Prudential
INTACS TM KITS AND TRAINING GROWTH BRING THIRD-QUARTER REVENUES IN ON TARGET; REDUCED MANUFACTURING COSTS BRING LOSS FOR THE PERIOD IN BELOW EXPECTATIONS
KeraVision, Inc., based in Fremont, California, is the developer of Intacs intrastromal corneal rings for correcting low-level myopia, reported a third-quarter net sales of $4.2 million, in line with our $4.2 million estimates and well ahead of the year-earlier $239,000. The net loss for the period shrank to $0.32 per share, down from $0.48 in the 1998 third quarter and $0.45 in this year?s June quarter.
The reported loss was less than our projected deficit of $0.36 and the consensus loss estimate of $0.39. The better-than-expected results were due primarily to a sharp drop in the cost of sales as a percentage of revenues (to 69.6% versus well over 100% a year ago and our 78.1% assumption), owing to a planned reduction in spending on manufacturing capacity. In addition, research and development spending, down from last year?s level, as expected, was lower than our model assumed.
Through the first three quarters of 1999, net sales total $8.6 million, compared with $503,000 for 1998. The bottom-line loss stands at $1.34 per share, down from $1.57 for the comparable 1998 period. In view of the latest results, we are cutting our projected loss for 1999 to $1.65 per share, from $1.70.
Still Projecting Profitability By 2001
Although management indicated that the company is not yet prepared to disclose Intacs reorder rates and procedure volumes, such data will be made available in the near future (at some point in next year?s first half, we think). It?s clear, however, that the lion?s share of the top line is still being produced by Intacs start-up kit sales (instruments for performing the refractive surgery and a small supply of the rings).
Training revenues are also rising, as more ophthalmic surgeons are educated in the Intacs procedure. In the latest three months, 205 doctors were credentialed, bringing the total of U.S. physicians qualified to perform Intacs up to 448.
We expect upwards of 100 more surgeons to come on the credentialed list quarterly over the next couple of years, as physicians, faced with an increasingly competitive market for refractive surgery, find the Intacs option to laser surgery an effective means of building their practices. (See our Company Report on KeraVision dated September 8, 1999 for a discussion of the advantages of Intacs versus laser refractive surgery.)
Historically, R&D spending on Intacs and lack of a commercial market in the United States have kept the company?s results in the red. However, we continue to believe that sales of the rings will become the primary revenue generator during next year?s first half, during which time we estimate procedure volumes will total approximately 10,000 in the U.S. If, as we think, quarterly volumes increase to the 20,000 neighborhood by the first three months of 2001, profitability should be achieved during the first half of that year.
We estimate earnings for 2001 of $0.80 per share (versus a loss in 2000 of $0.95). Thereafter, we tentatively project secular profit growth in a 35%-40% range.
We rate KERA a Strong Buy rating and price target of $30 for accounts that can tolerate above-average risk. Our price objective represents a 37.5 times multiple of 2001 projected per-share earnings. This is commensurate with the 35%-40% secular bottom-line growth potential we ascribe to the company.
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