Suddenly, Sunrise Appears Glorious Again -- to the Longs and the Shorts - TheStreet

Suddenly, Sunrise Appears Glorious Again -- to the Longs and the Shorts

Investors on both sides of the fence rejoice as the stock rallies. But is the news of the company's meetings with the FDA really so good?
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What a story of true grit and entrepreneurial spirit.


Sunrise Technologies'


laser for farsightedness gets rejected by a

Food and Drug Administration

panel in

July, largely on concerns that the laser's effect wears off over time.

But the company sticks to it. Soon enough, it gets to put out a release saying things are cool.

Investors are thrilled. The longtime (and recently suffering) longs watch as the stock rises 70% over two days to close at 8 on Monday. Tuesday the revival continues as Sunrise shares rally about 12%.

And now back to our regularly scheduled reality. Other investors are gleeful as well: the shorts. They see a rare "selling opportunity"; while some people buy on the dips, these investors, who bet on a stock's decline, sell on the bursts. An analyst emails a select couple of her clients (and a reporter) Monday with one line: "See -- always another opportunity to short this stock."

Why such divergent opinions?

Depends on how you read the press release. Sunrise said on Friday that it has had "very productive meetings" with the FDA's ophthalmic division and that it "expects" its application will come up for panel review in next year's first quarter. That sounds pretty darn good. Certainly, it's ahead of bearish expectations that it would take the company 18 months to get back.

Dotting the Eyes

But the FDA hasn't filled out the agenda for any ophthalmic panel meeting in the first quarter. The FDA also doesn't comment on who will get to a panel and when. So, Sunrise simply has its own expectations. Sure, companies often say when they expect a panel, but the shorts view Sunrise as having an


-like credibility gap. After all, the data presented to the panel in the first place were substantially different from what investors had seen up to that point. Sunrise officials didn't return four calls seeking comment.

What's more, having to go to the panel at all doesn't necessarily make for such a bright situation for Sunrise. The company, according to several short-sellers who talked to the company and heard its conference calls, thinks the panel was


it and its technology, instead favoring a competitive laser technique called


, which is on the market.

"The company had previously hoped to bypass the overwhelmingly negative advisory panel by appealing directly to the


Center for Devices and Radiological Health

," wrote Steve Sabba, an analyst for

Sturza's Medical Research

, a biotech boutique that has a sell rating and has been shorting the stock through its hedge fund arm. "Apparently, this plan was unsuccessful." (Sunrise is suing Sturza for


In July, the panel asked for much more data. It wanted to see the results on 300 eyes treated with the Sunrise laser over two years. The panel asked for measurements taken after a patient's own focusing muscles have been paralyzed, so that the patient isn't adjusting his own vision. It wanted sex breakdowns and updated data on double vision and light sensitivity.

Thanks simply to the short period between the panel meeting and the first quarter, Sunrise is unlikely to have that amount of new data. In its release, it says it has a "substantial" increase in the number of patients followed through for two years. It plans to present statistics addressing concerns about the gradual loss of effect. But the statement mentioned no specifics.

Moreover, the company, valued at roughly $370 million in the stock market, has less than $20 million in the bank, or less than 50 cents a share, and only one -- as yet unapproved -- product. Let's not forget that it's a product that has already received a big black eye. Well, why not forget it if the stock goes up?

So, all in all, a good couple days for investors of every stripe.