What happened was very interesting. Investors were beginning to see that laser eye surgery was hitting its growth stride and that VISX was a leader in its field. They started to extrapolate forward very large earnings based on the acceleration in VISX' earnings curve.
Then, boom, as I indicated in the subject heading, the ITC ruled that Nidek, a competing laser company in Japan, did not infringe upon VISX patents and therefore declined to block shipment of Nidek lasers to the US. This knocked the stock down from near 100 to 60.
Then, VISX announced slowing of Q to Q earnings growth. This knocked VISX from 60 to 30 or so.
Then, VISX cut its royalties dramatically. This knocked VISX from 30 to under 20.
These events may turn out be have been overstated. First, the ITC proceeding is not the only court challenge VISX has pending against its competitors, including Nidek, and the recent US Patent Office decision to reissue VISX' key patent may dramatically alter the litigation landscape.
Second, in my view, the slowdown in growth was a temporary phenomenon skewed by the fact that there was enormous initial pent-up demand for laser eye surgery which made initial numbers too high. When the next wave hit, it seemd that growth was slowing but talk to your friend who have had the surgery and you can almost tell anecdotally that it has not. Moreover, as increasing numbers of laser machines ship, the pace of procedures should grow exponentially.
Third, the royalty rate. Inevitably, new products' prices will decline and be offset by increased sales. This is no surprise.
There are concerns, however, about whether VISX still is the leader in technology and about Nidek and some others not charging a per-procedure royalty. These are legitimate concerns that must be evaluated. However, if VISX' patents end up being upheld, they may win regardless of these issues. Finally, I think the laser eye market is just commencing the the first inning of its growth stride so I figure that VISX is likely to do OK no matter what just based on procedure-acceleration alone (they have 60-70% of the market).
Best,
Prophet |
