Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Biotech / Medical : SNRS- Sunrise Technologies -- Ignore unavailable to you. Want to Upgrade?

To: Wally Mastroly who wrote (3521)	12/13/1999 4:00:00 PM
From: Sir Auric Goldfinger	Read Replies (1) \| Respond to of 4140

LEHM musta been long a few too many: Lehman Brothers (David A. Gruber, M.D. (212)526-192) SNRS Sunrise Technologies Intl. Inc: Initiating Coverage With A 1-Buy Rating Ticker : SNRS Rank(Old): 9-Not Rated Rank(New): 1-Buy Rated Price : $10 1/8 52wk Range: $21 - 2 Price Target (Old): $0 Today's Date : 12/13/99 Price Target (New): $15 Fiscal Year : DEC ------------------------------------------------------------------------------ EPS 1998 1999E 2000E 2001E QTR. Actual Old New Old New Old New 1st: (.11) - (.21)A - (.12)E - (.01)E 2nd: (.17) - (.14)A - (.09)E - .00 E 3rd: (.10) - (.13)A - (.06)E - .02 E 4th: (.14) - (.13)E - (.03)E - .05 E ------------------------------------------------------------------------------ Year:$ (.52) $ - $(.60)E $ - $(.29)E $ - $.06 E Street Est.: $ - $ - $ - $ - $ - $ - ------------------------------------------------------------------------------ Price (as of 12/10): $10 1/8 Revenue (1999E): $0.0 Mil. Return On Equity (99): N/A Proj. 5yr EPS Grth: N/A Shares Outstanding: 45.7 Mil. Dividend Yield: - - Mkt Capitalization: $462.7 Mil. P/E 2000; 2001 : N/A; 169x Current Book Value: $0.13/sh Convertible: + Debt-to-Capital: 0 Disclosure(s): None ------------------------------------------------------------------------------ BACKGROUND: Sunrise Technologies Intl. Inc, develops, manufactures and markets laser systems for applications in ophthalmology. All efforts are focused on the engineering and development of a holmium laser corneal shaping product (Hyperion) utilizing the process known as Laser Thermal Keratoplasty (LTK), for the treatment of refractive errors of the eye, such as hyperopia (farsightedness) and presbyopia (age-related loss of near focusing ability). HIGHLIGHTS: * INVESTMENT POSITIVES: * Untapped hyperopia market * Ease-of-use features makes LTK adoption appealing to all ophthalmologists * Favorable economics * Off label procedures * Immediate adoption by Excimer Laser LASIK Centers * INVESTMENT RISKS: * Failure to obtain FDA Panel recommendation for approval * Restrictive labeling * Market acceptance of holmium lasers for hyperopia * Manufacturing capacity INVESTMENT CONCLUSION: Here comes the Sun(rise)! Hyperopia (far-sightedness) remains an unmet need; LASIK penetration of this indication is minimal. Sunrise' holmium laser offers physicians an easy-to- use, in-office procedure with good clinical outcomes. FDA Panel review is scheduled for January 13, and represents a primary risk. We expect panel recommendation for approval of the revised labeling request; i.e., reduction (rather than correction) of hyperopia. Our price target of $15 reflects a price-to-sales multiple of 11x our 2001E sales estimate of $69m. Investment Positives: UNTAPPED HYPEROPIA MARKET. Approximately 82 million Americans are hyperopic (far-sighted). Hyperopia, unlike myopia usually first manifests in adulthood with nearly two-thirds of far sighted patients over 40 years old. Hyperopic LASIK has not been widely accepted due to (a) increased procedural complexity relative to myopia (b) the need for over-correction due to the potential for regression (c) more demanding patients with comparatively high expectations for visual acuity, and (d) a lesser immediate inclination for cosmesis. We believe holmium laser LTK offers a "better" solution to mild-moderate grade hyperopia ( +.75 to +2.5 diopters) than LASIK. EASE-OF-USE FEATURES MAKES LTK ADOPTION APPEALING TO ALL OPHTHALMOLOGISTS (NOT JUST REFRACTIVE SURGEONS) The training requirement for holmium LTK is minimal; this contrasts with excimer laser LASIK, which require a highly skilled refractive surgeon. Operation of the equipment requires the "press of a button". It is that simple! No cutting of the cornea! In addition, holmium lasers do not require any "special" site requirements making LTK an in-office procedure. (Note: excimer lasers require a special room with independent temperature and humidity controls, as well as dedicated 220V electric service). There are 15,000 potential customers (ophthalmologists in the U.S.) for Sunrise holmium lasers as compared to 3,500 (ophthalmologists who perform refractive surgery) for LASIK. FAVORABLE ECONOMICS Until the advent of LASIK, ophthalmologists had diminishing expectations towards future income streams. Declining HMO payment schedules and HCFA reimbursement had been "grudgingly" accepted by MDs. Laser Vision Correction surgery, a non-insurance-reimbursable procedure, is akin to plastic surgery in terms of unfettered, unregulated revenue generation. Patients tend to be from higher socio-economic classes. Physician fees for LTK are expected to be somewhat less than that for LASIK, but still highly profitable for the ophthalmologist. OFF LABEL PROCEDURES Although the FDA is only considering approval for the reduction of mild to moderate hyperopia, we believe the community of refractive surgeons will use the Sunrise Hyperion holmium laser to fix "over-corrected" myopic LASIK patients and hyperopic LASIK patients who have regressed towards hyperopia again. Presently, more than 8.5% of patients undergoing myopic laser (70,000 eyes in 1999E) need some further surgical intervention in order to refine the final visual acuity. For the patients who require increased corneal power, LTK is infinitely easier and faster to perform than LASIK. IMMEDIATE ADOPTION BY EXCIMER LASER LASIK CENTERS We anticipate that many Excimer Laser Vision centers operating today will want to purchase the Sunrise Hyperion for two important reasons. As mentioned, LTK will be a faster and more efficient means of fixing overcorrected patients without subjecting them to more "surgery" and the inherent complications of re-lifting a LASIK corneal flap. Second, and equally important, is the desire to differentiate themselves in the minds of their customers as a full service Vision Correction facility. Risks: FAILURE TO OBTAIN FDA PANEL RECOMMENDATION FOR APPROVAL. On July 22, 1999, the Sunrise LTK technology was rejected for approval by an FDA Advisory panel based on the perception that the rate of continuing regression of therapeutic effect was too great. Although the panel complimented Sunrise for the excellence of their study design and superb safety profile, it feared that some patients with small corrections would lose the effect of the surgery and revert to hyperopia. The company was asked to submit two years of post operative data in order to show that the rate of regression slowed at 24 months to a point that is clinically insignificant. The FDA has once again sent Sunrise to a panel hearing to be held on January 13, 2000. Sunrise has changed their request for labeling to read "for the reduction of hyperopia," not "for the correction of hyperopia." We expect that the FDA will approve the LTK technology by Q2 00. RESTRICTIVE LABELING We anticipate FDA approval for hyperopic patients, > 40 years old, with mild to moderate refractive error encompassing +0.75 to +2.5 diopters. We believe these patients account for at least 50% of the eligible hyperopic population. Approval for the Hyperion will be based on data obtained with the Sun 1000, its predecessor. A broader range of product approvals is expected within 9-12 months. MARKET ACCEPTANCE OF HOLMIUM LASERS FOR HYPEROPIA In the early 1990's, holmium lasers were found to be unsatisfactory for the treatment of hyperopia. The amount of regression following ablation was excessive. This history may create a negative bias against the technology. In addition, LASIK competitors might "bad mouth" the technology based on historical rather than current clinical data. We believe regression associated with holmium lasers is no more significant than that of LASIK (while providing a greater safety profile). Market development will also be required. MANUFACTURING CAPACITY Many of the components necessary for assembly of the Hyperion are sourced from contract manufacturers. A subcontractor assembles a sub-assembly, which is then shipped to Sunrise for integration with optics and a Sunrise manufactured holmium laser. Critical components with lead times of 3-6 months have been ordered. The Hyperion has not yet been assembled in production quantity. Approximately 5 units are in the final stages of testing. FDA plant inspection will follow Advisory Panel recommendations. ------------------------------------------------------------------------------ BUSINESS DESCRIPTION: Sunrise Technologies International, Inc. develops, manufactures and markets laser systems for applications in ophthalmology. ------------------------------------------------------------------------------ Disclosure Legend: A-Lehman Brothers Inc. managed or co-managed within the past three years a public offering of securities for this company. B-An employee of Lehman Brothers Inc. is a director of this company. C-Lehman Brothers Inc. makes a market in the securities of this company. G-The Lehman Brothers analyst who covers this company also has position in its securities. This document is for information purposes only. We do not represent that this information is complete or accurate. All opinions are subject to change. The securities mentioned may not be eligible for sale in some states or countries. This document has been prepared by Lehman Brothers Inc., Members SIPC, on behalf of Lehman Brothers International (Europe), which is regulated