Serendipitously, I had a meeting with Second Sight Medical Products' (EYES) CEO, Dr. Robert Greenberg, scheduled for late Wednesday morning. The company's IPO had been priced at $9 per share, but trading had not yet opened, always an expectant time for a new CEO. It turns out Dr. Greenberg attended Duke a few years before I did, and even lived in the same house.
Our school ties were a great ice-breaker, but after the pleasantries, my first question had to be: Does your company's product allow blind people to see?
The answer is: Yes, it does. Second Sight's Argus II system allows the unsighted to perceive visual images -- and this technology is being used today. This video from Dr. Greenberg's and my alma mater is touching proof.
Argus II, which received FDA approval in late 2013, implants a 10.3 millimeter by 3.2 mm device in the user's eye. With 60 electrodes (each measuring 0.2 mm) across a super-thin film laid across the retina, the implant receives signals from the system's two external components (a camera mounted on a pair of sunglasses and a communications module.) The pulses produced by the implant from the camera's images bypass dead photoreceptors and stimulate underlying neutrons. The patient receives a pattern of lights via the optic nerve -- Argus II currently only works in patients with a functioning optic nerve.
So, from total blindness -- Argus II is currently indicated in the U.S. only for patients with full vision loss due to retinitis pigmentosa (RP) -- there is sight. It's the most basic level of sight, but without much clarity. Also, with about 375,000 sufferers, RP represents a mere sliver of the 8 million globally who are estimated to be blind due to unpreventable causes.
A naysayer might point out that Second Sight's product only restores limited functionality and that the current addressable market is small. That is true now, but -- and I didn't fully grasp this until I sat down with Dr. Greenberg -- the implantable device is just the base, and it is software upgrades that will drive the company's growth.
The company's plan is to release a software update to Argus II by the second quarter of 2016 that would substantially increase performance without the need for additional electrodes. The more crucial software update, however, is due by second-quarter 2017. That update will apply the existing Argus II implant to patients with age-related macular degeneration (AMD) -- an affliction more than five times as common as RP globally.
By the second quarter of 2017, Second Sight is also planning a feasibility study for its Orion I prototype for direct stimulation of the visual cortex of the brain. This would open up the photoreceptive technology to patients who do not have a functioning optical nerve, obviously a massive increase in the addressable market.
Argus II is the only retinal prosthesis system currently approved by the FDA. Second Sight currently has nearly 300 granted patents and over 150 pending patent applications, a clear indication that it has defensible intellectual property.
The system has been approved for reimbursement by the governments of France and Germany, and has full Medicare coding in the U.S. With a current price of about $140,000, the approval of the final payer is crucial. Argus II works now and healthcare payers -- such as Medicare provider Palmetto GBA -- currently pay for the implantation.
It's a great idea, but it is Second Sight's largest shareholder, Alfred Mann, who supplies the gravitas for the company. Mann is the billionaire entrepreneur who revolutionized pacemakers (Pacesetter), insulin pumps (MiniMed) cochlear implants (Advanced Bionics) and is currently Chairman of MannKind (MNKD), which in June received FDA approval for its inhalable insulin product, Afrezza. After Second Sight's IPO, Mann -- all shares in the offering are primary, insiders are not selling any -- will control 32% of EYES stock and Chair the company's board of directors.
To value EYES, one must look to 2017 and beyond. The company's S-1 filing contains all the usual language about "going concern, lack of current profitability," etc. If you are buying an IPO of a company with a potentially revolutionary product, you don't want current profitability, you want heavy current spending in the context of a clearly defined long-term plan. I believe EYES has that -- and the market clearly agrees.
It's been a rocket of an IPO. It opened Wednesday at $17, vs. the $9 IPO price, and closed Thursday at $23.60. But I want to be part of Dr. Greenberg and team's biomedical engineering prowess while receiving the added benefit of Mann's legendary business acumen. I bought more EYES shares on Thursday at $23.50 (message me if you'd like to see my valuation methodology) and I'll continue buying.