LASERS & DENTISTS

(This article originally appeared in the The Motley Fool's Evening News on Friday, May 09, 1997)

FOOL PLATE SPECIAL
An Investment Opinion by TMF Templr

The More Lasers Change...

Shares of PREMIER LASER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLSIA)") else Response.Write("(Nasdaq: PLSIA)") end if %> vaulted $2 7/8 to $14 today after making a similar jump from $8 3/8 to $11 yesterday. The medical laser manufacturer received Food & Drug Administration (FDA) marketing approval for a laser system designed to replace traditional drilling. Previously, lasers have been cleared only for dental use on soft tissue such as the gums. The erbium YAG laser system was also cleared to toughen tooth enamel, a procedure used to improve bonding of the restoration compound used in filling cavities.

Speaking with Dow Jones yesterday, company Chair Dr. Colette Cozean said she believes 1% of the 100,000 practicing dentists in the U.S. will buy a Premier system in its first year, resulting in $45 million in sales. By the second year of marketing, Dr. Cozean estimates that they will achieve 77% market penetration with sales potentially growing to more than $1 billion per year. Premier Laser Systems booked $1.6 million in sales in its latest fiscal quarter. Although Cozean admitted that dentists typically are slow to adopt new technology, she stated that there has been "a high interest in this product."

The actual laser system itself looks much like a standard dental drill with a cable that connects it to a large console. While treating the cavity, the implement projects a stream of water or air to keep the tooth cool. An FDA spokesperson stated that the laser was reported to be "noisy, but the noise was different from that of a standard drill." The two studies conducted by Premiere Laser indicated that a lower percentage of patients required anesthesia with the laser device and that the treatment was as effective as a high-speed drill in "removing decay and preparing the tooth for a filling."

If lasers working magic in conventional dentistry sounds familiar to readers, it is because it probably is. ION LASER TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ILT)") else Response.Write("(AMEX: ILT)") end if %> advanced to $30 7/8 in May of 1996 on prospects for its laser-based tooth-whitening procedure. At the time, analysts and investors were positively ecstatic over the potential for the company selling the units to practicing dentists as well as creating its own chain of tooth-whitening centers. Estimates ranged from $0.50 to $0.76 EPS for this year at the time, but in the first three quarters of this fiscal year the company has only done a measly $0.07 per share in trailing earnings.

Although it is clear in retrospect that Ion Laser's technology worked, the company found the challenges of actually getting dentists to purchase the systems to be much higher than anticipated. Dentists are notorious for being slow adopters of new technology, a habit ingrained by centuries worth of quackery in the profession. As an industrial laser company with a new consumer-oriented device, the initial optimistic assumptions by the company and its supporters proved to be just that -- optimistic. Shares currently trade for a much more reasonable $8 1/8 as the company continues to make decent progress in its core business. Sales in the last quarter were up more than 100% and the company netted $0.02 per share.

Unfortunately for investors, every time the FDA approves a laser-based product, the stock of the related company seems to go nuts and attract all kinds of risk-seeking money. On March 20, 1996, TRIMEDYNE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMED)") else Response.Write("(Nasdaq: TMED)") end if %> exploded from $3 to as high as $16 when it announced that the company's lasers had been approved to treat benign prostate hyperplasia (BPH), a condition that afflicts about half of all men over the age of 55. A week later the company's OmniPulse laser was approved for ear, nose and throat applications. While it appeared at the time to many investors that the profits from these lasers were a sure bet, today Trimedyne shares huddle at $3 5/16, down substantially from the level where most investors purchased it. VISX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VISX)") else Response.Write("(Nasdaq: VISX)") end if %>, which had its excimer lasers approved to treat nearsightedness at the same time, is down from $36 to $23 today.

Ah, but what of the sales potential the Chairwoman of the Premier projects? If the company achieves the $45 million to $770 million sales ramp-up in 12 months, it would be the fastest growth ever recorded for a company with a revenue base of more than $40 million, year-over-year. By comparison, two of the fastest growing companies ever, NETSCAPE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> and IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>, went from $85.4 million to $346.2 million and $326.2 to $1,212.8 million in sales in one year. Whereas two of the fastest growing companies public companies ever managed to increase sales by a factor of four in a year, Premier Laser Systems believes it can increase sales by a factor of 17. Where a company with a $100 million market capitalization would find more resources than Netscape or Iomega is a question investors should be asking themselves.

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