more laser machines in the first 12 months following approval than the 100 machines VISX Corp. placed its first year. Estimates for the industry for the total number of refractive procedures for '99 run about 900,000 vs. 400,000 procedures in '98, 200,000 in '97 and 70,000 in '96. SNRS conservatively believes that it can do 50% of the total number of procedures done up to this point. In other words, they believe they can do 35,000 procedures in year one, 100,000 in year 2, etc. If these conservative numbers are hit, MarketScope projects that the company will be profitable in the 1st six months following the final FDA approval.
On a technical basis, the stock is currently consolidating in an area of strong chart support. With a high probability of FDA approval, and a large short position of over 3.2 million shares (about 10%), the stock should be able to take out the old closing high of 13-7/8 on its way to $20+ before the end of '99.
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15-Jun-1999 13:11:45 (02029080 |
