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Biotech / Medical : Keravision(kera) -- Ignore unavailable to you. Want to Upgrade?

To: oilbabe who wrote (260)	10/20/1999 11:33:00 AM
From: oilbabe	Read Replies (1) \| Respond to of 338

34am EDT 20-Oct-99 DLJ Securities (Bob Hopkins) KERA KERAVISION: In-Line Third Quarter; AAO As A Catalyst? DLJ **** DONALDSON, LUFKIN & JENRETTE **** DLJ RATING: Buy Change: None 12-Mo. Target: $33 KeraVision reported a solidly in-line third quarter last night signaling that the US launch of the Intacts procedure is thus far on track. KeraVision met or exceeded our expectations for the quarter on all counts - including procedure volume. Importantly, all forward looking indicators (training schedules, explant rates, outcome data) remain positive suggesting that as the practice integration and proctoring process reaches more trained docs ,procedure volumes will follow The early stages of this product ramp will be bumpy given the newness of the technology, but we believe that expectations are sufficiently low and achievable. The upcoming AAO and ISRS meetings in Orlando should provide some new efficacy and safety data from the ongoing launch that confirms earlier outstanding results produced in the clinical trials. We believe these meetings will be positive for KeraVision and could take the stock towards the high end of the recent trading range ($10-$15). KeraVision's third quarter results came in over $.10 higher than we were expecting, but we were expecting a charge in the quarter that did not materialize. Our numbers for the fourth quarter and 2000 remain unchanged. All key numbers were hit or exceeded in the quarter including number ofdoctors trained (205 versus 190 expected), number of procedures estimate over 700 versus 600 expected), revenue $4.19mm versus $4.17 expected) as well as the bottom line due to slightly higher interest income levels. KeraVision generates revenue from three different sources: kit revenue, training revenue and revenue from Intacts reorder rates. We estimate that kit revenues came in at $3.1mm, training revenues $700k and Intacts revenue at roughly $300k. In the second quarter roughly 40% of the trained doctors bought kits, but in the third quarter that number decreased to 35% because more associates and group doctors were trained in the quarter. This percentage is unlikely to increase over the next few quarters as KeraVision focuses its resources on practice integration, which should increase the number of associates trained. We do not believe that this trend will affect our revenue assumptions however, as higher Intacts revenues would likely offset a decrease in training revenues due to the more intense focus on integration. Procedure volumes will make or break this story and should be the focus of the investing community's attention. While it is too early to draw conclusions from the 700 procedures that we estimate were performed in the quarter, rumors of a disastrous launch should be put to bed. Reorder rates appear healthy as our Intacts revenue assumptions indicates that over half of the proctored doctors have reordered. Next week's American Academy of Ophthalmology meeting should add to the positive news flow as follow up data on new patients will be presented. This Saturday there is an entire session full of papers and presentations on Intacts, including a head to head comparison of complication rates between LASIK and Intacts. As with any new medical technology however, the Intacts procedure faces several near term challenges that we have appropriately incorporated into our model. Physician training, practice integration, and consumer advertising have yet to be fully implemented, and we should expect that some physicians will move up the learning curve faster than others. As such, in our financial model, our assumptions on the number of procedures per quarter are very low until the second or third quarter of 2000 when the base of well-trained and integrated practices will have reached a critical mass. Our 18 month price target of $33 assumes that the stocks current forward revenue multiple of 7.2 times EV remains unchanged, and that the stock within that time period begins to trade off of 2001 numbers. We believe that at current prices KERA adequately reflects the early stage risk of this story, and leaves a tremendous amount of upside should the procedure ramp as we believe it will. If, for example, KERA captures 5% of the total refractive opportunity in 2000 versus the 3.8% that we are calculating, revenues would increase by over 30% suggesting a price target of $43 using the same multiple assumptions ## Donaldson, Lufkin & Jenrette Securities Corporation (DLJ) acted as underwriter in the most recent public offering of securities of Keravision, Inc. (the "Company"), makes a market in the securities of the Company and, in addition, affiliates of DLJSC own a substantial position in securities of the Company.