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News: Analysis & Commentary: ENTREPRENEURS
A DENTAL-TECH STARTUP MAY NEED SOME NOVOCAINE
It may have hyped its numbers
Last year, Colette Cozean, the 40-year-old chief executive of tiny Premier Laser Systems Inc., was taking bows all over the media, from ABC News Good Morning America to BUSINESS WEEK, for a new laser device that her company promised would make "drilling" cavities painless.
Now, Cozean is reaching for the novocaine. On May 26, NASDAQ halted trading in Premier after shares fell to 4 1/8--73% off their high on May 9. The company faces multiple shareholder lawsuits and a NASDAQ review. Ernst & Young, its wincing audit firm, suddenly resigned, just weeks before the company had to release its results for the fiscal year ended Mar. 31. The accountants also rescinded approval of the Irvine (Calif.)-based company's 1997 numbers.
It has been quite a reversal of fortune for Premier Laser since last May, when the U.S. Food & Drug Administration enthusiastically approved its technology as the first laser for treating cavities. Since then, the lawsuits allege, Cozean has inflated the stock by exaggerating the market potential of her $39,000 product and her company's ability to produce it. Cozean admits shipments were delayed, because of initial complaints from dentists about the durability of components of the laser--an interruption that hurt sales. But she claims the problems have now been resolved.
There's another issue that Cozean can't easily dismiss. Henry Schein Inc., the $1.5 billion powerhouse distributor in the dental business, is currently refusing to pay for $2.5 million in lasers that Premier shipped to it in December. Schein claims in a press release that it never sent a purchase order for the product and never received an invoice. Premier claims it had a sales agreement with Schein that allowed the distributor to return the product only if there were quality problems. But with no purchase order or invoice to back up this assertion, Premier says that it may have to write off the Schein sales, which had been booked as third-quarter revenue. "As soon as we realized their understanding and ours were different, we announced the possibility of a write-off. But no products have been returned, and we are trying to resolve payment terms," says Cozean.
Can Cozean pull the company out of its dive? A research scientist who has headed Premier since it was spun out of Pfizer Inc. in a $10 million management buyout in 1991, she is dedicated to seeing the company through its troubles. She took it public in 1995 on the basis of patents and other FDA-approved laser technology. In fiscal 1997, sales reached $5.5 million. But the company has never been profitable: Five-year losses stand at $21 million. This year, Cozean doesn't know if she can get paid for $2.5 million of lasers and has no auditors to sign off on Premier's results. That's a cavity no dentist can fill.By Kathleen Morris in Los Angeles