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Is Bionic Vision Worth a Look?

Imagine being totally blind and then activating a device that restores your sight, at least in a limited way.

Online videos show exactly that happening. Awed patients laugh and cry seeing their spouses waving, blowing kisses or simply walking by them. One man and his wife shake with laughter that dissolves into a crying bear hug.

“It’s crude, but it’s significant,” he said, holding back tears. “You know? It’ll work.”

The visual prosthetic is made by Sylmar’s Second Sight Medical Products Inc., which recently sold stock in an initial public offering. Some patients describe their new functional sight as looking like pulsing or flashing lights that illuminate contours. Now they can reach out for a salt shaker, tell where the sidewalk meets the grass or see other diners surrounding them at a restaurant.

While even this rudimentary vision might seem like magic, it comes with a very real price tag: $144,000.

It also comes with very real limitations. The implantable prosthetic system, the Argus II, is only approved in the United States for people who lost their eyesight because of retinitis pigmentosa, a hereditary eye disease that affects about 100,000 stateside. In addition, the device can only treat about a quarter of those patients. The system is approved for broader use in Europe and has closer to 1 million potential takers there.

What’s more, getting Medicare and private insurers to cover the cost can be a slow process, as with many new medical devices.

Vision quest

Outwardly, the Argus II looks like a pair of sporty shades with a tiny video camera embedded in the bridge. The camera sends footage to a Walkman-size wearable computer. The data is processed, sent through a cable back to the glasses and transmitted wirelessly to an antenna on a tiny prosthetic implanted in and around the eye. Electrodes in the implant emit small pulses of electricity that bypass the eye’s damaged cells and stimulate the good ones, sending the visual information along the optic nerve to the brain. The process creates the perception of light patterns that patients learn to interpret.

The Argus II, the second iteration of the bionic eye, started clinical trials in 2006, eight years after the company was co-founded by prolific biotech entrepreneur Alfred E. Mann. It received marketing approval in Europe in 2011 and the blessing of the Food and Drug Administration two years later. The process was expedited because the device treats what’s considered an orphan or rare disease.

“They try to make it easier on the regulatory side,” said Brian Mech, Second Sight’s vice president of business development. “Unfortunately what they don’t do is make it any easier on the reimbursement side. You need both, especially when it’s expensive like this. You need the regulators like the FDA to say it’s OK and then you need payers … to say that they’ll pay for it.”

Medicare is a big target because the majority of blind patients are eligible for the coverage regardless of their age due to their disability.

Further complicating matters, Medicare processes claims through about eight regional administrators, each of whom decides what to cover in the absence of nationwide guidelines.

The Argus II has already won coverage by one Medicare region, the mid-Atlantic, which is very promising, according to Ron Podraza, chief executive of Reimbursement Principles Inc., a firm near Denver that helps medical device makers bring products to market.

“For Medicare purposes, they want to know what it does compared to the alternatives, and that’s different from the FDA standard, and historically that’s been a challenge for companies,” Podraza explained. “In the case of this company, it sounds very positive to me that they have coverage from one of the (regions).”

Some private insurers, including Health Net Inc., Independence Blue Cross and AmeriHealth, also cover the Argus II as a matter of policy or on a case-by-case basis. It’s also been covered in some foreign countries as well.

Clinical trials aside, the Argus II has been implanted in more than 70 patients where a third-party payer has ponied up for the implant.

Mech explained that Second Sight arrived at its $144,000 price tag based on the cost of building the device, adding a sufficient margin to run the rest of the business while being able to earn a profit at some point in the future.

Second Sight saw a net loss of $13.6 million in the quarter ended Dec. 31, 127 percent wider from the same period the previous year. It had revenue of $1.5 million, up 170 percent from the same period the previous year.

Second Sight has also had to focus on improving yields from its manufacturing process, where a defective piece coming off the assembly line can be costly.

“It’s margin pricing,” Mech said. “It’s what would people be willing to pay. What’s the price elasticity of demand look like. But all of that is really sort of a guess.”

Big picture

To investor Chris Marlett, it’s a no-brainer.

“They’re really at the beginning of what appears to be a technology that could be applicable to all blindness,” said Marlett, chief executive of Santa Monica-based MDB Capital Group, which underwrote Second Sight’s $36.3 million November public offering and holds 805,000 warrants issued by the company. Second Sight has about 35 million shares outstanding.

Marlett’s firm made its investment based on a five- to 10-year horizon and the notion that the Argus II is just the first step. Second Sight has said that it intends to use a portion of its IPO proceeds to fund research and development of the Orion I, a prosthesis that could address a subset of other types of blindness affecting about 5.8 million people worldwide.

The fact that Argus II allows patients to gain only limited sight might seem a bit disappointing, but it still represents an advance.

“If you’re absolutely blind, you’re totally limited,” said Dr. Melissa Chun, director of the Vision Rehabilitation Center at UCLA’s Jules Stein Eye Institute. “But if you have some sort of form vision and can learn to use and interpret that, then you have a little bit more independence.”

It’s hard to put a dollar value on that. For legally blind USC student and entrepreneur Constantine Greanias, it would mean fewer bloody shins, being able to cross most streets, and avoid bicyclists and unaware Tesla drivers.

“To my family, potentially, it’s worth my life,” Greanias said, who walks with a cane that doesn’t always catch things. “It’s not much of a question.”

But if the cost puts someone into insurmountable debt, Greanias thinks the implant might not be worth it.

“It increases quality of life, but I don’t think it increases their salary or ability to do work,” he explained. “It’s to the point where you can be safer and live longer.”

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