from brw Biotechnology: Troubled vision By Beth Quinlivan
The relisting in the next few days of the Perth laser technology company Q-Vis will be a low-key affair. Q-Vis was suspended last December when, after several attempts to raise funds had failed, directors were forced to call in receivers. After a change of management, a capital restructure and small equity raising, and a new joint venture with former employees, Q-Vis shares are quietly trading again. It was a different story in June 2000 when Q-Vis joined the ASX for the first time: then there were celebrations all round. It was the height of the technology boom and the company was a local success story. Q-Vis was a commercial spin-off from one of Perth's most treasured medical research facilities - the Lions Eye Institute. The company's plan was to develop and commercialise products and technology used in human eye surgery, particularly computerised laser treatments for various vision problems, including short-sightedness.
The Packer family held a 20% stake when Q-Vis listed, and board members included the former managing director of Cochlear, Catherine Livingstone, and the chairman of Computershare and ERG, Sandy Murdoch. So Q-Vis was all but guaranteed a spectacular run. Shares issued at $1 increased to $2.40 on the first day, and kept rising. By February 2001, they hit $9.97.
If only shareholders had some inkling of the bitter dispute in the background, they might have kept their money in their pockets, or at least have been better prepared for what came next.
Even before the February, 2001 share price peak, Q-Vis's chief scientific officer, Dr Paul van Saarloos - the man who had developed the company's core technology and who led the company's early commercialisation efforts - had left as the result of an increasingly poisonous relationship with the deputy chairman and biggest shareholder, Professor Ian Constable.
Van Saarloos was followed by several other key technical people, as well as the Britain-based sales and marketing director, Simon Gordon.
Although early clinical trials of the vision-treatment device had gone well, throughout 2000 and 2001 there was acrimonious debate between the original scientists and the company about the scope of new trials. Van Saarloos and Gordon began legal action against Q-Vis. Livingstone resigned from the board in December 2001. Investors, including the Packers, started to bale out. The share price settled into a steady decline, dramatically exacerbated by poor results from United States clinical trials, which had commenced in late 2001. Shareholders baulked when asked to contribute further funds in a rights issue in early 2002, and by December, the cash position had deteriorated so much that receivers were called in.
It was an unfortunate end for a once-promising technology company. Sharehold-ers, including the Lions Eye Institute and many West Australians who had been keen to support an exciting new home-grown technology, were left with nothing.
For investors and management experts trawling through Australia's technology sector, trying to understand why some companies with great technology are successful and others fall at the first hurdle, the Q-Vis story offers interesting lessons. And for anyone who knew the background, the outcome was entirely predictable.
Within the Perth financial community, there were many people who knew the real Q-Vis story. As one of them says: "We could see what was going to happen. The two people who made up 90% of the company - Paul and Simon - had been sidelined; they only had a small commercial interest, they were very unhappy and were almost certainly going to leave."
Van Saarloos is a leader in the field of laser research. He invented and developed laser technology that allows the now-routine surgery for short-sightedness and astigmatism. He has co-written 30 scientific papers, presented at dozens of conferences, and ran the lasers and bio-engineering group at the Lions Eye Institute for more than a decade.
At Q-Vis, he ended up on the outer. Deputy chairman Ian Constable, a prominent and talented eye surgeon but with limited commercial experience and no detailed knowledge of the laser technology, had much greater influence on the board and management. As the relationship between the two men deteriorated, it was van Saarloos who ended up on the outer.
Constable declined to talk to BRW about Q-Vis.
The Lions Eye Institute has been an extraordinary medical success story and in Perth it is a subject of great pride. It is a private research and treatment institution, founded in 1983 as an initiative of the West Australian Lions clubs. For more than 30 years, one of the main fundraising targets for the Lions clubs around the state has been eye disease and other vision problems. In 1975, the clubs funded a chair in ophthalmology at the University of Western Aus-tralia, and the job was filled by Constable, a Sydney eye surgeon. He was appointed as founding director of the Eye Institute, and is deputy chairman. His wife, Dr Liz Constable, is the independent member for the state seat of Churchlands.
Van Saarloos joined the institute in 1986, just as the idea of using laser surgery to correct vision problems was gathering momentum among scientists and doctors around the world. The Lions Eye Institute was keen to get into the field and employed van Saarloos to run the laser research group.
He eventually built a laser treatment system, and the institute treated its first human eye -
an Australian first - in 1991. But van Saarloos says that even before the first system had been used on humans, it was recognised as a world-class product with considerable money-making potential. The institute decided to commercialise it, and in 1987, the Excimer Laser Company was established as the commercialisation vehicle.
Through the 1990s, Excimer sold more than a dozen of the systems for about $US500,000 each. In 1998 the company's name was changed to Telco Medical Technologies, reflecting the changing technology in laser systems, and was changed again to Q-Vis not long before the company was floated.
During this time, van Saarloos and others were working to develop a new generation of the devices. These were "solid state" lasers, which they believed would provide a more reliable system for surgeons, avoiding the need for toxic gases and requiring less maintenance and fewer consumable components.
Work on the solid-state lasers began in earnest in 1995, applications for patents were filed in 1997 and the first human eye was treated with the device - called Eye:Q - in 1998.
In 1999, $3.6 million was raised in private equity to support further development and marketing of the system, and soon after, the Packer family contributed $8.5 million. The public float was planned, which eventually raised a further $10 million.
But while the research and development and fundraising had gone well throughout the 1990s, relations between van Saarloos and Constable had soured.
According to van Saarloos, a big point of contention arose in 1994, when Constable acquired just under 50% of Excimer in a deal that was not open to other employees or researchers.
"It was just at the time that the company was starting to sell a number of the lasers. The business looked like it would be a commercial success," van Saarloos says. "No one else had the opportunity to acquire shares at that time, there was no real consideration of what price he should pay. It was his sole decision."
As a result of that transaction, Constable's company, Hyphema, emerged from the public issue in July 2000 with 10.2 million shares, or 23% of the issued capital of Q-Vis. At the height of the market frenzy, when Q-Vis shares were trading close to $10, it was worth $100 million. The second-largest shareholder at that time was Kerry Packer's Lenvoka, with 20%. The Lions Eye Institute held 17%.
The second issue that grated for van Saarloos was commercial experience. "As well as developing the lasers, I was running the company for all that period. It was clear to me that Ian Constable didn't have the commercial skills, plus he was very busy. He was still doing a lot of surgery as well as his other responsibilities, so there was more conflict."
Van Saarloos says the relationship worsened through the latter part of the 1990s, and there were several battles related to the level of royalties payable to him as the inventor of the devices. Some of these are yet to be settled, he says.
"I had been running the company all the time, but in the lead-up to the float my contract was renegotiated," he says. "A top-quality board had been recruited, they gained a glimpse of the conflict, but they supported Ian Constable. He has done a lot of good over the years and he has a very high profile. The result was that they demanded that I step down as CEO just before the float.
"They replaced me with someone who wasn't experienced in the industry. The dynamics of this business are different to many others: you're selling expensive pieces of equipment to doctors and there is a high level of trust involved. They didn't seem to understand that.
"I stayed for four months after the float, but I wasn't allowed to be involved in product development. I argued with the board that the new [clinical] trials that were being planned were too early, I said the products weren't ready. But I also said that if they were going to go ahead with them, to let me be involved. In the end, I wasn't allowed to finish it."
The clinical trials that so drastically altered Q-Vis's fortunes began in late 2001. In February 2002, the company reported that the results had not been good. This had a deadly effect, because a rights issue was then under way - instead of the $8.1 million directors were hoping to raise, only $109,652 was put forward.
One of the sorriest parts of the whole saga was a $2 million injection into Q-Vis by the Lions Eye Institute in August 2002, just months before receivers were appointed. It is not known what the people who contributed their time and effort raising money for the institute thought about $2 million being placed into a company in serious trouble, a company in which the institute's deputy chairman is also the largest shareholder. The institute's 2002 annual report dismisses the $2 million loss in a single line.
Since Q-Vis, van Saarloos has moved on. In July this year, a company he founded after he left Q-Vis floated on the Alternative Investment Market in Britain. The company, CustomVis, raised £11.5 million in the issue, giving it a market capitalisation of £31.6 million. Van Saarloos holds 40% and has been joined by several former Q-Vis employees, including Gordon. Under the deal to relist Q-Vis, a joint-venture arrangement is in place with van Saarloos and Gordon, such that Q-Vis shareholders have 49% equity and the two former employees have 51%. It is an arrangement that should enable intellectual property and other assets held by the company to be assessed and developed by those with the technical expertise.
Van Saarloos says: "Part of the whole motivation in starting CustomVis is to prove to the board members who threw me out that they backed the wrong horse. The whole experience was a huge disappointment. We had a West Australian company that I believe could have been a great success, but for reasons that were silly, was destroyed.
"It had everything in place to be a success and I'd like to think that if I'd had the chance, I could have developed it into a successful commercial operation.
"The Lions Eye Institute should have earned millions of dollars in the years ahead, but it's now all gone."
