So what’s IntraLase Corp. going to do with all the money?
“Ours is a technology story,” said Robert Palmisano, IntraLase’s chief executive. “We’re spending more than 20% of revenue on R & D;, which is a lot. We are going to be an R & D-intensive; company for quite a while.”
The Irvine-based maker of lasers for eye surgery raised $86 million in an October public offering. That puts the company behind only San Clemente-based Sunstone Hotel Investors Inc. in money raised in initial public offerings by local companies this year.
Sunstone raised $360 million in October.
At a fifth of sales, IntraLase is spending a higher percentage on research than at least one other eye laser maker, Mountain View’s Iridex Corp., which makes devices for cataract, glaucoma and other serious disorders.
In the third quarter, Iridex spent about 12% of sales on research.
Some of IntraLase’s offering proceeds are set to go toward expanding sales and marketing and even possibly for acquisitions. But a big chunk is set to go into its products, Palmisano said.
IntraLase is “a company dependent upon R & D; to make our product better, to increase the applications we can do,” he said.
IntraLase makes lasers and software used in vision-correction surgery. The company’s IntraLase FS creates a flap on a patient’s cornea, the first step in fixing vision in laser surgery.
The laser is designed to replace a microkeratome, a metal blade that’s used to create a corneal flap.
IntraLase’s products are a selling point for some doctors touting “all-laser” eye surgery, including Saddleback Eye Center in Laguna Hills, which makes IntraLase FS a big part of its marketing.
The company’s IntraLasik software allows eye surgeons to create precise measurements for making corneal flaps.
Good engineers and scientists are key because IntraLase’s strategy is “more dependent upon taking share away from an antiquated technology,” Palmisano said, referring to the microkeratome.
“If the market grows, it’s wonderful, we’re all for that,” he said. “But as far as IntraLase goes, we’re not dependent on it.”
As such, IntraLase’s biggest rivals are Santa Ana-based Advanced Medical Optics Inc. and Rochester, N.Y.-based Bausch & Lomb Inc., microkeratome makers.
“There is no other company that has an approved laser that cuts the (corneal) flap,” said Charles Olsziewski, an analyst with KeyBanc Capital Markets. “They compete against the blades.”
IntraLase’s challenge is to sell eye surgeons on its more costly products. IntraLase’s laser costs around $350,000, versus $40,000 to $60,000 for microkeratomes.
IntraLase’s market share has grown to 15% of all U.S. laser eye surgeries, up from 9% a year earlier, according to Palmisano.
Getting IntraLase into the hands of eye surgeons is critical, he said.
“Once a doctor has one of our units in their practice, they generally convert their practice almost totally,” Palmisano said. “They don’t use the technology that they were using much anymore. More than 85% of the procedures they do use IntraLase to create the corneal flaps.”
IntraLase sells its product through a direct sales force and through visits to professional conventions, including those of the American Society of Cataract and Refractive Surgery and the American Academy of Ophthalmology.
“In addition to that, we provide doctors with a lot of clinical support and education, so that they are very up-to-speed in what the latest technology is,” Palmisano said.
IntraLase has another more basic challenge: profits. The company’s sales have grown, but it still isn’t making money, posting a net loss of $3.1 million in the third quarter, compared to a loss of $2.7 million a year earlier.
Third-quarter sales more than doubled to $15 million.
IntraLase does expect to see a profit in the current quarter, according to Palmisano.
The device maker could look at other types of eye surgery products, such as those for cataracts, as potential acquisitions.
“That’s the business we know,” Palmisano said. “We’re not going to get too far afield. You’re not going to see us do any crazy things here.”
Palmisano said he believes IntraLase can stay above the “discount Lasik” fray that cropped up a few years back with doctors trying to outprice each other.
That gave the procedure “kind of a bad name,after all, you don’t choose a heart surgeon who’s the cheapest,” Palmisano said.
“A lot of the discount chain centers have gotten out of the business, which I generally think is a good thing,” he said. “The business now is more centered around serious physicians who are very serious about Lasik and are very educated and do a great job at it.”
IntraLase is planning a “comprehensive investor relations effort” to attract Wall Street coverage and broaden its institutional ownership of its shares, said Franklin Jepson, the device maker’s vice president of investor relations.
As it is now, the underwriters of IntraLase’s offering are banned from covering its stock for a certain amount of time.
Banc of America Securities LLC, Wachovia Securities, First Albany Capital Inc. and ThinkEquity Partners LLC underwrote IntraLase’s offering.
IntraLase started in 1997 and raised more than $70 million in venture capital funding from firms including Domain Associates, which has offices in Laguna Niguel and Princeton, N.J., and Versant Ventures, with offices in Newport Beach and Menlo Park.
Tibor Juhasz, IntraLase’s vice president and chief technical officer, and Ronald Kurtz, the device maker’s vice president and medical director, developed the technology that IntraLase grew out of.
Juhasz and Kurtz also are professors at the University of Michigan.
Palmisano joined the company in early 2003 after serving as chief executive of MacroChem Corp., a Lexington, Mass.-based development-stage drug maker.
IntraLase counted 178 workers as of June 30. It operates out of a 41,400-square-foot office and manufacturing building on Morgan Street in Irvine.
In a federal filing for its stock offering, the company said it expects to lease an additional or a new building near its existing one later this year or in 2005.
