For those of you that are not familiar with SNRS, I will post an article that came out a while back by Standard & Poors. SNRS was picked by S&P as stock of the week twice, and I just posted both articles on RAGING BULL. Thought that I would paste the second article here since it is still on my clipboard. It gives a good over view of the company.
If anyone wants to see the first article, let me know and I will post it.
Regards,
Joe
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Tuesday December 08, 1998 (11:46 am ET)
Stock of the Week: Sunrise Technologies International
By Mark Arbeter, S&P MarketScope Analyst
NEW YORK, Dec. 08 (Standard & Poor's) - The Stock of the Week is Sunrise Technologies International (SNRS), which makes laser-based systems used to correct ophthalmic conditions. SNRS was previously Stock of the Week April 14, 1998.
SNRS 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 correction of hyperopia (farsightedness), presbyopia (loss of focus due to natural aging), and overcorrection resulting from PRK and LASIK treatments for myopia (nearsightedness). The company has completed Phase III clinical trials in the U.S. and the filing of its PMA (pre-market approval) is imminent.
SNRS started clinical trials for hyperopia back in late 1993, but, because of poor management, made little progress. However, things changed in mid-1996 when C. Russell Trenary III joined the company. Trenary is now President and CEO. Since mid-1997, SNRS has divested its dental operations to focus exclusively on laser surgery, and has built an experienced management team with over 100 years of ophthalmic and laser experience.
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. SNRS intends to sell these lasers for $200,000. Ophthalmologists will charge $1000 to $2,000 per eye with SNRS getting about $130 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 $2.6 billion per year, and that does not include sales of the laser machines.
According to the company's Vice President of Clinical and Regulatory affairs, Jeannie Gifford Cecka, the SNRS has treated over 750 eyes (over 450 patients) and the results have shown an extremely high safety profile (no 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.
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 patient's eye, I did not even know that it had taken 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, walked out of the office and drove home.
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 correct refractive errors of the eye.
After viewing the procedure, I met with six 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.
These patients said that among other things, they had experienced vast improvement in both near and far sight, their vision was now much more intense and vivid, colors seemed brighter, small print was no longer a problem, vision improved within a couple of days, and perhaps most importantly, 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. By the way, the company, 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 later spoke with another patient on the phone, an executive at a major pharmaceutical company, who had one eye treated in April 1998 and the other eye treated in September. She used to wear very expensive ($700) trifocals and now does not need glasses at all.
One of the company'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 excimer laser systems for nearsightedness cost up to $500,000 with maintenance running up to $100,000/year. In addition, the procedures are invasive -- 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 and just funded two-thirds of an $11.8 million private placement.
Recent company milestones include completing a new laser system (one that SNRS plans to launch in 1999 after FDA approval) with a proprietary eye tracking system that allows for certain eye movements but pauses if there is sudden eye movement, as stated earlier, the primary hyperopia study was completed, expanded trials for treatment of hyperopia from +2.75 to +4.0 diopters (20 patients treated so far), expanded clinical trials for the treatment of presbyopia (about 50 treated), and the company began investing in equipment and infrastructure in anticipation of its 1999 launch.
Sunrise VP Cecka told Standard & Poor's that once the PMA has been submitted, the FDA has to tell SNRS if the PMA is fileable. Assuming that it is, she believes that the company will go before the FDA Ophthalmic Devices Advisory Panel between May and July 1999. If the Panel okays the PMA, the FDA has two to six months to address manufacturing, labeling, and other issues before they give their final okay. This should allow the company to launch by mid- to late 1999.
On a technical basis, the stock recently broke out of a 3-month consolidation on heavy volume. The stock looks like it can take a run at the old closing high near $10.
We believe the stock is extremely attractive for speculative accounts on a short term basis and has the potential to be a blockbuster over the next couple of years.
To see last week's Stock of the Week, click here .
About Stock of the Week Stocks of the Week are suggested investment opportunities for potentially large capital gains over a 3 to 12 month horizon. S&P picks these stocks from the universe not covered in the S&P STARS system. This means that no S&P analyst currently follows these issues with a buy or sell recommendation.
Therefore, you must complete your fundamental analysis and follow future company developments on your own. S&P picks stocks from a combination of fundamental and technical criteria. Fundamentally, we focus on superior historical sales and earnings growth. We then look for superior five-year forward growth consensus forecasts and a moderate P/E valuation. High and increasing margins is also a criteria as are companies with high market shares.
S&P's technical screens select stocks based on recognition of favorable chart patterns and high relative strength. We look for stocks breaking out to all-time highs on heavy volume after a price consolidation.
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