S&P Pick of the Week again!
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. |
