The Shorts' View Of Summit May Be The ClearestJeffrey M. Laderman
Half of all Americans--some 143 million people--need corrective lenses. So does about half of the rest of the world. It's not surprising, then, that Summit Technology, a leading designer and manufacturer of lasers that "sculpt" corneas to correct vision deficiencies, is glowing in a market that's hot on medical technology.
But there are skeptics--even short-sellers--who argue that the company, which should generate some $20 million to $25 million in revenues this year and is slightly in the black, cannot fulfill a market valuation of $370 million. The question isn't whether the company's excimer lasers work--they're already in use in Europe and in the final phase of U. S. testing before presentation to the Food & Drug Administration. Rather, it's whether photorefractive keratectomy, or corneal sculpting by laser, will ever develop into the multibillion-dollar business the market capitalization implies.
The risk to stockholders is that it will be 1994 before the FDA passes on the procedure. So Summit's windfall is at least three years away, possibly more. "It's risky, but we're further along today than we've ever been, and the risk diminishes with time," says CEO David Muller, who (with options) owns more than 10% of the company.
IMPLANTED RING. Skeptics argue that the risks are many. They were not reassured after a Sept. 25 analyst meeting. The stock dropped 2 points to 24 3/4. Summit's main competitor, VISX, is testing two other designs of lasers aimed at the same market. And Mark Roberts of Off Wall Street Consulting Group warns that while Summit waits for FDA approvals, "another company could leapfrog its technology." He notes that Phoenix Laser Systems has an entry that shows promise, and KeraVision makes a ring that is implanted in the eye to alter the shape of the cornea. Meanwhile, Bausch & Lomb is working on contact lenses that can be worn for a year at a time.
Summit's Muller says the potential market is the some 23 million people who wear contact lenses and a portion of the 40 million more myopics who would like to but can't wear contacts. But the expected cost of the procedure is high--$1,500 to $2,000 per eye--none of which is likely to be reimbursed by health insurers. So Roberts figures the patient pool is only 1 million.
Then what's Summit really worth? Roberts looks to VISX, which has a market capitalization of $106 million. Divide that by Summit's 15 million shares, and you get an $8 stock.