Laser Eye Surgery and VISX - Part IV The Future/Competition
My review is primarily focused on the market in the United States. In reviewing the hold VISX has on its market, the barriers to entry and the customer switching cost, I will again be focused on the US. Naturally, the US is a key market, but it is not the only important market for laser eye surgery (VISX states that its systems are installed in more than 50 countries). Western Europe, Japan and other locations are also important. I believe that VISX has submitted applications for myopia and astigmatism in Japan, and approval could be granted within six months. It would require a country-by-country review of the FDA equivalents to accurately assess the worldwide market. Perhaps others with specific country information may wish to supplement this review.
Laser eye surgery is a pretty incredible phenomenon. A quick, relatively painless procedure, that can reduce or eliminate dependence on corrective lenses with perhaps 65% of patients achieving 20/20 vision and upwards of 95% achieving 20/40 obviously will have a large market of patients from which to draw. The procedure is expensive, generally $2500 per eye but certainly there are many people willing to pay the price.
An article in July stated that VISX has more than a 70% share of the market. It also noted that the number of laser procedures increased from 70,000 in 1996 to 420,000 in 1998. For 1999 VISX estimates that there could be up to 900,000 procedures. Most people who have had the procedure would seem to be happy with the results and this likely has a snowball effect - people telling other people about their positive experiences creates demand.
A recent report revealed that VISX shipped 61 new laser machines in the quarter ending in June, 1999 compared with 22 for its closest competitor, Summit Technology
On July 15, 1999 BancBoston Robertson Stephens reiterated a buy recommendation, stating in part "...we believe that there is no comparable growth investment opportunity in the medical device universe today."
Two key elements would appear to protect VISX from competition: The FDA and their large installed base.
FDA approval is necessary and difficult to obtain. Moreover, it is generally granted in steps - first a company will receive approval to treat mild or perhaps moderate myopia. Later they might get approval to treat more severe myopia, later still approval for some forms of astigmatism. Yet another approval might be necessary to treat hyperopia. VISX already has these approvals. If you were a doctor and had to choose between two machines, one that was approved for a wide variety of procedures and one that was approved for only limited procedures, which would you choose?
Excimer laser system are obviously great machines, but physician skill and experience is still an important factor. It takes time to learn the equipment, and experience to perfect the technique. I would imagine that a doctor proficient on one machine would not be too eager to switch to another unless there was a compelling reason to do so. Also, keep in mind that these are expensive machines, representing six figure investments for each one. These factors make switching less likely.
Some might feel that the $250 fee VISX charges per procedure would put them at a competitive disadvantage, and it probably does. On the other hand, perhaps that $250 isn't much of a obstacle: an August 18 Bloomberg article stated "Currently doctors who perform laser vision correction make about $1,000 for each 15-minute eye procedure."
One key to the future is to assess if better technology is on the horizon. That's not to say that the best technology always wins, but that's where the threats come from.
VISX, in their 10K filed 3/99 states:
"New developments could harm our business in the future. We may face increased
competition from manufacturers of other laser vision correction systems (several
have now received FDA approval) or new competition from non-laser methods for
correcting a person's vision. Further, patients' and doctors' enthusiasm for
laser vision correction may decline in the future. In addition, we may not be
able to enforce our current patent rights or collect license fees due to adverse
determinations in current and future patent and antitrust litigation."
Of course, just about every company puts cautionary statements in their 10K. What are the real threats? It would likely take a laser vision research scientist to answer this question, but lets take a look at the LASIK procedure and the alternative system offered by Autonomous Technologies.
The LASIK Procedure.
The VISX Star S2 as well as the lasers made by Summit are broadbeam-type lasers, which use a beam 6mm in diameter to correct a 6mm area of the cornea. Not all of this 6mm will be corrected to full power. Mild corrections may get a central zone of 3-4mm that is fully-corrected, with the rest blending upward to the uncorrected rest of the cornea, while stronger corrections may have a central zone of only 1-2mm, with the rest being blending. The reason for this is that more tissue must be removed for stronger corrections, so they will be deeper and will need a larger blending area to minimize edge transition effects that might occur were light to hit a sudden "step" where the corrected zone met the uncorrected zone. A potential problem with the 6mm beam is that patients who have large pupils in dim light may experience glare, arcs, starbursts, and halos at night. These problems with night vision are the most well know adverse effect of LASIK surgery. Many patients experience these problems, but some are bothered by them more than others. For many, the problems subside with time (generally diminishing after 6 months). While many believe that a 6mm broadbeam laser is the best tool for the job, some say a narrow beam (that can be programmed to treat an larger than 6mm) is better. We'll get back to this later.
The LASIK procedure requires precise shaping of the cornea which, in turn, depends on accurate placement of the laser beam. The VISX laser and similar systems require patients to minimize eye movement during surgery by fixating their eye on a small light source. The problem here is that people experience something called involuntary eye movement (also known as saccadic eye movements). These rapid, involuntary eye shifts may occur five times per second. Such involuntary eye movement could cause the laser to miss its mark slightly thereby yielding less than perfect results.
One company using a different approach is Autonomous Technologies. As mentioned previously Autonomous is no longer autonomous, they have been acquired by Summit.
On November 3, 1998 Autonomous announced that the FDA had approved the Company's LADARVision© System, for the correction of mild to moderate nearsightedness (-1.00 to -10.00 diopters) with or without astigmatism (up to -4.00 diopters).
LADAR stands for Laser Radar and Autonomous sites the Star Wars laser initiative as the source of the technology. The LADARVision System became the first U.S. approved system to incorporate a small spot shaping laser and an eye tracking system into its arsenal.
The following paragraph is from their press release:
The LADARVision System uses a small diameter (<1 mm) excimer laser beam that is delivered to the cornea in a calculated pattern of non-sequential pulses. According to George Pettit, M.D.,
Ph.D., Vice President for Research at Autonomous, "The LADARVision System sculpts the cornea by delivering hundreds to thousands of excimer laser pulses to the eye in a complex pattern of spatially overlapping spots." Dr. Pettit added, "The accuracy of the small spot treatment is brought about by the unique eye-tracking features of the LADARVision System. The tracker guided system uses technology originally developed by Autonomous for the Strategic Defense Initiative, or ?Star Wars,' and is able to catch, track, and compensate for rapid eye movements. Using proprietary laser radar, or LADAR technology, the tracker repositions mirrors in the laser beam path and ensures precise delivery of the treatment laser beam."
One of the problems with LASIK surgery is that some myopic patients get overcorrected. In some cases this necessitates the use of reading glasses. In one study a small group of patients who underwent LASIK with a small beam eye tracking system seemed to have a slightly higher percent of patients achieving 20/20 vision and a slightly lower rate of over correction.
The March/April 1999 issue of the Journal of Refractive Surgery reported a trial in which the Autonomous Technologies LADARVision excimer laser system was used to treat one hundred and two eyes of 102 patients for mild myopia (-1.50 to -6.25 D). One year follow-up results (available for 93 eyes) showed uncorrected visual acuity was 20/40 or better in 99% (n=90), and 20/20 or better in 70% (n=64) of eyes at 12 months. The refractive result was within ñ0.50 D of the desired correction in 75% (n=70), and within ñ1.00 D in 93% (n=86)
Chiron Vision also makes a laser with an "Active Eyetracker" its their Technolas 217 C-LASIK machine. It is not yet approved in the US. One of the world's foremost experts in LASIK is Canada's Dr. Jeffery Machat, author of the book "Excimer Laser Refractive Surgery: Practice and Principles". He uses the Chiron 217.
Do these new lasers have the power to encroach on the market dominance of VISX? At this point is seems unlikely, but they represent a threat worth watching.
One final thought. Last week the stock of LCA-Vision Inc. and Laser Vision Centers Inc. two operators of clinics where laser eye surgery is performed, fell as price cuts in the Baltimore area sparked concern that competition could drive down prices. It was reported that a single doctor had reduced his price to $2995 for two eyes ($1500 per eye). The share price of VISX also fell on this report (down 6 7/16 to 89 1/8) but even if price wars break out it would seem unlikely to be a negative on the equipment manufacturers. Conversely, lower prices might spur demand and result in increased equipment sales.
In conclusion, it would appear that VISX has a dominant share of its market, is experiencing tornado-like growth, has very high profit margins and significant barriers that protect its market share. A King? A Gorilla? Opinions welcomed.
Note: Investors who wish to learn more about competitors in this field could look to this SI thread:
Subject 26645
It, in turn, will lead you to nine other company specific threads (including one for VISX).
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