After my columns the last few days on halloysite clay/iron oxide producer Applied Minerals (AMNL), I'll switch gears completely and focus on life sciences.
One area I've been particularly interested in is vision therapy. Today I'll return to one of my favorite ideas, Second Sight Medical Products (EYES), and next week I'll focus on another company in the vision field, Vycor Medical (VYCO).
Second Sight shares have had a wild ride since the company's initial public offering last Nov. 18. The deal was done at $9 a share. EYES opened first-day trading at $17 and quickly rose to $24. Then gravity made its presence felt tremendously, and EYES plummeted all the way to its IPO price of $9 in January. The shares have recovered markedly of late, and traded above $16 on Thursday.
I have never fully figured out what caused the price swoon in EYES. It is interesting to note, though, that shares of EYES have risen 30% since the 180-day post-IPO lock-up period expired on May 18th. So, insider selling -- and there has been some to cover taxes and expiring options, for example -- wasn't the issue.
It seemed as if the market came to the conclusion that Second Sight was just too speculative at a valuation of $530 million, which is its market cap at $15 a share, based on a revenue run rate of $1.9 million in the first quarter of 2015. I get it. EYES is not cheap, and like most companies in the early rollout phase, there's a burn rate in play here. In Second Sight's case, it's about $5 million per quarter.
But that analysis ignores the massive efforts the company has undertaken to prepare for wider adoption of its Argus II retinal implant. This company has been built to run at a much higher rate of implantation than the 19 Argus II implants done in the first quarter of 2015
Potential EYES investors must remove themselves from the "Oh my God" moment of seeing a patient who hasn't seen in decades regain vision when his or her Argus II unit is activated. Viewing Argus II YouTube videos can be addictive. (I love this one.) But remember, Second Sight is a company backed by a billionaire, Al Mann, and is built to build things.
So, with the knowledge that EYES is a manufacturing company, its relevant business drivers are two incredibly basic principles. In any manufacturing company, once a company develops a product, it has to be able to
- build them, and
- sell them
I just saved you the two years and $196,800 (the school's own estimate) that it currently costs to attend Harvard Business School.
Seriously, EYES has taken important steps recently to address both manufacturing and sales. On May 1, Second Sight announced two crucial hires: Tony Moses, formerly president of Eye Therapies, was named commercial vice president, Americas, and Jim Miller, most recently value stream production manager for Boston Scientific (BSX), was named director of manufacturing, a newly created position for EYES.
So, Second Sight addressed both "making" and "selling" functions, and I am eager to watch the development of both factors.
If you think this is a billionaire's pet project with no prospects to ever reach critical mass, let me know and I'll make you on offer on your EYES' shares. If you think that Argus II's current indication for retinitis pigmentosa is only the tip of the iceberg, you should probably hold on to your shares. If you understand that using Argus II to address age-related macular degeneration -- a treatment for which it is already indicated in Europe -- will quintuple its addressable market, you should buy more. Lastly, if you understand that rejigging Argus into a device that allows for direct cortical stimulation and bypassing the optic nerve completely ¿ which describes EYES' Orion I product, currently undergoing animal testing -- you should continue buying EYES until it hits the mid-$20s.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider EYES to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
