From: The Business Journal -- Serving San Jose and Silicon Valley
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For truth seekers.
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Moment of truth
For life sciences firms and their employees, the future itself can ride on FDA approval
Peter Delevett Business Journal Staff Writer
Things are surprisingly quiet four days before D-Day.
Everyone at Fremont-based Sunrise Technologies International Inc. is sick with the flu, run down by weeks of late nights.
You get the sense things would be quiet here even without the bug. Just 60 employees share the cavernous, 55,000-square-foot building.
But the place won't be empty for long, says Ed Coghlan, vice president of corporate communications.
"Our employees have doubled in less than one year," he says, ambling through the eerie silence. "And we'll probably double again, once we get approved."
"Once" we get approved, he says; not "if." It's a minor but crucial distinction for the company's future.
Sunrise is four days away from a hearing before a Food & Drug Administration advisory panel. The panel will decide whether to recommend the FDA approve Sunrise's sole product, a laser system called the Hyperion LTK, which is being developed to treat farsighted people.
If the panel votes yes, Sunrise could be on its way to profitability. Doctors have expressed strong interest in buying the system, which uses laser pinpoints to reshape the eye in a five-minute, outpatient procedure.
Should the panel not clear Hyperion, it could be the death blow for the 6-year-old firm.
Last July, an FDA advisory panel voted not to approve the system in a surprise decision that sent Sunrise stock plummeting. Overnight, the company's stock valuation dropped more than $500 million, as the share price fell from $15 to $2.
It's a common story in the life sciences industry, where a negative FDA decision can kill a company.
Reserves saved day
Given the high stakes, one can't help but be struck by the calm displayed by Mr. Coghlan and his co-workers.
Since the first ruling, Sunrise officials have worked closely with FDA staffers to address the panel's concerns. The fact that the new hearing has been slated is, Mr. Coghlan believes, a vote of confidence from FDA's staff.
Still, there's no guarantee the panel's members--most of them ophthalmologists--will feel the same way the FDA's staffers do.
A no vote by the advisory panel isn't necessarily binding; companies still have the option of appealing directly to the FDA. But the agency tends to follow the advice of its expert panels.
The fact is, if the panel says no, most of the company's 60 workers could soon find themselves out of jobs.
That layoffs didn't happen last July is something of a minor miracle and a credit to the company's leadership. CEO Russ Trenary, 42, who's been at the company three years after a long stint with drug giant Allergan Inc., had helped Sunrise build a $20 million cushion of reserve funds through several private placements of stock.
The reserve kept the company breathing in a situation that's killed many less-capitalized firms. But in the six months since the first panel vote, Sunrise has burned through nearly half of that money.
Mr. Trenary even honored job offers Sunrise had extended to a number of prospective employees before the July shocker. Doing so helped existing workers understand the company wasn't going to fold its tents.
Sunrise officials are once again on a hiring push, taking out a full-page newspaper ad the week before D-Day with the expectation that FDA approval would mean a near-immediate ramping up of production.
But, the company has also learned its lesson: Offer letters that have recently been sent out included a caveat that the offer could change if the panel again votes not to approve.
Banding together
"In July, we were all like, `What happened?' says Lea Herrera, an executive assistant at Sunrise.
She's checking Yahoo Inc.'s online message boards to see what investors are saying about the upcoming hearing. ("There doesn't seem to be any panic," she reports.)
Since the July decision, Sunrise employees have banded together in an "us-against-the-world" mentality, which Mr. Trenary has fostered.
Joel Stanley, the company's sales service engineer and one of its longest-tenured employees, gives a hint of the evangelical fervor with which many Sunrise employees view their jobs.
"When you see the patients after the procedure, and their eyes just light up, that's what it's all about," he says.
He and the rest of the staff are gathered at a meeting called by Mr. Trenary later that morning, one last rally of the troops before the executives fly off to Washington, D.C., to attend the panel hearing.
Mr. Trenary strides in, looking sharp in his pressed shirt and the only tie in the room.
He recounts his early days with the company, back when Sunrise was trying unsuccessfully to develop lasers for dental procedures.
Before developing Hyperion, the company sold a laser vision system called Sun 1000. Only 40 were made, and production was stopped last year.
"People had seen the company stumble year after year after year," he tells his listeners. "The level of belief was not at an inspiring level."
Mr. Trenary praises his staff for working hard to bring the company back so quickly; Sunrise's stock has recouped about two-thirds of its value since July.
"We did our grieving the evening of July 22," he says. "We started planning on July 23."
Still, nobody in the room appears overconfident.
"After you get the wind kicked out of you, you don't want to get too high," says Dale Hatch, field service manager.
Get `shorty'
Back in the privacy of his office, Mr. Trenary's weariness is showing. Above the starched shirt is a day's worth of stubble.
When they reach Washington in the morning, he and his team will go through a full day of role-playing to anticipate any question the panel might throw out.
He's also working to line up a major investment of private capital in the firm. And, he's keeping a nervous eye out for the short sellers who have plagued his company's stock over the past year.
Mr. Trenary says Sunrise is a prime target for short sellers seeking to drive down its stock, then snap up chunks of shares and wrest away control of the company.
"In 1999 we had no sales, a market cap in excess of $500 million and no institutional ownership [of our stock]," he says. "If you're a short seller, there's a lot to gain, and you're dealing with individual shareholders that might be less experienced."
To spook investors, several short sellers issued highly critical reports about Sunrise's technology and prospects. Mr. Trenary believes some members of the FDA panel who voted down Hyperion were influenced by those reports.
Mr. Trenary is still angry about what he considers unfair treatment.
He's interrupted by a phone call from a Sunrise scientist who's already in Washington. The two strategize about possible panel scenarios and quick responses to online attacks from "shorty."
"We have a couple surprises for him," Mr. Trenary says, pacing around his desk, stopping to laugh at something the caller says.
Judgment cometh
The day before D-Day, Mr. Trenary gets two pieces of good news: His wife, Karen, has flown to Washington for moral support, and he's snared a $12 million investment in Sunrise from an affiliate of Lehman Brothers Holdings Inc.--a key vote of confidence from a major institutional player.
The following morning, he and the rest of Sunrise's leadership file into the FDA conference room.
Back in Fremont, Mr. Hatch and a few other employees huddle around a speaker phone wired into the proceedings.
Over the next six hours, they keep a silent and nervous vigil. Other employees drift in and out throughout the morning.
By 1 p.m., word's begun to spread that the decision is drawing near: About 30 people are crowded in the room when the voting begins.
When the voice on the speaker phone announces unanimous approval, Mr. Hatch's careful poker face dissolves.
Yelps and screams of relief bring other employees running. Some workers shed quiet tears; others grab noise makers and spray cans of party string.
After a while Mr. Trenary calls in and is nearly drowned by football-style chants.
"What a beautiful feeling this is," Mr. Trenary crows.
He cautions that the story's just beginning. It could still take an additional three to six months for the FDA to take final action on the panel's recommendation.
Mr. Hatch is headed home to pack his bags.
"I'm off next week," he says. "I figured either way [the decision went], I needed a vacation."
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II [on same page]
Easy to see why Sunrise is so anxious: laser surgeries on steep rise
Industry officials estimate that up to 900,000 laser vision surgeries were performed in the Unites States last year, double the number in 1998 and almost four times that of 1997.
The vast majority of those were for nearsightedness.
But officials at Sunrise Technologies International of Fremont, which makes a laser system to treat farsightedness, say 60 million Americans over age 40 suffer from farsightedness--twice the number of nearsighted people that age.
Farsightedness occurs when the eye is too short or the cornea too flat. People with the condition are unable to clearly see objects at close range. Nearsighted people can't see things at a distance.
Sunrise's technology uses a laser to heat the surface of the eye, reshaping the cornea.
Unlike popular systems for treating nearsightedness--such as LASIK and PRK--the cornea isn't cut and no tissue is removed.
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