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Tuesday, June 2, 1998
Premier Laser Systems Inc.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLSIA)") else Response.Write("(Nasdaq: PLSIA)") end if %>
Phone: 714-859-0656
Website: http://www.premierlaser.com
Price (6/1/98): $4 3/16
HOW DID IT FIND TROUBLE?
For Premier Laser, the company that just last year had sore-mouthed dentist patients rejoicing over the FDA approval of the firm's hard tissue dental surgery laser, this was supposed to be a routine check-up.
Instead, investors got drilled. Shareholders were treated to a share price cleaning after the company reported that its largest client of the new laser, Henry Schein <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HSIC)") else Response.Write("(Nasdaq: HSIC)") end if %>, was disputing orders.
The stock price was quick to decay. Schein had been stocking and selling Premier's laser -- just not as many as Premier's income statement claimed. With Schein reporting that it never issued purchase orders, never received the lasers, and was never invoiced, the game was not going in Premier's favor. The company claimed innocence and said it was readying to sue Schein based on its purchase tactics, but Premier also declared it would probably have to restate revenues for the last two quarters of 1997.
This was nothing like the painless dentistry of last year's double. This time, paper profits were extracted -- excruciatingly so.
Capital gains weren't all that were pulled. Ernst & Young, the company's auditor has quit and the Nasdaq is now conducting an inquiry into the disputed orders. With trading in shares of Premium Laser halted, not affording existing shareholders a chance to rinse, spit, and sell, investors now must wait with their mouths open wide, in shock, in pain, in trouble, for this check-up that didn't quite check out.
BUSINESS DESCRIPTION
The company's dental laser, Centauri Er:YAG, can be used for hard tissue surgery such as removing tooth decay and preparing a cavity for a filling. The laser can also be used for hemostasis, excision, and vaporization of tissues in various medical applications. The company also has other laser products on the market, including its MOD argon laser, which received regulatory approval for its teeth whitening process last year. Its newest offering, Arago II, is used in both teeth cleaning and composite curing.
In addition to its lasers, California-based Premier has a lot of eyes to look after. Last year the company bought EyeSys, a corneal topography specialist, and now owns a 51% stake in Ophthalmic Imaging Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OISIC)") else Response.Write("(Nasdaq: OISIC)") end if %>.
FINANCIAL FACTS
Income Statement*
12-month sales: $14.0 million
12-month income: ($15.2 million)
12-month EPS: ($1.64)
Profit Margin: N/A
Market Cap: $63.2 million
(*Before pending restatements)
Balance Sheet
Cash: $7.5 million
Current Assets: $37.9 million
Current Liabilities: $8.1 million
Long-term Debt: $0.2 million
Ratios
Price-to-earnings: N/A
Price-to-sales: 4.5
HOW COULD YOU HAVE SEEN IT COMING?
The company is now facing a double dose of revenue write-downs -- $2.5 million off from the third quarter and $4.5 million from the fourth quarter. That represents half of last year's sales, and the revision will be quick to reverse the company's welcome profitability in the third quarter.
Back in February, when the company announced that it was in the black, the stock rallied into double-digits for the last time. It was interesting that, even after more than doubling the sole analyst's earnings estimate, the stock barely closed above $10 a share -- well below the $16 high the shares hit after Centauri's FDA clearance last May.
Investor euphoria seems to overshoot reality more often than not when it comes to medical breakthroughs. That was evident when biotech concern EntreMed <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENMD)") else Response.Write("(Nasdaq: ENMD)") end if %> went as high as $85 the day after being featured in a story that detailed the company's success in curing cancer in a lab rat. A few days later the stock was trading in the $30s, where it remains today.
The moral of the story may be to avoid buying the medical newsmakers until after they settle down. While that piece of advice may not have spared an investor the recent debacle -- something that only those privy to the Schein-Premier relationship would have known about -- they would have at least bought in at a lower price.
WHERE TO FROM HERE?
A serious concern here is whether both parties will kiss and make up. Premier can't afford to lose Schein as a customer. Not only was Schein so high on the Centauri as to feature it on the cover of a recent sales catalog, but Schein is also a growing company. When Schein bought out Sullivan Dental Products last summer it suddenly owned 27% of the dental supply market.
Premier distributed a glowing press release on how well the company fared at the annual California Dental Association show in Anaheim. But more significant than the 50 leads the company generated on the floor was the release's mention that both parties were at least discussing their differences.
With or without Schein, the Centauri is bound to be a good seller, but life can get awfully tough if 27% of the dental supply market walks away in spite.
This is not to belittle Premier's other product lines in eye and dental care. Arago II, with a $5,500 price tag, has not only all of the portable standalone characteristics as its predecessors -- it is also $3,500 cheaper.
A diversified client base and a diversified product line. All hope is not lost with Premier even if Wall Street will take some time to be won back over. Adding to the duress is the vast number of class action lawsuits that have been filed against the company. In the meantime, the company is sporting a fluoride, minty clean asset-rich balance sheet -- a good thing since it just might need the money to restore confidence, and investors.
-Rick Aristotle Munarriz
([email protected])
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