From the Bloomberg 100:
bloomberg.com
Vision Correction
When Time runs a cover story on a medical procedure, as it did in the October
11 issue, something must be up. Well, laser vision correction (LVC) is sweeping
the country, and few companies are profiting more from it than Visx (VISX). The
Santa Clara, California, company is the leading manufacturer of the cool-light
laser systems used to correct common vision problems like nearsightedness,
farsightedness, and astigmatism.
LVC has become the nation's most common surgical procedure overnight. The
FDA okayed the technology only three and a half years ago. Now some 2,000
people a day undergo the minor procedure, in which a computer-controlled
laser cuts out tiny portions of the cornea to reshape the eye. The procedure,
which takes only a few minutes, typically costs between $2,000 and $3,000 per
eye. In most cases, this is elective surgery not covered by insurance, but plenty
of people have been willing to pay to see better, and, not surprisingly, the
procedure is popular with doctors; about 7,000 physicians have trained to
perform it.
The margins in this business are to die for: Visx enjoys a gross profit margin
(sales less cost of goods sold) of over 70 percent, according to Robertson
Stephens research. The company generates revenues by selling the laser
systems (at around $350,000 per) and collecting license fees of about $260 for
each LVC procedure. In 1999, almost a million such procedures were
performed, nine times the 1996 total, yet less than 1 percent of the potential
market.
The company was No. 60 on the Bloomberg 100 last year, after its revenues
doubled from 1997 to 1998. Revenues doubled again in 1999, and the stock
climbed again, to over $103 after a May two-for-one split. But even at its
November 1 close, $60.88, if you had gotten in two years ago, your vision of
dollar signs would be crystal clear.
The Competition: Visx dominates the field. In the second quarter of 1999,
Robertson Stephens estimates, 78 percent of U.S. LVC procedures were done
on Visx lasers. Founded in 1986, the company jealously guards its business
and market share with more than 140 patents (and another 70 pending) for LVC
technology. But competition is emerging. A few foreign and domestic
companies are mounting challenges to Visx's patents. Massachusetts-based
Summit Technology (BEAM), although somewhat smaller, is the No. 2 laser
maker and is growing. A new Florida company called LaserSight (LASE) is on
the radar screen, and in the wings is Bausch & Lomb (BOL), which is awaiting
final FDA clearance of its own laser system.
VISX projection: The big consensus estimate compilers, Multex, Zacks, and
I/B/E/S, envision a five-year annual growth rate of 28 to 35 percent.
Sector projection: According to I/B/E/S, Visx's competition can expect to see 30
to 40 percent sales growth in the next five years, as can the two main operators
of LVC storefront surgery centers, TLC Laser Centers and Laser Vision Centers.
-- Additional reporting by Michelle Abrams and Allison Kopicki. John Witty is a
banking consultant and former investment banker. |
