"Message for the FRONTLINE" from YAHOO:
I attended the annual meeting and in the spirit of this great board here is your report.
THE SETTING
Meeting was at the Embassy Suites in Milpitas, which is in the heart of Silicon Valley and next to Freemont (the home of Keravision). It was attended, of
course, by the board of directors, the officers and about 30 additional people. Some of them Keravision employees, some outside investors and I am sure,
some of them competitors. It started at 9am and ended at about 10:45am. The room was a medium size meeting room, which could hold about 100 people
at max. Most importantly, we all were given commemorative Keravision mugs, with the WSJ FDA approval story imprinted on the side. Mine is not for
sale -- it is now my talisman.
DIRECTORS AND OFFICERS OVERVIEW
You can read about the Grand Canyon or you can view it, there is nothing like viewing it. Just so, there is nothing like seeing the top personel in person.
Looking into the whites of their eyes so to say. The board of directors seemed an enormously talented group, each selected for different qualities, as
should be the case. All very talented with a nearly a lifetime of achievements and contacts behind them (and available for Keravison). An example is a
recent addition to the board, a gentleman who managed the world class brands of Oil of Olay and Nyquil for Proctor and Gamble. The officers looked
tired and haggard, at first this worried me, as I was thinking we need energy right now, we need creative energy and positive energy. But, after watching
and listening to them, my outlook changed. Of course they are tired, their company is going through a fundamental change, from a development company
to an actual functioning market driven company. And, more importantly, they were smart and capable. Tom Loarie, the President, is the person
responsible for nothing and everything, his main job is to get them most from his people and to obtain and retain the best people. He had a great report
with his officers, with both the closeness and respect engendered by a long drawn out battle. Tom Silvesterini, the inventor, was as you may imagine a
smart immersed theoretical and practical scientist. He had style, but was slightly disheveled, kinda of like an Einstein. All officers struck me as being in
this both for the money and for the honor. The money potential is obvious. The honor is in bringing to humanity a safe and effective way to correct one of
the most common physical handicaps. Intacs is one of the first, if not the very first FDA approved reversable surgical implant of any kind, this is
absolutely a medical milestone, and hopefully a harbinger of humanities medical future.THE VOTES
Various motions were made, seconded and voted on. All predetermined by proxy votes and all of course had prior notice. No surprises here.
THE PRESENTATION
Tom Loarie gave a 45 minute presentation. This was probably the same presentation as is given at investment conferences. No real surprises here for
anybody who has followed this company. But, for those new to KERA, some of the salient are here repeated
Patent Protection: Keravision has a "patent picket fence" around this technology. They have the initial patents, they have the modifications, and they
have patented multiple approaches to the proceedure. Although the initial patent will expire in a couple years, Keravision can get a patent extension of 5
years on that due to the time they spent in clinical trials. (Clinical trials being one of the longest in medical device history. As a side note here, it is
remarkable that any start up company could have made it through the gauntlet of this elongated approval process. In the FDA's defense, maybe they
were just not used to the concept of a reversable surgery).
Improvements: Now that the Intacs are FDA approved, improvements or "iterations" can be occur much quicker through FDA supplements.
And, as far as Keravision is concerened, they have only scratched the surface of their technology.
market:
The size and shape of the myopic market is misunderstood. There are 100 million myopes in the U.S. (and, by the way, the U.S. is the only market
that counts at this time) 95 million of them are below 5 diopters, and correspondingly there are only 5 million over 5 diopters. 90% of current refractive
surgeries are in the over 5 diopters. The myopes over 5 are highly motivated to have the surgery and consider the risk benefit ratio to be met by Lasik.
The under 5 diopters want more safety then the over 5 diopters, after all, they can be well taken care of by glasses and contacts. The rough breakdown
of the under 5 diopter market is: 24 million under -.75, 40 million -1 to -2.5, 30 million -2.5 to -5.
If you look closely at these numbers two things jump at you. One is lasik is quickly consuming its market (this year they will do 800,000 surgeries,
which is 400,000 people which is about 8% of their main market) and will be looking for the under -5 diopter market. The other is that Kera is
perfectly positioned in this emerging larger market. The actual number of surgeries in this emerging market were 5,000 in 1996 and are expected to be
150,000 this year. The percentage of total refractive surgeries that are under 5 diopters is increasing at an incredible rate.
raining classes:
Training classes are full through June. They are now expanding the class size. Individual doctors pay $45,000 and receive training, equipment and 21
intacs.
Marketing:
Initial marketing is to doctors. There is two parts to the approach. First sign on a few RSPG's (places like Aris, Novamed etc.) who will bring in
groups of doctors. Second, market to individual doctors. Kera has 15 reps around the united states. These are experienced professionals from the
cataract market. There are 8000 eye surgeons in the United states. Of this amount, 6,000 are doing no refractive surgery. 1,900 are low volume
refractive surgeons. 100 are high volume refractive surgeons. The high volume refractive surgeons own their own lasers and are making lots of money
and are not interested in the Intacs. However, they want to appear up to date to the client, so they may advertise they do Intacs, but then switch the
clients to Lasik when they come in. These doctors pay the laser companies $500 per patient for laser use, this is a royalty fee. They low volume doctors
generally do not own the lasers. They either pay a fee of on the average $1,200 to use the lasers or are paid about $500 for performing the surgery for
the center. These doctors can make more money with the Intacs and these are a prime market. To clarify, Intacs cost the doctors $1,000 per patient.
Since the current price to the public is around $4,000, a doctor can make $3,000 per patient. This is more than a doctor can make under either of the
two lasik payment methods mentioned above. For example, a doctor earns only $500 by bringing a patient to a place like TLC. (With Kera a doctor
grosses $4,000 and earns 3,000 after paying for the intacs, it only takes 15 patients to pay for the training and instrument set). Kera is expecting
doctors to do their own public advertising. And, this seems to be happening as you may have noticed the Aris ads in LA area. A LA area doctor even
had a 1 hour TV show on the proceedure, a bit of that show was shown at the annual meeting, the doctors name is Dr. Wachler. Later, Kera will
launch a co-op advertising campaign. This means they will provide ad slicks and pay for part of the cost of the ads for the doctors. And, further down
the road, after the infrastructure of doctors are in place, Kera plans to launch a broad public campaign. (in my own opinion I think they should do this
now as a way of creating excitement, driving in patients to doctors, and of course driving up the stock price which would enable them to quickly get
more funding for both additional marketing and research to bring about the further "iterations". Nothing would drive the stock up faster than actual
earnings first post FDA quarter.)
Effectiveness:
Intacs currently correct -1 to 3.5, although the FDA has limited advertising to say only -1 to -3. Kera is in late clinical trials for the expanded range of
-.5 to -5. However, Mr. Loarie mentioned they have been able to correct up to -8. Farsightedness is in european trials, Kera has 4 centers in europe
testing for farsightedness and to date 20 cases have been done (eyes or patients?).
An important point has to do with the curve of the cornea, the cornea is aspherical. This means the curve is steeper in the center than in the edges, much
like a bell curve. This curve is very important, it improves the accurate focusing ability of the cornea for light that hits it at all points. In the
photographic world, aspherical lenses are much desired and considerably more expensive--the colors are crisper and sharper. So too with the cornea.
Slides were shown presenting mathematically readout maps of the cornea, and it was demonstrated that the Intacs maintained the aspherical nature of
the cornea. Apparently even a more aspherical cornea than exists is nature may be preferable. Your vision could be sharper than ever existed in nature.
Intac variations are apparently capable of doing this.
Of corresponding equal importance it was demonstrated that both laser proceedures, prk and lasik, definitely degraded the aspherical nature of the
cornea. In fact, instead of getting steeper curves towards the center of the cornea, the curve flattened and inverted. Imagine a standard bell curve, that
would represent the good aspherical cornea, now invert that, and tone down the center curve so that there was a slight downward dip or dimple in the
center, this is what the laser does. This is a permanent degradation of the focusing ability of the cornea. This is how all currently marketed lasers shape
the cornea. (in my own opinion, if I as a layman can understand the significance of this, then anybody getting prk or lasik could, and they should be so
informed, but as far as I know, no pre laser surgery warning literature mentions this. I am not anti-laser, just pro full-warning. All patients should be
full informed). Laser companies are aware of this deficiency are are searching for a solution, maybe the flying spot laser with tracking of saccadic eye
movements can achieve this (this may be what Automonous Technology meant by "custom cornea").
This saving of the asperical shape of the cornea by Intacs is one of the reason that Intacs can currently, with its first version, get better vision
(sometimes 20/10, frequently 20/12 and the majority of the times 20/16) than laser ever can. |
