Medical Laser Stocks Offer Big Promise--and Risk
R. J. Barrios has worn eyeglasses since he was a teen-ager. And the 35-year-old Louisiana man never liked it. “I hate glasses. I’ve always hated them. And I couldn’t wear contact lenses comfortably.”
With luck, he won’t have to wear glasses again. A month ago Barrios had experimental laser surgery that, in essence, reshaped his left eyeball during a 10-minute procedure. And, so far, it has almost completely corrected his nearsightedness. “At this stage of the game, I think laser surgery is wonderful,” says Barrios.
Patients who have entered the new frontier of bloodless medical procedures that are performed with lasers may marvel at the technology. But among the nation’s medical and financial experts there is still doubt as to which procedures will prove viable over the long haul and which companies will ultimately benefit from their discoveries.
“The bottom line is that laser surgery is an exciting industry. There is tremendous growth,” says Irving J. Arons, senior consultant and medical laser specialist for Arthur D. Little, the Cambridge, Mass., research firm. “But there is no telling when the growth spurt will come about because of the long regulatory process. And, of course, there is no telling which procedures will eventually be successful.”
Without much fanfare, Wall Street has recently started bidding up the stock prices of some of the companies directly and indirectly involved in making the equipment used in laser medical procedures. Cabot Medical Corp., a Langhorne, Pa., manufacturer of laparoscopes used in laser surgery on gallbladders, in the past month has seen its stock rise from just $6 a share to more than $10.
And Summit Technologies Inc., a tiny Watertown, Mass., company that developed the excimer laser that was used to clear up Barrios’ nearsightedness, has seen its stock soar to about $18 a share from just $2 a few years ago. Summit has yet to have significant profits from its discoveries.
The big question these days is: Are investors being too farsighted on the laser surgery market?
“The problem with this industry in the past is that there has been a lot of hype,” says Nushin Namazi, a market analyst with Biomedical Business International, a health-care consulting firm in Santa Ana. “A lot of people have been disappointed.”
“There are some potentially high-growth markets, but you won’t see these for two to three years,” Namazi says. And, she adds, some segments of the laser surgery market are already mature and treacherous.
Most of the evaluation of the laser surgery business these days is being conducted by small, local “boutique” investment firms, as well as by medical industry consultants. Large Wall Street brokerages, for the most part, haven’t begun sizing up the dozens of small laser-surgery companies that make up the industry. One reason for this is that many of the companies are privately owned mom-and-pop labs that think they’ve latched on to a good discovery but haven’t sold any stock to the public.
Even without this mainstream Wall Street research, investors have been getting the word on laser stocks. Reports in the general press during the past few weeks about laparoscopic cholecystectomies, a new procedure in which diseased gallbladders can be detached from the body by lasers and removed through a small incision, is mainly responsible for the boom in Cabot Medical’s stock. Cabot’s laparoscopes are the thin tubes that are inserted in the body and through which the laser is “delivered,” or in layman’s terms, “shot.”
Experts say advances such as the one on gallbladders will continue to excite investors. But they warn that few companies in the laser business will prosper. Some experts warn that the years ahead could produce shakeouts for many of the small, under-funded companies that are trying to hang on in the medical laser field.
Namazi, for one, warns that the market for ophthalmic lasers is maturing, with the possible exception of the eyeball reshaping technology being tested by Summit and three other companies.
In 1985, lasers and associated products for surgery on the eyes--detached retinas, removal of cataracts and other procedures--accounted for revenues of $82 million, she estimates. In 1989, revenues were just $52 million.
The hottest ophthalmic use for lasers could turn out to be the one being tested by Summit. The other companies involved in similar tests are Taunton Technologies of Monroe, Conn.; Visx Inc. of Sunnyvale, Calif., and Phoenix Laser Systems of San Francisco. This eyeball-reshaping procedure is exciting the public so much, in fact, that Summit refuses to give out the exact locations of its tests. The clinics, Summit says, get inundated with hundreds of phone calls from volunteers.
Even though Summit’s experiment is capturing the public’s interest, Namazi warns that even if everything goes right the Food and Drug Administration probably won’t officially approve Summit’s procedure--called photo refractive keretectomy--until 1992.
Summit is testing its procedure in four locations--in Boston, in New Orleans and at two clinics in Southern California. How’s it going? “A lot of people are seeing 20/20 and not wearing their glasses,” says David Muller, president of Summit.
Adds Stephen Brint, assistant professor of ophthalmology at Tulane University and the one who performed the surgery on Barios: “We have completed the four-month follow-up (exam) on seven patients and the results have been very good.”
Arthur D. Little’s Arons says corneal sculpting--or eyeball reshaping--could turn into a $150-million- to $200-million-a-year market for the equipment makers. And if you include doctor and hospital bills of approximately $1,500 an eye, it could be a $4-billion annual market, he says.
Other promising medical uses for the laser, says Arons, could be in treating cancer. He estimates that $20 million to $40 million a year could be spent just on equipment for this procedure. Laser equipment for treating kidney stones could add $40 million a year in hardware sales; laser equipment for back, spinal and elbow surgery could amount to $20 million a year; lasers for the treatment of arthritis, $10 million, and $15 million in equipment could eventually be sold to dentists if lasers are ultimately approved for removal for tooth decay.
When you include drugs that will also be necessary for many of these procedures, Arons believes, the market for medical lasers and all related equipment could eventually total $900 million a year.
Who are the biggest companies in the medical laser field? American Dental Laser of Birmingham, Mich., has lasers that are used by dentists, says Arons, while a Pfizer Inc. subsidiary has laser equipment for the orthopedic market. And two small firms--Candela Laser and Technomed International--have lasers that are being marketed for breaking up gallstones and kidney stones.
Quadralogic Technologies Inc. of Vancouver is working on a photo-sensitizer cancer-fighting drug that, after put in the body, would be activated by a laser, Namazi says.
Intelligent Surgical Laser of La Jolla is working on a technology that would compete with Summit’s eyeball-reshaping procedure. Surgical Laser Technologies of Malvern, Pa., and Laserscope of San Jose market lasers for use in gallbladder removal.
Sharplan Lasers, Heraeus LaserSonics and Surgilase also have other lasers that can be used for gallbladder removal, the experts say.
Coherent Medical Corp., meanwhile, is the leader in the ophthalmic laser field.
But if you are thinking of investing in any of the publicly traded companies in the laser business, keep in mind that a number of things could go wrong. It wouldn’t be surprising if a company’s breakthrough technology were quickly made obsolete by a new discovery. Or the procedures they are exploring may just, flat-out, not work very well.
It wasn’t very long ago, Namazi points out, that big things were expected of lasers designed to clear clogged arteries to the heart. But conventional bypass surgery has proven more effective, and no laser has been approved for this task.
