1 The Billion-Dollar Valuation Report

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1 1 The Billion-Dollar Valuation Report

2 You d be hard-pressed to find an area of the market that s experienced more fascinating progress and life-changing innovation than the healthcare sector. Vastly advanced technology and extraordinary breakthroughs have generated new drugs, treatments, surgeries, and cutting-edge medical devices. We re now treating diseases that were once considered incurable only a few decades ago. It s really not an exaggeration to say that humans are stepping in for God. And the company I m about to reveal is no exception. Born straight out of an incubator, this quark has developed an innovative technology that can do the unthinkable The treatment provides a limited cure for blindness. ORIGINAL PUBLICATION DATE MAY 29, The Billion-Dollar Valuation Report

3 THE MANN BEHIND A CURE FOR BLINDNESS The company is called Second Sight Medical Products (EYES) a company that was ushered into existence by one of the tech sector s most incredible incubators. That incubator is Alfred Mann. Over the course of his career, Second Sight Co-Founder and Chairman Alfred Mann has founded, funded, or mentored at least 17 startup companies. Among other innovations, these companies design solar cells for spacecraft, rechargeable pacemakers, and cochlear (ear) implants. But Mann isn t just an investor. He s also an inventor. He pioneered the insulin pump, which has revolutionized treatment for diabetics, and is now part of giant healthcare firm, Medtronic (MDT). And he s behind inhalable insulin a product that looks poised to succeed where even the mighty Pfizer (PFE) failed. These multiple success stories have made Mann a billionaire and he s now applying his wealth and expertise to Second Sight. He s shepherded the company to its current success, and is the driving force behind continual improvements that will be a huge boon to humanity and a source of incredible profits for savvy investors. And in an example of how innovation begets more innovation, Mann s dream here came as he was developing diabetes products. While doing so, he encountered many people who had diabetes-related blindness, and saw the devastation caused by it. He became determined to do something about it. Enter Second Sight s first commercial product. It might be limited in its applicability (at least for now). But as you ll see, it s nothing short of a miracle 3 The Billion-Dollar Valuation Report

4 GIVING BLIND PEOPLE THE GIFT OF SIGHT The technology is called the Argus II. It s currently approved in the United States for people who suffer from an inherited progressive eye disorder called retinitis pigmentosa. This disorder causes severe vision impairment due to degeneration of the photoreceptor cells in the retina. Initial symptoms feature poor night vision and peripheral vision, as well as poor color perception. But as the retina and peripheral vision deteriorates, patients suffer tunnel vision and, eventually, blindness. The technology is called the Argus II. So how does the Argus II give these patients their eyesight back? Essentially, doctors implant electrical stimulators on a patient s retina. The sensors are wirelessly connected to a pair of glasses that the person wears. In turn, those glasses are connected to a camera and a processing unit basically a pocket-sized computer. The camera sends images to the processor, which manipulates them into electrical impulses. Those impulses are sent to the implant, which stimulates the retina, and the images are then transmitted to the brain. 4 The Billion-Dollar Valuation Report

5 As you can imagine, implanting these devices is no easy feat. Although it s an outpatient procedure, it takes four hours and requires highly specialized surgical training. As such, it s not cheap, either. The device lists for $140,000. But the result is life-changing. From seeing nothing, the implant allows patients to make out shapes, colors, patterns, and letters, and enables them to do tasks visually, rather than by touch, according to Second Sight. The company reports that users can: Determine where people are in a room. Sort laundry. Locate windows and lights. Avoid colliding with objects as they walk. Follow lines in a crosswalk while crossing the road. Simply put, it gives patients the gift of sight both motion and light. In fact, it even allowed one Dutch patient to ski. Take a look at the video on the next page The point is, Argus II allows a profoundly blind person to see something. This is a huge deal. Plus, keep in mind that the technology is continually being developed and improved. The key to our VentureCap recommendations is getting in early. Before analysts, before institutions, and certainly long before the broader market. That means we have plenty of product improvements to look forward to over time. 5 The Billion-Dollar Valuation Report

6 In July 2015, for example, Second Sight announced that it had completed the world s first retinal implant in a patient with macular degeneration. Aside from the fact that it s totally groundbreaking research, according to Second Sight s Dr. Gregoire Cosendai, Vice President of European Operations, this success sets the stage for larger trials and opens up a potentially massive new market for the company. The delighted 80-year-old patient told The Guardian, Before when I was looking at a plant in the garden, it was like a honeycomb in the centre of my eye. That has now disappeared. I can now walk round the garden and see things. As Second Sight gets more feedback from users, and as both the hardware and software technology progress, we can expect image resolution to improve. We can expect the number of electrodes that can successfully be implanted to increase. It s a terrific system. It s changed my life. I ve been blind for 25 years and I went to a fireworks party with my grandkids, and I was more excited than them when they lit the fireworks off and I saw them for the first time! It was something brand new. Then Christmas came the tree was lit up, the lights in the shops. It was just a new world. Mr. K., Argus II patient And we can look forward to an expanding base of potential users, thanks to Second Sight s ongoing approval process for Argus II not to mention its newest product in development 6 The Billion-Dollar Valuation Report

7 A NEXT-GENERATION CURE FOR BLINDNESS As I noted, Argus II is only approved in the United States for people with retinitis pigmentosa. But this incubator graduate is working to get the device approved for agerelated macular degeneration, the largest cause of blindness that isn t already treatable or curable. This would dramatically open up the potential addressable market to around 2.5 million people. More compelling, though, is Second Sight s next-generation product the Orion I. Still in early development, this could cure just about all forms of blindness glaucoma, retinopathy (related both to diabetes and premature births), even traumatic injuries to the eye or the nerves that connect the eye to the brain. How will it achieve this? Simple The Orion I device won t even use the eye or its optic nerve at all. Instead, it will directly stimulate the brain. It s incredible. For 33 years, no vision whatsoever. And then, all of a sudden, this light comes on and it s just remarkable. Not in my lifetime did I ever dream there would be a medical breakthrough like this. What s even more exciting is what s coming in the future. Larry Hester, Argus II patient Needless to say, Second Sight is investing millions to develop centers around the world capable of implanting the Argus II technology and providing the post-surgery therapy that patients need to get the most from the device. Millions more will be necessary when the company rolls out Orion I, given that it s implanted in the brain rather than the eye. 7 The Billion-Dollar Valuation Report

8 But guided by Mann s power and inspiration, Second Sight has the resources to do all of this, unlike many small-cap companies. And the fact that it s doing so now establishes it as the industry leader. ASSESSING SECOND SIGHT S MARKET POTENTIAL Right now, it s too early to know just how big and influential Second Sight could become. But even if we take the middle ground, the future potential is pretty incredible. As I noted, for example, if the company gets government approval for its products as well as getting insurance coverage across the board for both retinitis pigmentosa and macular degeneration the combined worldwide addressable market totals about 2.5 million people. If Argus II is able to treat just 1% of these patients, we re talking about annual revenue of about $3.5 billion at the current cost of surgery. Suppose we re more conservative and that cost falls by half that s still $1.75 billion. Apply a 20% profit margin and a 15X earnings multiple, and Second Sight would be worth $5.25 billion almost 12 times its current market valuation. Again, that s with a mere 1% annual treatment rate, a price cut that s highly unlikely. And it doesn t even include any forthcoming benefits from the Orion I product. (I ll roll it into my valuation as the company makes additional progress here likely in late 2016.) Granted, these are future projections. Second Sight isn t worth that today, since it hasn t actually hit those goals yet. It just provides us with a sense of this past quark s outstanding potential. And considering what this company is capable of accomplishing over the next 12 months, it makes the stock incredibly undervalued. 8 The Billion-Dollar Valuation Report

9 RIVALS ARE WAY BEHIND It s worth noting that Second Sight isn t the only company working to cure blindness. There are at least four other firms at one stage or another of developing an implantable device. But there s little cause for concern here. Only one company has done this on humans, and it was only done in Europe. And while that device is believed to offer more resolution, it also has a high failure rate. That means it s years away from gaining U.S. approval. Other companies are even further behind. Elsewhere, there s another device that specifically targets macular degeneration the miniature implantable telescope. Basically, it looks forward and projects an image on the parts of a retina that haven t yet been blinded. Like Argus II, it has strict eligibility criteria if approved. In addition, there are drug therapies aimed at slowing the progression of macular degeneration the Argus II is currently recommended for people who haven t responded to those therapies. Besides, there are more than enough sufferers of macular degeneration to support multiple approaches. Simply put, there are no cures on the horizon for the disorders that Second Sight s technology targets. So while competition is obviously something to be mindful of in any industry, it isn t a near-term concern in this area. Second Sight is the undisputed leader. To top it off, this incubated company boasts a strong management team. I ve already covered the incredible track record and influence of Alfred Mann. But beyond him, the rest of the Second Sight executive team and board members boast impressive experience and expertise. 9 The Billion-Dollar Valuation Report

10 The company has a good handle on its internal controls and the mechanics of being a public company. Its investor relations team is well-developed something you don t always get with a small firm. The same applies to the $34 million in cash on its books. Granted, given that we re getting in at such an early stage, risks are going to be present. Let s address those now... SECOND SIGHT S TRIO OF TARGETS There are three areas the company can address that would lower any potential risk. Market Potential: The successful retinal implant for the patient with macular degeneration was a massive step. But the company must now demonstrate its efficacy on a larger scale. If it can t, it may only be a miracle product for some people, but unlikely to become profitable enough to justify the lofty share targets I predict. Second Sight is currently gearing up for a five-patient study in the United Kingdom and a follow-up 30-patient study in the United States. So we ll know soon whether it s on track to increase its addressable market. Technology Advancement: There s no doubt that giving blind people the ability to see is incredible. But in its present developmental stage, the current resolution on the Argus II may not justify the cost of the surgery or time needed to get used to the device particularly for people in their twilight years. Again, we should get a software update this year, which will let us know if the company is on track for doing what it says it will do. Cost: At $140,000, the Argus II is an expensive device. Very few people could afford it on their own, which means greater insurance coverage is crucial. Medicare only covers it in one area of the United States. In Europe, some national health plans cover the treatment, but not others. Second Sight has actually done a great job in terms of reimbursement. It s also 10 The Billion-Dollar Valuation Report

11 working with Medicare in other areas of the country to get the Argus II approved. It s doing the same in Europe, too. While the price could decline as volumes increase, given the cost, reimbursement will continue to be an issue in the meantime. All the above factors work together. Product improvements will increase the prospect of reimbursement Higher reimbursement will increase the pool of people who want the implant And continued acceptance of the Argus II among retinitis pigmentosa patients will both drive product improvements and boost appetite for it among macular degeneration sufferers. Going forward, I d like to see Second Sight address each of these risk areas. Rest assured, I ll track its progress closely in the coming weeks and months. Bottom line: We hear a lot these days about a potential cure for various diseases and conditions. Some of it is genuinely warranted, but much of it is far-fetched. Put Second Sight in the first category. A simple idea that s taken over a decade to develop is now being executed. Not only that, the fact that Second Sight is one of the few companies to have successfully emerged from the rigorous incubation process is a major boost to its chances of success. Only the fittest companies survive. As investors, we choose from those survivors and if we choose well, we can reap the same rewards as the people who ve done all the work for us. Action to Take: BUY Second Sight Medical Products (EYES) at market. My price target is $30. I m not establishing a stop loss for now. Please note that as a small-cap development-stage company, shares are susceptible to increased volatility as it continues to develop and refine its products. That being said, the future prospects are extremely bright, and 11 The Billion-Dollar Valuation Report

12 following this summer s market-driven downturn, the stock is even more attractively priced. UPDATE AS OF NOVEMBER 6, 2015: Following a lower-thanexpected reimbursement level for its Argus II device from the Center for Medicare and Medicaid Services (CMS), we re seeking greater clarity from Second Sight s management over the issue and why it didn t reveal more details sooner. While its eyesight-restoration technology is still groundbreaking, brilliant, and successful, and the market opportunity is huge, we re recommending a Hold on the stock for now. Don t establish a new position until we ve gained more information from management on the reimbursement issue. Stay tuned to our VentureCap Strategist s for updates. To living and investing in the future, Greg Miller Senior Technology Analyst, VentureCap Strategist Wall Street Daily provides its subscribers with unique opportunities to build and protect wealth globally, under all market conditions. We believe the advice presented to subscribers in our published resources and at our seminars is the best and most useful to global investors today. The recommendations and analysis presented is for the exclusive use of subscribers. Subscribers should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not secure future results. Recommendations are subject to change at any time, so subscribers are encouraged to make regular use of our website, Wall Street Daily, LLC. Wall Street Daily, 105 W. Monument Street, Baltimore, MD All rights reserved. Protected by copyright laws of the United States and international treaties. This publication may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Wall Street Daily. Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. You and your family are entitled to review and act on any recommendations made in this document. Wall Street Daily expressly forbids its writers from having a financial interest in any security they recommend to their readers. All Wall Street Daily employees and agents must wait 24 hours after an internet publication and 72 hours after a publication is mailed before taking action on an initial recommendation. Wall Street Daily does not act as an investment advisor, or advocate the purchase or sale of any security or investment. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company The Billion-Dollar Valuation Report