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Beware the naked man who offers you his shirt. -- Harvey MacKay

A Big Premier, Now What?
by Louis Corrigan (RgeSeymour)

On May 7, the Food and Drug Administration (FDA) awarded PREMIER LASER SYSTEMS (Nasdaq: PLSIA) clearance to market Premier's new Centauri Erbium YAG laser, a tool which can be used in such hard tissue procedures for removing tooth decay. Many reported that this opened the door on a "new era" in dentistry, at least according to Premier, the dentists who performed the 1,400 procedures in the clinical studies, an assortment of dental laser enthusiasts, and investors, who sent the shares of Premier soaring from $6 3/4 before the announcement to a high of $16 1/8 just a few trading sessions later.

The initial euphoria created by the FDA's decision has gradually been tempered by more circumspection regarding how quickly dentists, a notoriously conservative bunch, will adopt an expensive $39,000 technology approved for a limited number of procedures. For example, the FDA did not clear the laser for use on children, though the company, convinced the agency will eventually do so, plans to sit down with the agency in 6 to 8 weeks to discuss the matter. Also, the agency has not cleared the laser for use in replacing old fillings, and the bulk of the 170 million restorative procedures performed each year involve such replacements.

Moreover, because the laser would likely vaporize the mercury in old silver amalgam fillings, it's likely the laser will be limited to working on the newer composite fillings in any case. Others question whether the laser will ever be useful in crown preparations, a significant part of many dental practices. A tepid response from the American Dental Association (ADA), caught off-guard by the FDA's decision; confusion about Premier's sales goals and production capacity; and the threat of patent infringement suits from competitors have also contributed to Premier's recent slide to $10 5/8, as the bulls and the bears battle it out in the Fool folder and on Wall Street.

Getting a good handle on the YAG laser's prospects is difficult primarily because neither the ADA nor the 120,000 dentists who generally rely on the organization for information know any more about the laser than investors do. The five dentists involved in the clinical trials are the only ones in the country to have actually used it. And while their findings are expected to be published soon in peer-reviewed journals, they aren't out yet. Dr. James Pelagalli, the trials' chief investigator and the director of the Oral Clinic in Cleveland, is expected to offer the first extended technical discussion of the YAG laser in the June issue of Dentistry Today, accompanying a cover news story on the FDA clearance.

So far, however, articles in the ADA News Daily have mainly presented information offered in Premier's press releases along with a sampling of the organization's initial questions. The questions addressed such issues as the safety of hard tissue at the site where the laser heats up the tooth; the possibility of teeth cracking due to shock waves; and the performance of the laser compared to conventional high speed handpieces (since the trials were not controlled, patient comfort could owe something to a placebo effect). Dr. Kenneth Burrell, senior director of the ADA's council on scientific affairs, said on Tuesday that the organization plans to issue a more complete statement in the near future, but that so far, the organization has not received the clinical and technical data it has requested.

As one dentist put it, Premier has done all its talking in the newspapers. The dentists don't know one thing about the laser. Another said he knew little about the product, but that one of his patients had strongly recommended he buy one -- because the patient owned Premier stock. Indeed, it was difficult to find dentists willing to comment for the record since none have seen any of the clinical data. Dr. Steven Duke, a researcher in the department of restorative dentistry at the University of Texas, San Antonio, has worked with lasers in the past but admitted he wasn't very familiar with the Premier laser. Still, he said he was skeptical of some of the claims the company has made regarding the speed of market acceptance. The sales predictions, he said, "sound like marketing hype" designed to encourage sales by making dentists fearful they "may get left behind" if they don't purchase the laser. Dr. Justin Jones, a dentist in private practice in Atlanta, is equally skeptical, saying he thought, "A number of dentists will jump on the bandwagon" and feature the laser in their advertising, but from what he could tell, it's "A very expensive tool for very limited and questionable benefits aside from publicity."

What's clear is that an initial report from Dow Jones News that formed the basis for part of Randy Befumo's "Fool on the Hill" column was erroneous. On May 7, Dow Jones had reported that Premier CEO Dr. Colette Cozean was projecting 77% market penetration by the second year. But Premier spokesperson Owen Daley, said last Thursday that that figure was based on a survey done by a dental products publication which found that 77% of dentists polled said they would seriously consider buying the laser in its second year on the market "if everything went well and the [dentists] who were using it were already satisfied."

Daley reiterated what recent company press releases have said: that the company initially expected to sell lasers to 1% to 2% of America's 120,000 dentists during the first 12 to 18 months on the market, and 10,000 to 15,000 over the first decade, figures he characterized as "terribly conservative." Still, those projections seem to be rising, given the fact that the company's telephone lines have been clogged with phone calls. On May 20, Cozean said, "It is now apparent that the level of enthusiasm among dentists and patients may be much higher than that. As of last week, we had logged more than 1,200 expressions of interest." About 10% of callers have ordered a YAG laser, while 20% have signed up for training courses, and 50% have requested additional information.

At the same time, however, Cozean's other comments raised questions about the company's ability to ramp up production to meet even the demand initially projected. "At this point," she said, "we believe we can manufacture up to 400 systems or so before the end of our fiscal year on March 31, 1998; we are examining ways in which to increase that build schedule to accommodate demand." Daley said the company considers September the beginning of its true selling season, so the capacity to ship 400 systems pertains to a September to March time frame, which would give the company until the end of FY99 to meet its initial 18-month sales projections. Daley insisted, however, that "they can ramp up to meet the 1,200 or whatever [number of systems] if it's in the next 12 months."

As one of the five clinicians who participated in the studies, Dr. Richard T. Hansen of the UCLA dental school in Los Angeles is enthusiastic about Premier's laser. He said the FDA clearance is the beginning of a revolution in dentistry. While the laser may not fit into the practices of some dentists who do mainly crowns, bridges, or root canals, "it's definitely going to be something worthwhile" for dentists who do a fair number of fillings. "And as the development of this technology evolves, we're going to be able to use it in more and more applications. We are going to be able to use it for most areas of the mouth at some point in the future." He said the FDA clearance gives the company incentive to enhance the product, and that Premier has already developed new handpieces and tips that can reach areas of the mouth that were inaccessible just a month ago. Plus, having used the laser on a large number of the 80 children who participated in the studies, he's convinced that children represent "the absolute best use for the machine" because it is effective, safe, and most importantly, almost painless. Dentists will eventually accept the laser, he said, though he conceded "it will be slow." He said he expects a lot of dentists to take a "wait-and-see attitude" while the initial purchasers use the product and report their findings. "Then you'll see another surge of people buying them."

Dr. Eugene Seidner, president of the Academy of Laser Dentistry, is also enthusiastic. "It was a huge breakthrough for the FDA to allow this to happen," he said. Though no one has a list of all the dentists in the U.S. who currently use some type of laser in their practice, Seidner put the number at 3,000 and said they represent a group likely to show initial interest in the Premier laser. Still, he said the dentists he's spoken with are "more excited about the FDA finally allowing hard tissue applications for a laser than [they are about] this particular laser because nobody knows about this laser; only five people have used it." With the door now opened by the FDA, however, "there are going to be a lot of other manufacturers coming out with models of this particular laser, and I'm sure there will be other lasers available that will do things even more efficiently than this one."

Dr. Robert Pick, an assistant professor of periodontics at Northwestern University and the ADA'S expert on the use of lasers on soft tissue like gums, has been an enthusiastic supporter of the Premier laser, telling the Chicago Tribune that he believes it will be "very commonplace" in two to four years. Others at the ADA, however, were completely surprised by the FDA approval and remain cautious about Premier's laser. Fred Eichmiller, director of the ADA Health Foundation's Paffenbarger Research Center in Washington, D.C. recently told Wired magazine he thought it unlikely that a laser would ever be developed to drill cavities. Last week, he explained his skepticism grew out of practical considerations: could you make an instrument that would be cost-effective given that the drilling itself is slower than using a conventional drill and that it might be useful on only a limited number of cavity types? He said he would like to see "at least a few studies showing how it's been used" to see "what the system is capable of."

The ADA's Burrell also told Wired that he didn't expect such a laser to be available until 2010. "Wow, was I off," he said, laughing. Still, Burrell said, "it's hard to determine how quickly this is going to take off. I think there are some questions that dentists would like to know before they consider buying something like this." He pointed to certain safety issues, like how the nerve tissue and the pulp in the tooth react to the laser and whether there's a risk of teeth cracking due to the rapid temperature increase. He also noted that "there aren't as many fillings being done today, so the use of the high-speed handpiece that the laser's supposed to replace have gone down the last few years." Still, he said the ADA has received a "tremendous number of inquiries both from the public and the profession" since the FDA cleared the laser for marketing.

UCLA's Dr. Hansen, at least, believes that "the media and the patient demand will actually drive the change quicker than the dentists would themselves." But he sees no problem with this given his feeling that the clinical studies have already addressed some of the safety and utility issues and that more complete data will only breed further confidence in the laser.

For now, though, dentists who might be put off by the hefty price tag may find that lingering questions about safety and utility provide good reasons to hold off on a purchase. And some dentists have expressed doubts about the cost. Dr. Jones in Atlanta said that once fees for several days of training seminars, related travel expenses, and other charges were figured in, the Premier laser could end up costing $65,000 or more. But Daley, Premier's spokesperson, said that figure was unreasonably high, even if one included about $800 a month for fiber tips and service on the laser. And Premier has insisted that the doctor training, which begins in June and will be conducted by the five clinicians involved in the trials, will only require one day. "If the dentist is already competent in the procedure," Daley said, "using the laser does not require rocket science." Yet Hansen, who will be conducting training sessions, said the five clinicians expect dentists will need three to four days of training. "One day to me is just bare minimum," he said. He anticipates dentists coming for one day of basic laser physics combined with a second day on technique. They can then go back to the practice and try the laser "on very simple procedures." Then they will come back "and take another training module to get a little more advanced."

Dr. Stephen J. Markus, a dentist in Haddon Heights, Pennsylvania, expressed his own doubts about the economics of the laser in a letter last week to the Philadelphia Inquirer. Based on his assumptions that the laser available today will be out-of-date in four years and that the average solo dentist would require two lasers since most work out of two treatment rooms, Markus determined that "all we've got to do, to break even in a solo practice, is treat 4,000 fillings a year," or about 16 fillings per day. "I don't know about your area of the country," he wrote, "but prevention and fluoride are working here." He said some days he performs no more than four fillings, "...and I have a busy office."

The allure of near-painless dentistry is certainly powerful enough that dentists are likely to take a good long look at any product that could potentially usher in such a new era. Yet aside from a minority of dentists who are likely to buy the laser for marketing purposes as much as for its benefits to patients, most dentists seem likely to wait for data from the clinical trials and from other independent researchers before deciding whether the YAG laser lives up to its publicity. Whether Premier's sales projections properly account for such caution remains to be seen.

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