From Glitzy Premiere to a Performance Nightmare
A year ago, the future looked bright for Premier Laser Systems Inc. The Irvine maker of dental and medical lasers had scored a huge coup when one of its lasers became the first to receive federal approval for use directly on teeth.
Overnight, the obscure little company became a publicist’s dream. Front-page headlines proclaimed the new laser a promising replacement for the dreaded drill. Premier’s chief executive, Colette Cozean, became a media celebrity, whisked from one network news show to another to explain how the laser could be used to remove tooth decay with relatively little pain.
Today, Premier is a publicist’s nightmare. In the last several months, it has endured a highly damaging dispute with a major distributor, the resignation of its auditor, and the restating of nearly two years of financial results. Trading in its stock has been suspended since May.
Several shareholder lawsuits have been filed, accusing the company of fraud and various securities law violations. What’s more, its star product, the hard-tissue dental laser, has been slow to catch on despite the initial fanfare.
How could a company with seemingly everything going for it go so wrong so fast?
Sadly, analysts say, stories like Premier’s are all too common: A sensational, can’t-miss product ends up destroying, or nearly destroying, the company.
“You’re running things conservatively, the business starts growing rapidly, and then you don’t have the controls,” said analyst John Doss at Dominick & Dominick in New York. “I wish I had a formula for people to avoid these problems.”
A chastened Cozean, in her first in-depth interview since the troubles began, admits that “we got shoddy” and mistakes were made, though she steadfastly maintains that no one has turned up even a glint of impropriety.
“It’s been a terrible three or four months,” she said.
But the 40-year-old executive, who holds a PhD in biomedical engineering, hasn’t wavered in her belief in Premier. Despite big losses, the company still has nearly $12 million in cash, no long-term debt, and has received some new federal clearances that should boost sales. With 22 dental, surgical and ophthalmic lasers already on the market, it’s far from a one-trick pony dependent on the success of a single product, she said.
Premier probably lost six to 12 months that could have otherwise been spent marketing the hard-tissue laser, Cozean said. But she is intent on moving on.
“What we now have to do is convince the dentists that we are still the leading dental company out there.”
Slow Market Penetration
It won’t be easy. Even aside from its image problem, Premier faces an uphill battle selling its lasers to dentists, who are generally a conservative bunch who adopt new technologies slowly.
“Our lifeblood is technology, but we’ve come to understand the reality that dental technologies have always taken a long time to penetrate the market,” said Bob Dalton, spokesman for American Dental Technologies in Southfield, Mich., a competing laser company.
The mistake that many dental technology companies make when a breakthrough receives publicity, Dalton said, is thinking the attention will help sell the products.
“They’re thinking as a dental patient,” he said. “But dental patients don’t buy these technologies. Dentists buy them--and there’s really nothing compelling them to buy them in a hurry.”
Donald A. La Point, chief executive of San Clemente-based BioLase Technology Inc., which is seeking approval for its laser-and-water dental system, said many executives in the business have stumbled by focusing exclusively on product development and winning Food and Drug Administration clearance--and ignoring the basics of building the business.
“They forget that once they get the approval, the excitement must be carried through in getting to the marketplace efficiently,” he said.
Premier’s recovery could also be complicated by lingering controversy over how--and how much--lasers actually will benefit dentistry. Some in the dental community believe they might pose some risk to patients and that similar results can be achieved through other technologies.
The American Dental Assn. has been cautious in assessing Premier’s laser, supporting its use on small and medium-sized cavities but saying it needs more data before deciding if the laser is safe and effective on deeper cavities.
Dan Meyer, a Chicago dentist and associate executive director of the ADA’s science division, said he’s “guardedly optimistic” about the future role of lasers in dentistry. But, he said, many questions remain. “We’d like to see research data that supports their extended use,” he said.
Still, when Premier’s laser received clearance from the FDA in May 1997, it was heralded as revolutionary. The agency called it “medicine for the 21st century.”
At the time, Premier said its goal was to capture 1% of the tooth-drilling market in the first year, amounting to about $45 million in sales. It projected it would sell 10,000 to 15,000 of the $40,000 hard-tissue laser systems in a decade.
The company’s stock soared to as high as $16.13 a share in May 1997.
Then in April of this year, Premier announced that a dispute with Henry Schein Inc., a large dental products distributor, could force it to lower revenue estimates by $7 million for its last six months. The disagreement centered on products that Premier had shipped to Schein and recorded as sales but which the distributor said it never ordered.
The situation went from bad to worse in May, when Ernst & Young abruptly resigned as Premier’s auditor. The accounting firm said it had “serious disagreements” with Premier and that an internal investigation into the company’s finances, prompted by the Schein dispute, wasn’t broad enough.
Ernst & Young also criticized Premier for having no documentation showing that Schein agreed to pay for the products in question.
The analysts who had been so bullish on Premier’s prospects were stumped by the foul-up. Cozean’s initial response was that the company shouldn’t have done business with Schein “on a handshake.”
“That sounds relatively naive,” said analyst Doss, though he sees no sign of fraud. Still, the lawsuits poured in.
That was the darkest time for Cozean. Though she denies any of the wrongdoing alleged in the complaints, she said: “We definitely made mistakes in not getting all of our paperwork done. It really bothers me to have hurt shareholders and to have destroyed people’s confidence in us.”
Premier has a new auditor, Haskell & White of Irvine, and last month the company reported that it lost $6 million in its fiscal year ended March 31, 1997, nearly $400,000 more than previously reported. Its fiscal 1998 loss totaled $38.8 million, including $7.5 million in write-downs on Schein-disputed inventory, on sales of $10.4 million.
Company Makes Management Changes
Cozean refuses to assign blame to any individual, but there have been some management changes. Michael Hiebert resigned as chief financial officer, succeeded by Charles J. Olson II. Executive Vice President Daniel Caruso was reassigned as director of corporate marketing and development.
Trading in the company’s stock has not resumed, but the company is hoping that Nasdaq will review its revised financial figures and give it the green light. It last traded at $4.19 a share on May 22, but analysts expect the stock to reopen at about $2 as investors unload their shares.
Cozean won’t disclose just how far Premier has fallen short of its initial sales projections, but some analysts estimate the company has sold just 200 of the hard-tissue systems. Still, she insists the company has never been in danger of bankruptcy. Its other lasers continue to sell, she said, and it continues to receive new FDA clearances--the most significant of which was the approval in August for one of its lasers to be used in root canal work.
The firm also is hoping the FDA will soon give the OK for its hard-tissue laser to be used on children as well as adults--a move it believes will help sell dentists on the product.
For now, Cozean said, Premier will use its own salespeople to market the hard-tissue laser to “early adopters.” It also has launched a print advertising campaign aimed at the general public.
Within about two years, however, a major distributor will be needed to reach a broader audience.
“I would hope we could come back and do a deal with Schein,” Cozean said, “but what we have to do as a company is move forward. We can’t sit here hoping we come up with a distribution agreement.”
Schein executives declined to comment.
Analysts say Premier has only so much time to turn itself around. The unsold inventory remains a weight around the company’s neck. And other firms, including BioLase, could soon win approval for their own hard-tissue dental lasers.
Analyst John Westergaard at Westergaard Online Systems Inc. in New York said Premier still has a shot at success. “There are an awful lot of dentists out there. They don’t have to sell a lot of these things to make a lot of money.”
But Cozean knows the company’s damaged credibility has wounded it badly: “I have to be worried. It is one more thing that allows a conservative dentist to stay away.”
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Premier Plummets
Shares of Premier Laser fell more than 60% from March to May before trading of the company’s stock was suspended by Nasdaq. Weekly closing stock prices and events that led to the dramatic downturn:
Jan. 2: $7.88
Feb. 13: Company reports first quarterly profit in seven-year history.
Mar. 6: $11.50
April 15: Company says dispute with major distributor could cause $7 million revenue short fall.
May 5: First of shareholder suits says Premier inflated stock price with misleading information.
May 22: Last day of trading ($41.9)
May 26: Ernst & Young quits as outside auditor.
May 27: Nasdaq suspends trading of Premier stock indefinitely.
Source: Bloomberg News
