Second Sight Eyes IPO Despite Little Revenue

In the race to develop a “bionic eye,” Second Sight Medical Products Inc. will be the first to cross the finish line of going public. The Sylmar company, founded in 1998 by billionaire Alfred Mann and led since then by Chief Executive Robert Greenberg, has developed a prosthetic retina that received approval last year from the Food and Drug Administration. On Aug. 12, the company filed a prospectus with the Securities and Exchange Commission for an initial public offering. Second Sight plans to sell 3.5 million shares at $9 each to raise $31.5 million. Net capital of $30 million will fund the marketing and further regulatory approval of its artificial sight system, known as Argus II. Although the company is going public before achieving significant revenue – it had sales last year of $1.56 million and a net loss of $23 million – that’s common in biotech, said Ben Kuo, founder and publisher of SoCalTech.com. “A lot of companies go public in biomedical or biopharmaceutical that haven’t produced a dime of revenue,” he said. “They are always looking to raise funds and it’s difficult on the private side, as not as many venture capitalists are willing to make those investments now. The public markets are more receptive.” The Argus II provides limited vision to people who are totally blind. The system has a small camera mounted on a pair of dark glasses; images from the camera travel by wire to a computer about the size of large mobile phone. The device processes and wirelessly transmits signals to an implant about the size of a marble behind the patient’s eye. The implant passes the image to the optic nerve. The field of vision has only 16 pixels, rendered in shades of gray. Patients can distinguish between walls and doors, but they can’t read a book, for example. The company first received regulatory approval to sell Argus II in 2011 in Europe. But legal permission for sales doesn’t guarantee buyers. So far, Second Sight has implanted about 90 units, mostly in clinical trials and in Germany, the only country where it has obtained reimbursement approval. According to the Foundation Fighting Blindness, the Argus II costs about $100,000 for one eye, plus the implant surgery which runs another $15,000. At a time when national health reform is attempting to rein in medical costs, the question for insurers and Medicare officials is what they will pay for a device that provides only rudimentary vision. Barry Cohn, chief executive of insurance consulting firm RGEB Employee Benefits in Woodland Hills, said that since sight restoration isn’t one of the 10 essential benefits mandated by the Affordable Care Act, basic policies sold on state exchanges won’t cover it. More expensive policies may pay part or all of the cost, but it will be up to the insurance companies. “Each individual insurance carrier will have to look at the procedure and decide whether to cover it or not,” he said. Second Sight said in the prospectus it has made progress toward receiving approval for reimbursement by Medicare, but said if it can’t obtain reimbursement at an adequate level, the company may not reach profitability. Second Sight declined a request for an interview, saying the prospectus contained all the information available to the public. Largest bettors Lloyd Greif, chief executive of L.A. investment bank Greif & Co., noted that the Argus II is currently approved to treat retinitis pigmentosa, a rare condition that affects 25,000 people in the U.S. and 375,000 worldwide. However Second Sight plans to use proceeds from the IPO to seek approval for macular degeneration, a leading cause of vision loss for as many as 25 million people worldwide, including 2 million in the U.S. “As an investor, you are making a bet on whether they will have approval for age-related macular degeneration,” Greif said. “This is a long-term bet.” Work on the Argus II has required 20 years, $29 million in federal grants and $120 million of investor money. Mann, who helped develop the insulin pump and cochlear hearing aid, is the company’s largest investor with 11.3 million shares, which will translate to a 33 percent stake after the IPO. Other major holders include Williams International, a gas turbine manufacturer in Commerce, Mich., with an 18 percent post-IPO share; Versant Ventures Management LLC, a health care venture capital fund in Menlo Park, with 13 percent; and Greenberg, who will own 3 percent. Greif said an investment in Second Sight is as much a bet on Mann as the specific technology. “It’s not an IPO for the weak-hearted,” he said. “It’s definitely a gamble. But Al Mann is a smart guy.” Although other researchers are working on an artificial retina – including a company in Germany and a professor at Stanford University – Second Sight is the first to commercially sell its product. But Kuo of SoCalTech.com believes that may not be an advantage in the health care sector. “The harder part is getting approvals and government regulation,” he said. “That’s ultimately more important than being first to market.”