Eye surgery takes a hit in the slowing economy

Weekly Corporate Growth Report, Jan 29, 2001 by Rock, Justin

The laser eye-surgery market has seen amazing, but steady growth in the industry for the last five years. But the slowing economy has changed all of that.

Laser eye-surgery generally costs between $1,000 to $2,500 an eye and is not covered by insurance. The surgery is concidered an "elective" procedure, so postponing it is something that is not only possible, but in some cases necessary.

Bausch & Lomb Inc. announced recently that its fourth-quarter earnings would fall short of forecasts, due mainly to lower-than-expected demand for laser eye-surgery equipment. The company will be cutting 350 more jobs, bringing the total number of cuts since October of 2000, to 800 out of about 13,000.

Visx Inc., the top laser eye-- surgery equipment maker in the United States, warned Wall Street that it expects a sub-par fourth-quarter due to the lagging economy.

The industry feels that the market for laser eye-surgery will rebound as soon as the economy begins to improve. Some eye-surgery equipment makers believe they will end the year up by 50 percent or more.

Even with these predictions, it is apparent that the rapid growth stage for this market is over. The number of procedures performed doubled each year since its introduction in 1995, until 1999, when 950,000 were performed. But in 2000, the rate of increase slowed to 53 percent, as the number of procedures reached 1.4 million. Virtually all of the growth for the year occured in the first half. The second half was practically flat. The third quarter up only 1 percent from the second and then just 2 percent for the fourth.

The slow down is particularly painfull to the industry due to the recent crowding. When the technology was introduced, there were only two companies in the industry, Visx and Summit Technology Inc. Now there are five eye-surgery equipment makers jostling for a share of the market. The other companies are Autonomous Technologies Crop, LaserSight Inc. and Japan's Nidek Co.

At the same time, nearly a dozen operators of surgery-center chains are competing fiercely to offer the lowest prices. The Lasik Vision Corp., the Vancouver company that shocked the United States' market in 1999 with unbelievably low prices, announced that it is having to restructure due to widening losses.

The CEO of Laser Vision Centers Inc., John Klobnak, believes that an industry shakeout is due. "We think there is only room for two or three corporate competitors, and the consolidation is going to happen within the next 12 months," says Paul Doneshrad, the CEO of Aris Vision Inc., a closely held Los Angeles chain of surgery centers. Aris itself has already agreed to purchase Icon Laser Eye Centers of Toronto for an undisclosed amount.

In February of 2000, Visx cut its per-eye royalty rate nearly in half, almost immediately triggering a price war amoung doctors. Dave Edmiston, a Sacramento ophthamologist, says he was shocked when a new Lasik Vision center offered an introductory promotion of both eyes for $999. Dr. Edmiston used to charge $2,000 per eye, but now has to charge half of his normal rate to compete with Lasik's permanent price of $999 per eye.

The large discounts came at a price of poorly trained doctors and less follow-up care. Many patients suffered poor results, sometimes permanent damage, uncorrectable by even contacts or glasses. This led to a pile of malpractice lawsuits.

The U.S. Food and Drug Administration posted a warning online on December 1, 2000 about eye-surgery deals that "sound too good to be true." Highlighted was the list of rare but serious risks of the procedure.

The state that the laser eye-surgery industry is in sets it up for a major shakedown. Analysts predict that after the sakedown, the companies left standing will see strong demand. Kenneth Goldman from Lehman Brothers feels that "in five years, there's no reason to think that someone 30 years old is going to be wearing a pair of glasses with Coke-bottle lenses."

By Justin Rock

Editor-in-Chief