Its Prostate Treatment Accelerates Growth

Monday November 24, 10:58 am ET
By Kirk Shinkle

When Eric Reuter took over as chief executive of Laserscope Inc in June
1999, the company was foundering.

Sales were down, losses were up and Laserscope's stock traded for around a
dollar a share.

Its biggest sellers were, and are, laser systems for treating varicose veins
and getting rid of wrinkles.

"We were in really dire straits," said Reuter, who took over as CEO after
previously serving as Laserscope's vice president of research and
development. "In the last four years . . . we've refocused our product
direction, divested a German subsidiary, raised money and refocused our
marketing and research."

One market Reuter led his company into was urology. In February 2002, the
company launched a treatment for enlarged prostates, or benign prostatic
hyperplasia (BPH).

Such treatments are in heavy demand partly because of the aging population.
Most men don't experience symptoms - pain and difficulty urinating - until
after age 40. Half of men in their 60s experience these symptoms, and 90% of
those in their 70s and 80s do.

Industry researcher Medical Data International estimates 13 million cases
were diagnosed in 2001. About 2 million needed treatment last year, and
180,000 need surgery every year.

"The urology business is the long-term growth catalyst for Laserscope's
revenue," analyst Adina Dodi of B. Riley wrote in a report.

Laserscope's product is a "green light" laser designed to treat BPH with
better results and fewer inconvenient side effects than surgery.

Called photo-selective vaporization of the prostate, or PVP, it uses a laser
to vaporize the excess prostate tissue that squeezes the urethra and blocks
the flow of urine.

The procedure mainly competes with traditional surgery, though a variety of
drugs also are used to treat BPH.

The most common treatment - called a transurethral resection of the
prostate, or TURP - has been the standard the last 50 years. But it's
invasive and inconvenient, experts say.

With the TURP procedure, doctors simply remove the excess prostate tissue.
Patients are saddled with a catheter for a day or two. And they spend a few
days in the hospital. The procedure also carries the risk of sexual
dysfunction and other side effects.

By contrast, Laserscope's PVP treatment lets most patients avoid a catheter.
It uses a laser to vaporize the excess tissue. Recovery times are quicker
and side effects fewer.

"Patients are basically symptom free and catheter free the next day," Reuter
said. "The TURP procedure . . . is bloody, has a high morbidity rate and a
very high sexual dysfunction problem."

He says that last year, Laserscope's PVP system grabbed 2% of the market
from the TURP treatment. The goal this year: 6% to 8% of the market.

"We have what we believe will be the gold standard for treating BPH," Reuter
said. "There's nothing on the market that we know of that's even remotely
close."

He says the worldwide BPH market could be worth $1 billion a year.

About 50 doctors are trained to teach the PVP procedure. In the third
quarter, Laserscope sold 34 systems and more than 3,400 of the disposable
optical fibers used to run the machines.

The systems go for $70,000 to $90,000, and the fibers cost about $800 each.
Officials recently said they want to sell 11,000 fibers this year.

Laserscope's total revenue during the third quarter rose 36% to $14.3
million. Earnings tripled to 3 cents a share.

The top line should get a further lift from improving Medicare reimbursement
rates. Starting Jan. 1, the amount paid for PVP procedures performed in
hospitals will rise 10% from current rates.

In addition, the Centers for Medicare and Medicaid Services recently
accepted Laserscope's application to review the PVP treatment for a new
Ambulatory Payment Classification.

An approval could mean even higher rates and wider acceptance of the
technology. A decision is expected by April 1.

Reuter won't speculate on the timing and scope of those rates.

"The guidance for next year is based on existing reimbursement," he said.
"If the reimbursement were to go up, we'd modify our guidance."

Analysts polled by First Call expect Laserscope to earn 11 cents a share for
all 2003, up from 2 cents a year ago. Earnings in 2004 are seen nearly
tripling to 30 cents.

While urology products are the hottest part of his company's story, they'll
bring in only 20% of sales this year. The rest will come from old-line laser
products used for cosmetic treatments.

That market grows only 5% to 10% a year, but it helps fund the urology
products. Reuter expects sales of PVP products to pass those of aesthetic
laser systems in the next few years.